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Diversity Rules for Financial Institutions— The Final Standards and the Implications for Businesses

Section 342 of the Dodd-Frank Act mandated the creation of an Office of Minority and Women Inclusion (OMWI) in each agency covered by Dodd Frank, including the Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC) (collectively referred to as “the Agencies”). The Agencies were also tasked with jointly publishing standards for assessing the diversity policies and practices of entities regulated by the Agencies.

On June 10, 2015, the Agencies issued their Final Policy Statement on this issue, which establishes the guidelines (the “Final Standards”) that entities regulated by the Agencies should consult when considering diversity issues and policies. The Final Standards provide guidance on the following five categories: (1) Organizational Commitment to Diversity and Inclusion, (2) Workforce Profile and Employment Practices, (3) Procurement and Business Practices—Supplier Diversity, (4) Practices to Promote Transparency of Organizational Diversity and Inclusion, and (5) Entities Self-Assessment. The Final Standards do not create new legal obligations, nor is adherence to the Final Standards mandatory. Rather, the Final Standards provide guidelines for regulated entities to implement that will help create
and strengthen diversity policies and practices.

The Final Standards clarify that “diversity” refers to “minorities…and women.” Moreover, “minorities”
is defined as “Black Americans, Native Americans, Hispanic Americans, and Asian Americans.” Regulated entities may embrace a broader definition of diversity if they so choose.


Summary of Compliance Standards

Below is a summary of the key sections of the Final Standards, based on the five categories of compliance.


Organizational Commitment to Diversity and Inclusion

The Agencies want the senior leadership of regulated entities to demonstrate dedication and commitment to diversity. This commitment to diversity extends to both employment and contracting. Examples of guidelines provided in the Final Standards include adhering to a diversity and inclusion
policy in hiring practices; providing training and opportunities on equal employment; and employing a senior official with knowledge of and experience in diversity and inclusion policies and practices, who oversees and directs an entity’s diversity policies.


Workforce Profile and Employment Practices

Similarly, the Agencies encourage regulated entities to assess workplace diversity using workforce
profiles and employment practices, such as EEO-1 Reports, Affirmative Action Plan data, and other quantitative and qualitative data. The following are examples of guidelines on this topic from the Final Standards: implementing and enforcing policies relating to workforce diversity; designing policies and enforcing practices that create diverse applicant pools for internal and external opportunities, and utilizing quantitative and qualitative measures to assess workforce diversity.


Procurement and Business Practices—Supplier Diversity

The Final Standards also address the leading practices related to supplier diversity with
respect to procurement of business goods and services. Two examples from the Final Regulations of leading practices are first, providing fair opportunity to minority-owned and women-owned businesses, and second, regularly evaluating supplier diversity.


Practices to Promote Transparency

Transparency of a regulated entity’s diversity and inclusion program is essential to satisfying the goals of Section 342. Accordingly, the Final Standards outline the leading practices in transparency and encourage regulated entities to provide online access to a regulated entity’s diversity and inclusion plan,
policy on diversity, progress towards achieving diversity, and opportunities available that promote diversity.

Entities’ Self-Assessment

The Final Standards make clear that the Agencies’ desire is for regulated entities to use the Final Standards to “undertake a self-assessment, disclose the self-assessment and other relevant information . . ., and share with the public its efforts to comply with the standards.” The Agencies also recommend that self-assessment be annual.


As mentioned above, the Final Standards do not create new legal obligations, and there is no formal enforcement mechanism. Instead, the Agencies intend to use information submitted to them to monitor progress in diversity initiatives in the financial services industry. Therefore, regulated entities are encouraged to voluntarily disclose the results of their self-assessments and comply with the Final Standards when possible.

As a practical matter, the scrutiny from regulatory agencies is likely to increase, as it often does after issuance of new guidelines. Although no new “legal obligations” are intended, regulated companies can expect that they will increasingly be scrutinized for progress in following the guidelines.

Additional comments on the potential burdens affiliated with compliance with the Final Standards may be submitted until August 10, 2015, to the OCC, Board of Governors of the Federal Reserve System, FDIC, NCUA, CFPB, or SEC.