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New Diversity Standards for Financial Services Industry Scrutinized by SEC Official

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Jun 15th 2015
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With diversity and inclusion a key topic of discussion in financial services, the new standards recently issued by the federal Office of Minority and Women Inclusion have drawn sharp criticism from Luis Aguilar, a commissioner of the US Securities and Exchange Commission (SEC).

The standards were issued on June 9 in a policy statement by six federal agencies that regulate professionals in several financial areas:

  • SEC
  • Federal Deposit Insurance Corp.
  • National Credit Union Administration
  • Consumer Financial Protection Bureau
  • Federal Reserve System Board of Governors
  • Comptroller of the Currency

The standards, which are voluntary, become effective when they are published in the Federal Register.

On the same day the standards were release, Aguilar issued a dissenting statement, Failure to Advance Diversity and Inclusion, which also was posted on the Harvard Law School's forum on corporate governance and financial regulation.

The policy statement failed to address several concerns raised in comments about the proposed standards, Aguilar said. Those concerns include:

  • The allowance of voluntary disclosure and self-assessment of the standards.
  • A lack of uniform metrics to assess diversity and inclusion practices.
  • A lack of transparency and accountability fostered by the voluntary nature of the standards.
  • An overly narrow definition of “diversity” that excludes people with disabilities and the lesbian, gay, bisexual, and transgender population.

“In the end, the agencies have chosen to do what is convenient for the companies, rather than doing the right thing for the long-term benefit of our country,” Aguilar stated. “When faced with a choice between doing what is convenient and doing what is right, we must choose to do what is right. As Dr. Martin Luther King Jr. once said, ‘There comes a time when one must take the position that is neither safe nor politic nor popular, but he must do it because conscience tells him it is right.'”

The standards' development was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which was enacted in the wake of the 2007-08 financial crisis and ensuing recession.

Section 342 of the law required the agencies to each establish an Office of Minority and Women Inclusion to oversee diversity issues related to management, employment, and business activities. The law also required each diversity director to develop standards for diversity policies and practices.

According to the policy statement, “diversity” is defined as relating to minorities – Black Americans, Native Americans, Hispanic Americans, and Asian Americans – and women. But companies can use a broader definition.

Further, “inclusion” means “a process to create and maintain a positive work environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization,” according to the policy statement.

The five standards include:

  • Organizational commitment to diversity and inclusion.
  • Workforce profile and employment practices.
  • Procurement and business practices – supplier diversity.
  • Practices to promote transparency of organizational diversity and inclusion.
  • Self-assessment.
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