Superintendent of Financial Services Linda A. Lacewell today announced new action by the New York State Department of Financial Services (DFS) to promote diversity, equity and inclusion in the banking and non-depository financial industries.

“Time and time again, research reveals that corporate governance benefits from diverse leadership teams. Diversity in board membership and senior management leads to companies that are more innovative and more profitable, and that connect with a broader customer base,” said Superintendent Lacewell. “Particularly in the wake of a changing society affected by the COVID-19 pandemic, racial injustice, and climate change, it is now more than ever paramount that the banking and financial industries have strong boards and executive teams comprised of people with diverse experiences, skills and perspectives in order to better confront evolving risks and find new opportunities. Let’s make good on our words and move to action.”    

In the industry letter to New York-regulated banking institutions and New York-regulated non-depository financial institutions, DFS outlined its expectation that these organizations make the diversity of their boards and senior leadership a business priority and a key part of their corporate governance, including creating and maintaining a diverse pipeline of future leaders.

This action follows DFS’s circular letter to New York insurers to promote diversity, equity, and inclusion in the insurance industry. In that letter, DFS outlined its expectation that insurers make the diversity of their boards and senior management a business priority and key element of their corporate governance.

Despite the admirable efforts undertaken and commitments made by the industry so far, there is still a long way to go to increase diversity. Statistics show that minority employees are underrepresented in the finance/insurance industry in general and are overrepresented in lower employment levels when compared to their white peers. Females make up less than one-third of executive and senior level workforce, and the numbers of minorities on boards are consistently lower than their representative share of the population.

The U.S. House Committee on Financial Services conducted an analysis of bank diversity data in 2019 and found that among banks reporting demographic information, females made up less than one-third of their executive and senior level workforce. The report also found that bank boards were 11% Black, 5% Latino and 3% Asian; in contrast these groups comprise 13%, 18.5% and 6% of the U.S. population.

The industry letter, which is aimed at helping the industry improve on its current diversity efforts, is the culmination of extensive research and informal conversations with the banking and the non-depository financial services industries, including seeking and receiving thoughtful input from the major industry trade associations during 2021.

Diversity as a Strategic Policy

DFS has regularly emphasized the value of diverse perspectives and the importance of treating diversity like other strategic priorities for their businesses.  A company’s goal should be to have a board and senior management team that has a broad diversity of skills, experience and perspectives, including based on a person’s gender, race or ethnicity.  Banks and non-depository institutions should foster a pipeline of future diverse leaders, as well as focusing on the diversity of their third-party vendors. 

Collection of Diversity Data

Based on its research and outreach to the banking and financial services industry and trade groups, DFS has determined that the best way to support the industry’s diversity efforts is by collecting and publishing data relating to the diversity of corporate boards and management. Given the limited availability of banking and non-depository financial institution-specific diversity data, making that information public will allow companies to assess where they stand compared to their peers and raise the bar for the entire industry.

As a first step, DFS will collect data from all New York-regulated Banking Institutions with more than $100 million in assets, and all Regulated Non-Depository Financial Institutions with more than $100 million in gross revenue, and from all entities authorized to engage in virtual currency business activity, including virtual currency licensees (“BitLicensees”) and virtual currency trust companies, related to the gender, racial and ethnic composition of their boards or equivalent body and senior management as of December 31, 2019 and 2020, including information about board tenure and key board and senior management roles.  The data will be collected in the fall of 2021 and published on an aggregate basis in the first quarter of 2022.

DFS strongly encourages financial institutions to disclose publicly the diversity composition of their boards and management as part of their diversity commitment to their stakeholders. 

DFS applauds the commitment of many banking and non-depository financial institution CEOs and industry trade groups to increase the representation of people of color, women and other underrepresented groups on boards and management teams.  However, recognizing that organizations are not all starting from the same place in terms of the diversity of their leadership and workforce, DFS has asked regulated banks and non-depository financial instructions to assess where they stand, where they want to go and how they will get there, taking into consideration their size and other relevant factors, with a focus on improvement over time.  In response to feedback from industry participants, DFS will organize a webinar focused on diversity, equity and inclusion best practices and addressing specific issues that the industry has encountered in its diversity efforts.

Read a full copy of the industry letter on the DFS website.

###