The EBA is pushing for a crackdown on banks that ignore gender diversity rules

The European Banking Authority wants supervisors across the EU to crack down on banks and investment firms that break diversity rules after its research showed more than a quarter of firms are still ignoring the requirements introduced in 2014.

The EBA, which writes the rulebook enforced by the European Central Bank and national supervisors, said Tuesday that 27 percent of the nearly 800 European banks and investment firms it inspects still haven’t created the diversity guidelines that were mandated by law nearly a decade ago before.

The EBA’s report also chronicled the painfully slow progress of banks and investment firms in improving the diversity of their top management teams and boards of directors, which are almost 75 per cent male and continue to pay men more than women for their services.

The report comes nearly a decade after the EU created legal requirements requiring banks and other financial services firms to address the predominantly white, male and middle-aged profile of their boardrooms and boards in the wake of the financial crisis.

The rules included a requirement that all companies establish a diversity policy for their boards of directors and that larger companies set goals to improve the diversity of their leadership teams.

Adoption of the guidelines was better for larger institutions, where compliance was 94 percent for a group composed mostly of large banks. However, the EBA criticized this group’s approach to setting binding targets, noting that nearly 40 per cent had set “very low” targets, including some aiming for less than 25 per cent women on boards.

Bar chart of percentage of executive directors who are female as of December 31, 2021 shows gender diversity on boards: top five – and worst – performers

Bernd Rummel, policy expert at the EBA, called the number of companies flouting the rules “simply unacceptable” and said the Paris-based lawmaker will conduct a “specific exercise” to see if regulators are doing this task had grown.

The EBA wants them to use supervisory powers to force banks and investment firms to comply with rules. These options could include higher capital requirements and business restrictions.

The EBA’s claims to enforce the standards would not only make companies fairer, but also safer by fighting groupthink.

Rummel said a discussion in the EBA’s board of European supervisors suggested there was “a great willingness” to resolve the issue.

Banking regulators have already made compliance with diversity rules part of their annual supervisory review. If a bank is found to be repeatedly in breach of its diversity obligations, “then regulatory action becomes tougher,” he said.

The EBA also wants regulators to check whether companies’ pay policies are “gender neutral” – as required by EU law. The EBA review found that female CEOs earned an average of 9.5 percent less than male colleagues, even excluding CEO salaries. Female non-executive directors earned nearly 6 percent less.

EU policies encourage diversity in terms of gender, age, educational background and geography, but policy work has mainly focused on gender.

Overall, the EBA found that women made up 18% of managing directors in banks and investment firms, up from 15% three years earlier when the data also included the UK. “The effect is not huge,” Rummel said, explaining how the number of institutions analyzed only fell from 834 to 791 as both the UK and Norway dropped out.

The proportion of women on supervisory boards increased from 22 percent to 26 percent in 2018-21, while the proportion of female CEOs increased from 8 percent to 11 percent. The EBA is pushing for a crackdown on banks that ignore gender diversity rules

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