The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), signed by President Obama in 2010 in response to the financial crisis, includes a provision intended to remedy racial and gender discrepancies at federal financial regulatory agencies and private financial institutions. Section 342 of Dodd-Frank directs each of the federal financial regulatory agencies to create an Office of Minority and Women Inclusion (OMWI) to oversee diversity efforts at the agencies, and further, to develop standards for assessing diversity policies and practices at regulated financial entities. In October 2013, six federal agencies proposed joint diversity standards for public comment. Final standards could be issued in the near future.
Two reports recently issued by the Offices of Inspector General at the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) may provide some insight on the impending final standards. (FDIC Report; OCC Report). The House Financial Services Committee requested the reviews of the FDIC and OCC in response to a 2013 Government Accountability Office report on diversity, which concluded that very little had changed from 2007 to 2013 at federal financial agencies, despite the diversity provisions of Dodd-Frank. Committee members questioned whether agency practices were systemically disadvantageous to women and minorities.
The reviews focused in part on agency demographics, personnel practices, and efforts to increase diversity. The Inspectors also assessed the impact of the newly-established OMWIs on agency policies and diversity efforts. In both reviews, the Inspectors compared the resulting data to that of the national civilian labor force. Despite the fact that the FDIC and OCC had taken measures to promote diversity as directed by Dodd-Frank, both reports concluded that more could be done.
In particular, the FDIC report highlighted a lack of Hispanics and women throughout the agency and in senior executive positions. Noting that female and minority representation at the FDIC remained relatively static since 2008, the Inspector discussed ongoing challenges to the agency’s efforts to increase diversity in the overall workforce. Many of these challenges are socioeconomic and thus beyond the agency’s control, such as low turnover of existing managers and executives, competition from the private sector for diverse candidates, and limited representation of minorities and women in certain parts of the country or in certain occupations. After identifying several areas for improvement, the Inspector offered specific recommendations relating to recruiting and workforce engagement, reliability of diversity data, and diversity policies.
The OCC fared somewhat better under review. The report noted that the OCC’s diversity initiatives—which included enhanced diversity tracking, outreach, and employee networking—resulted in the agency achieving overall workforce numbers that closely aligned with the national civilian labor force. However, the report also pointed out that these numbers did not translate across the entire organization, with representation of minorities and women at supervisory and senior-level positions falling well below that of the agency’s workforce as a whole.
These reports may offer insights into how the agencies will approach diversity issues for regulated entities under the final diversity standards for regulated entities. While these standards were expected before year-end 2014, their issuance has been delayed. Financial institutions and publicly traded companies subject to the standards can expect increased regulatory scrutiny of their diversity policies and procedures once the final standards are issued. Ballard Spahr’s Diversity Practice already is assisting financial institution clients with compliance measures.