Banks and other financial institutions in Canada are now required to disclose information on their diversity programs to shareholders, according to new rules released by the federal government on Feb. 15.
Ottawa says federally regulated financial institutions—specifically banks, insurance firms, and trust and loan companies—must disclose to shareholders “the number and percentage of directors and officers from each of the designated groups” as defined in section 3 of the Employment Equity Act.
“Investors lack transparent and standardized information on the representation of women, Indigenous (First Nations, Inuit and Métis) peoples, persons with disabilities and members of visible minorities in senior leadership positions,” the Finance Department wrote in a regulatory impact analysis statement published in the Canada Gazette.
Classified as “distributing financial institutions,” which are typically publicly traded corporations, these entities must also disclose their policies and targets for increasing diversity when sending out notices of annual meetings to shareholders.
The move comes as the United States under the Trump administration is mandating federal institutions and those receiving federal grants to end their diversity, equity, and inclusion (DEI) programs, saying they are “illegal and immoral discrimination” and that the administration aims to “forge a society that is colorblind and merit-based,”
Canada’s Big Six banks have also joined the major U.S. banks to end their participation in the U.N.-backed Net-Zero Banking Alliance as Donald Trump was sworn in as U.S. president in January.
‘Comply or Explain’
Under the new diversity disclosure mandate, federally regulated financial institutions have to “comply or explain” how their corporate policies and targets adhere to the requirements or explain why they do not have such measures in place.
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The Office of the Superintendent of Financial Institutions is responsible for enforcing the regulations, which take effect immediately, on Feb. 15. Non-compliance “may lead to significant sanctions,” the Finance Department said.
The department wrote that the latest requirement does not fall within the scope of Canada’s One-for-One rule, which states that “for every new regulation added that imposes an administrative burden on business, one must be removed.”
“[I]t is statutory and not a ‘regulatory’ requirement,” the Finance Department’s statement said, “The required contents of the diversity report do not meet the definition of ‘administrative burden on business’ in the Red Tape Reduction Act.”
“The requirement to provide a copy of the diversity report to the Superintendent also does not meet the Red Tape Reduction Act definition as it is set out in the statute with no further details in the proposed regulations,” it added.
Disclosure Details
The diversity disclosure mandate requires the relevant institutions to state whether they have a written policy for identifying and nominating directors “from the designated groups.” Institutions that have not adopted such a policy must provide Ottawa with the reasons. Institutions with such a policy in place must submit a summary of their policy objectives and key provisions along with a description of their “annual and cumulative progress” in achieving those objectives. They must also state whether “the effectiveness of the policy” is measured, among other requirements.
In addition, the financial institutions are to disclose whether they have term limits for their directors of the board, or other mechanisms for renewing their terms. They must submit a description of those term limits or mechanisms or provide the reasons for not having adopted these policies.
They are also required to indicate whether they have set a target number or percentage for individuals from each of the designated group to hold positions as board directors or members of senior management by a specific date. Senior management refers to the positions of board chair and vice-chair, president, CEO, CFO, any vice-president in charge of a principal business unit or division or function, and any officer who reports directly to the board, CEO, or COO, as per the notices.
The mandate extends to the institutions’ major subsidiaries—entities whose assets and revenue are consolidated into their parent institutions’ financial statements and which account for 30 percent or more of the consolidated assets or revenues.
Implementation
Implementation of the new regulations is uncertain, as the ruling Liberal Party is set to choose a new leader in March to replace departing Prime Minister Justin Trudeau. Mark Carney, a frontrunner in the leadership race, has suggested he may call an early election should he win the contest. Meanwhile, all opposition parties have pledged to vote non-confidence in the government at the earliest opportunity.
Noé Chartier and Reuters contributed to this report
