Diversity Police


New inclusion and anti-discrimination regulations kick in

By Mary Thorson Wright

Community banks have a long history of managing anti-discrimination compliance. The laws and regulations regarding this issue have become “known entities,” even if they remain challenging in the face of changes inside and outside of an organization.

Although numerous regulatory rules of the Dodd-Frank Wall Street Reform and Consumer Protection Act have been implemented over the past five years, community banks should actively review and address the anti-discrimination standards under Section 342 of the law. Section 342 mandated all federal agencies covered by the act to create of an Office of Minority and Women Inclusion responsible for matters relating to diversity in management, employment and business activities.

Further, each agency office is directed to develop standards for assessing the diversity policies and practices of the entities each regulates—in this case, financial institutions such as community banks.

Under Section 342, a bank’s anti-discrimination practices in hiring, employment and management come under the regulatory microscope. The Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, the National Credit Union Administration and the Securities and Exchange Commission have adopted standards for assessing the diversity policies and practices of the institutions they regulate. The final standards have been in effect since June 2015.

The final standards for diversity policies and practices require financial institutions to address four areas:

  1. organizational commitment to diversity and inclusion;
  2. workforce profile and employment practices;
  3. procurement and business practices and supplier diversity; and
  4. practices to promote transparency of organizational diversity and inclusion.

To achieve “both the spirit and plain letter of Section 342,” according to the Dodd-Frank Act, community banks should commence the following practices:

Formally document their commitment to diversity and inclusion. Ensure that diversity and inclusion are addressed in management doctrine, such as the strategic plan; senior-level management involvement and oversight; and the company’s culture and core values.

Conduct a self-assessment of existing practices, identify areas of opportunity and create a program to fit. Look at your bank’s size, number of employees, structure, revenue, geographic location, community characteristics and other factors to help establish the context of diversity and inclusion initiatives.

Community banks should review and address anti-discrimination standards under Section 342.

Track diversity and inclusion. Measure and document the bank’s progress to show success or shortfalls. Use both to demonstrate and improve the bank’s efforts.

Be proactive in hiring, employment and management practices that foster diversity and inclusion. Review employment practices with a focus on raising the company’s diversity and inclusion profile. Highlight achievements internally and externally, for example, in discussions of organizational goals and objectives, and announcements of promotions and hiring.

Extend diversity and inclusion disciplines to third-party vendor management. Include standards in third-party vendor management practices and encourage the use of diverse-owned businesses, including minority-owned and women-owned businesses.

The Dodd-Frank Act expanded the parameters of many existing bank regulatory requirements, and with the implementation of Section 342, it expands the federal agencies’ supervisory scope on this issue. It is unclear how the oversight will be administered by each agency, but community banks should begin to address the Section 342 mandates.

Mary Thorson Wright, a former Federal Reserve managing examiner, is a financial writer from Virginia.