Will D&I requirements change this year?

Some lawmakers on Capitol Hill are increasingly interested in diversity and inclusion (D&I) compliance requirements for financial institutions. Here are the key areas of D&I policies and practices that community banks may need if these requirements change or become mandatory.

By Mary Thorson-Wright

How does your bank’s diversity and inclusion (D&I) compliance program compare with the regulatory standards for D&I policies and practices? While reporting D&I performance metrics to your primary federal regulator is currently voluntary, your program might need to change if reporting metrics become mandatory or if D&I performance is required to be reflected in examination ratings.

In 2010, Section 342 of the Dodd-Frank Act established Offices of Minority and Women Inclusion (OMWI) sections at many federal agencies, including bank regulatory agencies. It required these agencies to establish standards for assessing the D&I policies and practices of financial institutions they regulate. The joint standards, which became effective June 10, 2015, provide a framework for institutions to conduct assessments of their D&I policies and practices in these key areas:

  • Organizational commitment to diversity and inclusion
  • Workforce profile and employment practices
  • Procurement and business practices and supplier diversity
  • Practices to promote transparency of organizational D&I
  • Entities’ self-assessment processes

The joint standards further allow regulators to use information submitted to measure banks’ D&I progress and trends in the industry.

Regulatory agencies report on OMWI programs to Congress annually, including outreach to the industry and analysis of submitted or collected bank data. The reports have evidenced the D&I efforts of participating banks but have also served to highlight a low level of voluntary bank participation.


The ‘spirit and intent’ of Section 342

Congressional interest has been piqued by the relatively low rate of participation. On March 18, 2021, the House Committee on Financial Services Subcommittee on Diversity and Inclusion conducted a virtual hearing. During the hearing, subcommittee chair Rep. Joyce Beatty (D-Ohio) emphasized that Congress’ intent under Section 342 was for federal bank regulatory agencies to perform oversight of D&I in regulated entities. She added that, on average, more than 80% of regulated entities have not voluntarily shared D&I performance metrics with their primary regulator.

The conclusion was that voluntary disclosure of D&I performance metrics by financial institutions to their primary regulators has failed to meet the spirit and intent of the statute. Rep. Beatty noted that a one-size-fits-all approach to D&I requirements is not appropriate across financial institutions, but changes were needed. She added that without an assessment of a broader segment of the industry for D&I efforts, both the letter and spirit of the law will likely be missed.

“Many community banks have been engaged in D&I activities in past years, even though they may not have used that label.”
—Rhonda Thomas-Whitley, ICBA


Legislative updates

On March 18, 2021, Rep. Beatty introduced the Diversity Data Accountability Act (H.R. 2001) to amend the Dodd-Frank Act to require regulated entities to provide to their primary federal regulators information necessary for the OWMI to carry out their duties.

If enacted, the Diversity Data Accountability Act would amend Section 342 to require regulated entities to disclose their diversity data to enhance transparency and accountability and create a more inclusive economy. At the time of this writing, the bill had been introduced in the House.

Another bill, the Promoting Diversity and Inclusion in Banking Act of 2021 (H.R. 2516), has been introduced to amend Dodd-Frank to require agencies to include a D&I component in the Uniform Financial Institutions Rating System for examinations.

Regulatory agencies’ annual reports to Congress demonstrate that banks have made progress, including changes in support levels, community reporting and outreach, policy development, and education.

“We see an appetite and a willingness among community banks to take actionable steps to address areas needing attention,” says Rhonda Thomas-Whitley, ICBA vice president and regulatory counsel. “Many community banks have been engaged in D&I activities in past years, even though they may not have used that label.

“From a regulatory perspective,” Thomas-Whitley adds, “it’s prudent for community banks to continue to evaluate where they stand under existing requirements, to take steps to address gaps to position themselves for any future requirements.”

Preparing your community bank’s D&I program

Community banks should confirm and document their internal D&I policies and practices. ICBA offers a customizable D&I policy template that includes fields for bank-specific organization standards, workforce profiles and employment practices, supplier diversity, transparency standards and self-assessment reviews. D&I should be made part of daily business practices to the extent possible.

Community banks should take steps now to build or enhance D&I programs. For example, banks can put in place:

  • internal auditing and reporting systems to ensure effectiveness of diversity, equity and inclusion (DEI) policies and practices
  • diversity reporting to board of directors and executive committee members to include workforce representation, hiring, promotion and/or attrition data, as well as survey results on employee engagement by demographics
  • procurement reporting to include a tracking system for diversity spending for goods, services and business enterprise contracts
  • transparency of supplier diversity reporting for accountability

Mary Thorson-Wright is a writer in Washington, D.C.