Last week, six federal financial regulators issued a proposed joint policy statement on standards for assessing the diversity policies of the entities they regulate. The proposal stems from a little-noticed provision of Dodd-Frank, which requires directors of the regulators' newly established Offices of Minority and Women Inclusion to develop standards for "assessing the diversity policies and practices of" regulated entities.These new standards will impose additional costs on regulated entities, but it is not clear that they will further diversity and inclusion efforts.
Banks, broker-dealers, credit unions and other financial institutions are already subject to existing employment and contracting laws. Moreover, financial institutions interested in finding and fostering the best talent have instituted programs to hire, retain, and promote as diverse a workforce as possible. A new regulatory checklist could do more harm than good by forcing changes to diversity programs that are working well and adding to the already overwhelming regulatory burden faced by financial institutions--particularly small ones, which can play an important role in serving minority communities.
The regulators promise not to examine financial institutions for their adherence to the standards, but "encourage" the use of the standards. A regulator's encouragement to do something tends to function as a de facto requirement. In their proposal, the regulators suggest that financial institutions conduct a quantitative and qualitative self-assessment of compliance with the standards, submit that assessment to their regulator, and post on their websites reports of their progress towards complying with those standards. The agencies are to be commended for working together on--and building some flexibility into--the proposed standards. Nevertheless, the proposed standards might not achieve their intended positive results.