Pursuant to a mandate contained in Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or Act), six federal agencies jointly issued new Diversity and Inclusion (D&I) Standards today. These Standards, which go into effect on June 10, 2015, apply to all entities regulated by any one of the federal agencies subject to Dodd-Frank. Thus, the entities affected do not just include financial institutions, but any publicly traded company, mortgage company, and any other entity regulated by one of the six agencies, including all the federal banking agencies and the CFPB. Given that the rules go into effect on June 10, 2015, entities should begin to take steps to incorporate the Standards into their daily business practices.

Dodd-Frank’s Section 342

Section 342 required the creation of the Office of Minority and Women Inclusion (OMWI) in all agencies covered by the Act and further required that each OMWI be responsible for all agency matters relating to diversity in management, employment, and business activities. Section 342 further directs each OMWI to develop standards for assessing the diversity policy and practices of entities regulated by those agencies. On October 25, 2013, the OMWI directors from the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), and the Securities and Exchange Commission (SEC), working together, issued proposed standards for assessing D&I policies and practices. Through February 7, 2014, the agencies received more than 200 comments. The Final Standards address those comments the agencies found to be most significant and in need of clarification.

The Final Standards

The Final Standards generally track the proposed standards, but do provide some clarifying language in response to public comments. For example, the Final Standards adopt Dodd-Frank’s definition of “diversity,” and, thus, use the term to include minorities (African Americans, Native Americans, Hispanic Americans, and Asian Americans) and women. The Final Standards, however, do not preclude an entity from using a broader definition. Separately, the Final Standards define “inclusion” to mean “a process to create and maintain a positive work environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization.”

Recognizing that one size does not fit all, the Final Standards allow each entity to tailor its approach to compliance to fit the entity, taking into account its size, total assets, number of employees, governance structure, revenues, number of members and/or customers, contract volume, geographic location, and community characteristics. The Final Standards note that, when drafted, the agencies focused primarily on institutions with more than 100 employees.

The Final Standards envision that an entity will conduct an annual “self-assessment” of its diversity policies and practices in four areas: (1) organizational commitment to D&I, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational D&I. The Final Standards provide for “assessment factors” for each of these areas, encouraging entities to allocate time and resources to monitor and evaluate their performance under their diversity policies and practices on an ongoing basis.

Agencies’ Use of Assessment Information

The Final Standards note that they do not create new legal obligations and that use of the Final Standards by regulated entities is voluntary. They further instruct that agencies will not use their examination or supervisory processes in connection with the Final Standards. Instead, the Standards envision that agencies will use the information submitted to them to monitor progress and trends in the financial services industry with regard to D&I in employment and contracting activities. The Standards state that agencies will identify and highlight policies and practices that have been successful, coordinate with other agencies, and potentially publish best practices based on information provided to them.

Additional Notice and Comment Period

The Final Standards envision that regulated entities will make certain information available to the public and their primary federal financial regulators. The Final Standards opine that this information collection requirement would not impose any new recordkeeping burdens on regulated entities because those entities would only publish or provide information they already maintain during the normal course of business. That being said, the agencies invite comments on topics regarding the information collection process and parameters, seeking input on how this requirement might affect regulated entities. Those interested may submit their comments to the OCC, Board of Governors of the Federal Reserve System, FDIC, NCUA, CFPB, or SEC by August 10, 2015.

Ballard Spahr will host a webinar on July 15, 2015 at 3 P.M. for regulated entities interested in learning more about the D&I rules themselves and how best to comply.

Ballard Spahr's Diversity Team advises clients on the design and implementation of diversity and inclusion programs and is already counseling several CFPB-supervised entities on developing and implementing diversity programs. The team includes members of Ballard Spahr’s Consumer Financial Services, Mortgage Banking, Labor and Employment, and Securities groups, which regularly advise financial institutions on compliance with consumer financial services laws related to diversity and inclusion.

If you have questions, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Mortgage Banking Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or andreanor@ballardspahr.com, Mortgage Banking Practice Leader John D. Socknat at 202.661.2253 or socknatj@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com, Brian D. Pedrow at 215.864.8108 or pedrow@ballardspahr.com, Dee Spagnuolo at 215.864.8312 or spagnuolod@ballardspahr.com, or Ashley L. Wilson at 215.864.8364 or wilsona@ballardspahr.com.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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