Diversity and Inclusion: The Financial Services Sector and Dodd-Frank

U.S. Magistrate Judge Karen Wells Roby is chair of the Section of Litigation's Diversity & Inclusion Committee serves on the U.S. District Court, Eastern District of Louisiana.

The financial services sector is not very diverse. This fact is well documented in an April 2013 report issued by the U.S. Government Accountability Office which noted that from 2007 to 2011 there have been no substantial changes in the number of minorities and women in management in the financial services industry. (The report also notes that there is an increase in both minorities and women in first- and mid-level management positions, which may create a pipeline for increased representation in senior management positions in the future.) According to the report, women represented close to 30 percent of senior management at financial firms and approximately 36 percent of senior management at financial regulators. However, the representation of minorities in senior management level positions is only 11 percent at financial firms and 17 percent at their regulators. Doreen Lilienfeld and Amy Gitilitz Bennett, Will Dodd-Frank’s Diversity Mandates Go Far Enough? Law 360. [Log-in required.]

Maxine Waters, U.S. Representative of California and the author of Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), has noted that the lack of inclusion and participations of women and minorities spreads across many diverse industries, but that the financial services has sector has been the worst offender. Waters further explained that Section 342 will assist agencies in their outreach efforts and help broaden their appeal to different communities. Id.

One of the Dodd-Frank Act’s goals was to increase racial and gender balances at financial institutions and regulatory agencies, and one step toward this goal is to require federal agencies to create an Office of Minority and Women Inclusion (OMWI). OMWI is responsible for overseeing all agency matters relating to diversity in management, employment, and business activities. Each agency must appoint a director for its OMWI, which is a senior executive service position charged with developing standards for (1) agency diversity in regard to race and gender, (2) increased participation of minority- and women-owned businesses, and (3) assessing the policies and practices of the agency-regulated entities. Daniel J. Moore and Stephanie Wilson, Dodd-Frank Wall Street Reform Act Requires Federal Financial Agencies to Address Diversity and Fair Inclusion of Minorities and Women, Employment Law Watch (October 20, 2010).

The Dodd-Frank Act focuses on transparency and awareness of diversity policies within agencies. However, it does not necessarily call for quotas or actions, and it does not levy penalties. The OMWI has neither the authority nor the responsibility of enforcing civil rights laws. The agencies covered by the act include the Department of Treasury, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Reserve Banks, Board of Governors of the Federal Reserve System, National Credit Union Administration, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Bureau of Consumer Financial Protection. Each agency was required to establish its OMWI by January 2011, though the Bureau of Consumer Financial Protection was given until July 2012 to establish its OMWI. The provisions of the Dodd-Frank Act apply to all types of service contracts with the agency, such as financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities underwriters, accountants, investment consultants, and law firms. Id.

Furthermore, each OMWI is responsible for developing standards for assessing the diversity policy and practices of its agency. In October 2013, the “Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices” was created by six agencies. The proposed standards recognize that some regulated entities are required to file Employer Information Reports (known as EEO-1 reports) with the Equal Employment Opportunity Commission (EEOC) and some of the entities are federal contractors covered by affirmative action laws enforced by the Office of Federal Contract Compliance Programs (OFCCP). Brian D. Pedrow and Ashley L. Wilson, Raising the Bar on Diversity and Inclusion: Dodd-Frank’s Proposed Diversity Standards, Mortgage Compliance Magazine, Aug. 2014, at 35, 36. The requirements hinge on two conditions: (1) employer size and (2) whether the employer has a federal contract above the financial thresholds. “The diversity standards are broader and not limited in their application to only entities covered by these legal requirements.” Id.

Dodd-Frank’s Section 342 is not written to be an enforcement measure, nor does it prescribe penalties or mandates, but merely as an encouragement for agencies to do so independently:

The agencies may view this gap as an invitation to develop their own enforcement mechanisms. Moreover, while Section 342 specifically provides that the OMWI’s duties do not include enforcement of civil rights laws relating to discrimination, each OMWI director is empowered to coordinate with the agency administrator regarding the design and implementation of any remedies resulting from violations of such laws. Such remedies could include, for example, referral of suspected violations to other agencies with authority to investigate, remediate and/or litigate such claims, including the EEOC and the OFCCP. For example, Section 342 specifically mentions referrals to the OFCCP when a contractor or subcontractor of the agency has failed to make a good faith effort to include minorities and women in their workforce.
In addition, Section 342 specifies that the diversity assessment required under the standards should not be construed to mandate any requirement on, or otherwise affect the lending policies and practices of, any regulated entity, or to require any specific action based on the findings of the assessment. It nonetheless remains to be seen whether the assessments will play a part in the extent to which a regulated entity’s lending practices become the subject of a fair lending examination or the scope and rigor of such an examination.

Id.

While the U.S. government recognizes the importance of diversity in the financial services industry, the industry’s leaders must seize the opportunity and truly prioritize diversity and inclusion for meaningful change to occur. It can demonstrate the true importance of diversity by not only complying with the Dodd-Frank Act in form, but also by the implementation of policies and practices that advance the overall goal by hiring and including more minorities and women. Nonetheless, the verdict is still out on the impact of Section 342 on diversity and inclusion in the financial services sector.



Copyright © 2015, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).

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