The Financial Conduct Authority will ask listed companies to explain their reasons if they are unable to meet new targets it has set for gender and ethnic diversity at boardroom level.
It will put pressure on UK listed dealer groups such as Caffyns, Lookers and Pendragon to address the make up of their most senior management teams.
The FCA's approach sets positive diversity targets for listed companies, while allowing companies to decide how best to collect data from employees to show they are meeting the targets.
This work reflects the financial regulator's focus on speeding up the pace of change around diversity and inclusion in the financial services sector, it said.
The Financial Conduct Authority wants at least 40% of the board of a listed company to be women; at least one member of the board should be from an enthic minority background; and at least one of the senior board positions, such as chair, chief executive, chief financial officer or senior independent director, should be a woman.
From the April 2022 financial year they must include a statement in their annual financial report setting out whether they have met these specific board diversity targets on a ‘comply or explain’ basis, as at a chosen reference date within their accounting period and, if they have not met the targets, why not.
Sarah Pritchard, executive director of markets at the FCA said: "As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress."
Analysis of the AM100 list of the UK's largest motor retailers - the majority of which are not listed companies so are not bound by these rules - shows that less than 20% of their board directors are female.
Yet In the motor retail PLCs - Caffyns, Inchcape, Lookers, Marshall Motor Holdings, Pendragon and Vertu Motors - at aggregate board level just 27% are women.
And only one of the 45 total PLC board directors, Vertu's CFO Karen Anderson (pictured above), occupies one of the senior board positions as defined by the FCA.
The FCA will review the rules in three years' time to make sure they are working and to check if the diversity targets are still appropriate.
Its policy statement said: "Setting targets on a ‘comply or explain’ basis for the representation of women and people from a minority ethnic background is designed to be a positive reporting benchmark to encourage progress.
"However, it serves as a starting point to encourage scrutiny and consideration of diversity and inclusion more broadly, both at senior levels of listed companies and throughout their businesses."
The companies in scope of its new listing rules are UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List, including closed-ended investment funds and sovereign controlled companies, but excluding open-ended investment companies and ‘shell companies’.