UK FRC announced important revisions to UK Corporate Governance Code (the Code) that enhance transparency and accountability of UK plc, and help support the growth and competitiveness of the UK, as well as its attractiveness as a place for investment.
Follows UK FRC Nov. 2023 noted King's speech missed out audit reform, see #190505.
Changes Summary
The changes deliver on UK FRC’s intentions contained in a Policy Statement of Nov. 7, 2023 setting out the future direction for revisions to the Corporate Governance Code.
In a move aimed at promoting smarter regulation, UK FRC has kept changes to the Code to the minimum as all expectations for effective governance must be targeted.
Given stakeholder support for the importance of good corporate governance, the UK FRC has prioritized revisions to the Code in one significant area, on Internal Controls.
As signaled on Nov. 7, 2023, UK FRC dropped earlier proposals for Code revisions on role of audit committees on ESG issues, expanding diversity and inclusion expectation, over-boarding provisions, and on Committee Chairs’ engagement with shareholders.
In relation to Internal Controls, the existing expectations in the Code will remain, that the Board should fully monitor the company’s risk management and internal control framework and, at least annually, carry out a comprehensive review of effectiveness.
The main substantive change UK FRC is now making is asking Boards to explain, via a declaration in their annual reports, how they have done this and their final conclusions.
It is for a Board to determine what should comprise its material internal controls based on level of maturity is right for its business and their own levels of required assurance.
UK FRC considers a principles based approach to Internal Controls by Boards, is better suited for both the UK commercial and governance framework that already exists now.
A small number of minor changes have also been made to the Code to streamline the expectations, like provisions on malus and clawback, and audit committees standards.
UK FRC is clear that the approach is targeted, proportionate and balanced response to enhancing both investor and stakeholder expectations for better governance reporting.
Comment
UK FRC’s CEO, Richard Moriarty, commented a global reputation for high standards of corporate governance is competitive advantage for UK plc and revised Code helps this by enhancing transparency on internal controls, minimizing firms reporting burdens.
The small, but important, change to the expectations on Internal Controls will better support Boards asking the right questions at right time, to gain a level of assurance.
Revised Guidance
2024 Code will be supported by revised guidance, to be published on Jan. 29, 2024.
Support Events
UK FRC will be hosting a webinar on the updated Code on Jan. 23, 2024 with a further deep dive on internal controls on Jan. 30, 2024, to assist stakeholder understanding.
Effectiveness
New Code will come into force on Jan. 1, 2025, but Internal Controls on Jan. 1, 2026.
Jan. 29, 2024 Updated Guidance
On Jan. 29, 2024, UK FRC updated guidance for UK Corporate Governance Code 2024.
The guidance is not mandatory, and not part of the Code itself, and is not prescriptive.
It provides good practice to support directors and their advisors in applying the Code.
UK FRC guidance contains sections that align with Code, such as board leadership and company purpose, division of responsibilities, composition, succession and evaluation.
Sections in guidance also include audit, risk and internal controls, and remuneration.
For the first time, there is new section on good practice for successful management of board committees, and other new additions such as outcomes based reporting.
New additions also include board performance reviews, audit committees and the external audit minimum standard, and the determination material controls declaration.
Mar. 2024 Future Updates to Code Guidance
On Mar. 6, 2024, UK FRC advised procedure of future updates to UK Code guidance.
Code was updated earlier in 2024, and UK FRC updated the guidance, turning it into a live document containing links to relevant publications, improving the user experience.
Allows regular review of guidance to ensure it remains accurate and up-to-date.
UK FRC does not expect to make frequent changes, but those stakeholders who wish to download or print copies of full guidance should note UK FRC's updating procedure.
Starting Mar. 6, 2024, any future updates will be made on first Wednesday of month.
For those wishing to look into the updates in more detail, a link to the updates can be found by logging on the UK Corporate Governance page on UK FRC's website.
