Background
The review of the UK Corporate Governance Code (the "Code") began with a white paper, issued by the government in 2021, setting out proposed policies and asking the Financial Reporting Council ("FRC") to update the Code regarding internal controls and to develop an improved corporate reporting regime.
When do the changes take effect?
The updates were released on 22 January 2024 and take effect from 1 January 2025.
What are the changes?
The most significant change is a requirement for headline controls: "The board should establish and maintain an effective risk management and internal control framework". There will need to be a description, in the annual accounts, of how this has been carried out, including a description of where the measures have not operated effectively.
Governance reporting should focus on board decisions and their outcomes in the context of a company’s strategy and objectives.
Will there be new ESG related obligations?
In terms of the "S" in ESG, boards should not only assess and monitor culture, but also review how the desired culture has been embedded.
However, beyond that, the updated Code will not include wider responsibilities and considerations for the board and audit committee in relation to ESG objectives and other sustainability matters.
What is the guidance from the FRC?
The FRC appear keen not to impose too great a burden on companies and want to highlight the flexibility of the comply or explain procedures. The FRC will be releasing further supporting guidance as a single interactive resource which will be connected directly to the relevant sections of the Code.
How can we help?
We are always available to discuss these changes with our clients and share our experiences of how they are being adopted across the market. If you have any questions or seek legal advice in respect of your compliance obligations, please contact Alexander Wood (Alexander.Wood@howardkennedy.com), Marc Proudfoot (Marc.Proudfoot@howardkennedy.com), and/or Keith Lassman (Keith.Lassman@howardkennedy.com).
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