On 22 January 2024, the Financial Reporting Council ("FRC") published its much-anticipated revisions to the UK Corporate Governance Code.
The publication of the 2024 UK Corporate Governance Code (“2024 Code”) follows a 16-week consultation launched by the FRC in May 2023.
What has changed?
The changes reflect the approach set out in the FRC’s November 2023 Policy Update, which streamlined the revisions to include only a small number of the original proposed changes and revised the FRC’s original proposals on internal controls.
The FRC has prepared a useful summary of the key changes (see here), as well as a 2024 Code 'mythbuster' (found here).
In summary, the principal changes include:
- A new Principle C (on governance reporting and outcomes), where governance reporting should focus on board decisions and their outcomes in the context of the company’s strategy and objectives.
- Provision 2 has been amended to include that boards should not only assess and monitor culture, but also how the desired culture has been embedded.
- Principle J has been amended to promote diversity, inclusion and equal opportunity, without referencing specific groups. The list of diversity characteristics has been removed to indicate that diversity policies can be wide ranging.
- Provision 23 has been amended to reflect the fact that companies may have additional initiatives in place alongside their diversity and inclusion policy.
- Principle O has been amended to make the board responsible not only for establishing, but also for maintaining the effectiveness of, the risk management and internal control framework.
- A new Provision 29 (risk management and internal control framework), requiring the board to monitor the company's risk management and internal control framework and, at least annually, carry out a review of its effectiveness. The monitoring and review should cover all material controls, including financial, operational, reporting and compliance controls. The board should provide in the annual report:
- a description of how the board has monitored and reviewed the effectiveness of the framework;
- a declaration of effectiveness of the material controls as at the balance sheet date; and
- a description of any material controls which have not operated effectively as at the balance sheet date, the action taken, or proposed, to improve them and any action taken to address previously reported issues.
- A new Provision 38 (malus and clawback) expands information in the annual report to include a description of its malus and clawback provisions, including the circumstances in which malus and clawback provisions could be used, a description of the period for malus and clawback and why the selected period is best suits to the organisation and whether the provisions were used in the last reporting period (in which case, a clear explanation of the reason should be provided in the annual report).
We have prepared a comparison showing the differences between the existing Code and the 2024 Code which can be accessed here.
Who does it apply to?
The 2024 Code applies to companies with a premium listing on the London Stock Exchange, regardless of where they are incorporated.
When will it apply?
The 2024 Code will apply to financial years beginning on or after 1 January 2025, with first reporting in 2026 (with the exception of Provision 29 – relating to the board’s declaration on the effectiveness of internal controls – which will apply to financial years beginning on or after 1 January 2026). The 2018 Code will apply until such time.
Next Steps
Revised guidance on the 2024 Code is due to be published on 29 January 2024. Once published we will prepare a detailed analysis of the 2024 Code and supporting guidance, along with our views on what it means for in scope companies, as well as how practices, policies, procedures and disclosures may need to evolve to ensure alignment with the new requirements.
- See 'FRC – UK Corporate Governance Code 2024' available here.
- See 'FRC – The UK Corporate Governance Code 2024: Key Changes' available here.
- See press release 'FRC Revised UK Corporate Governance Code' available here.
- See Redline of 2024 Code against 2018 Code, available here.
- See 'FRC Feedback Statement', available here.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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