Proposed changes to the UK Corporate Governance Code – FRC policy update

The Financial Reporting Council’s (FRC) consultation on changes to the UK Corporate Governance Code (Code) closed on 13 September 2023. This consultation focused on the reforms proposed by the Government in its consultation on Restoring Trust in Audit and Corporate Governance to support the FRC’s transition into the Audit, Reporting and Governance Authority (ARGA). We have previously covered the key changes that were proposed to the Code, along with a summary of published responses to the consultation, in our article “Proposed changes to the UK Corporate Governance Code – published responses call for balance, flexibility and better recognition of key roles”.

The FRC has now issued Statement: FRC policy update, in which it notes the Government’s decision not to prioritise primary legislation to modernise the regulation of audit, corporate reporting and governance in the next Parliamentary session, although the Government remains committed to doing so when Parliamentary time allows. The FRC adds that ‘there is broad stakeholder consensus that this reform continues to be necessary to restore investor and public trust following the very damaging collapse of several high-profile businesses including Carillion, BHS and Thomas Cook’.

Separately, the Government has withdrawn the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023 (Regulations), which would have required certain companies to provide additional statements in their strategic reports and directors’ reports, including an annual resilience statement.

In light of the above developments, and of the feedback received on its consultation on proposed changes to the Code, the FRC will only be proceeding with certain of its original proposals. In particular:

• The FRC will revise its original proposal on internal controls, informed by feedback to the consultation, in order to ensure the Code revision is ‘more targeted and proportionate’.
• A small number of other changes to streamline the Code and reduce duplication in the interest of reducing burdens will also be made, but otherwise the FRC will not be taking forward the remainder of its original proposals, including:
  • those relating to the responsibilities of the audit committee for sustainability and ESG reporting; and
  • changes to provisions around diversity, over-boarding and committee chairs engaging with stakeholders.
• Other proposals relating to an audit and assurance policy, reporting on distributable profits and the annual resilience statement will not be taken forward as a result of the withdrawal of the Regulations.

The FRC intends to publish its updated Code in January 2024. In the meantime, businesses face uncertainty over what exactly they will be required to do under the new Code.

Michelmores’ Corporate Services team has a wealth of experience in statutory compliance and all aspects of corporate governance. Please do get in touch with any member of the team or email cosec@michelmores.com.