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FRC launches consultation on Corporate Governance Code revisions

Author: ICAEW Insights

Published: 24 May 2023

Boilerplate statements, playing back the words within the Code rather than applying the spirit of the Code, do not deliver the transparency that the market needs, the regulator warns.

A public consultation on proposed revisions to the UK Corporate Governance Code has been launched by the Financial Reporting Council (FRC), a year after the government suggested measures to restore trust in governance, reporting and auditing. 

This limited revision of the Code is the first for five years and it aims to enhance its effectiveness in promoting good corporate governance. There are five primary areas of focus:

  • Revising those parts of the Code that deal with the need for a framework of prudent and effective controls to provide a stronger basis for reporting on and evidencing their effectiveness.
  • Making necessary revisions to reflect the responsibilities of the board and audit committee for sustainability and ESG reporting and appropriate assurance in accordance with a company's audit and assurance policy.
  • Amending the Code to take account of the new Audit Committee Standard (Audit Committees and the External Audit: Minimum Standard).
  • Improving the functioning of comply-or-explain where reporting is currently weaker, taking account of recently published FRC research and reports.
  • Updating the Code to ensure that it aligns with changes to legal and regulatory requirements as set out in the government's response to the White Paper, including strengthening reporting on malus and clawback arrangements.

It follows the government’s response to the 2021 White Paper, Restoring Trust in Audit and Corporate Governance, which identified areas of reform related to a particular focus on directors’ responsibilities for internal control, risk, audit and corporate reporting.

As part of this latest consultation, the FRC will also review the existing guidance that supports the Code: Guidance on Audit Committees, Guidance on Board effectiveness, and Guidance on risk management, internal control and related financial and business reporting. The public consultation will also be supported by a wide range of stakeholder outreach and information.
Sir Jon Thompson, CEO of the FRC, says: “Good corporate governance contributes to long-term company performance by helping to build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity. 

“Enhancing the Corporate Governance Code will meet the needs of all corporate stakeholders, including investors, employees and suppliers, and boost the resilience of the UK economy, ensuring it continues to attract talent and investment. We look forward to receiving feedback from stakeholders and using this feedback to continue restoring trust in audit and corporate governance.”

Peter van Veen, ICAEW Director of Corporate Governance and Stewardship, says: “We welcome the FRC’s revision of the UK Corporate Governance Code. This is an important step in strengthening trust and confidence in UK business. The code is the cornerstone of good governance and is seen as a benchmark globally. We at ICAEW welcome the opportunity to provide input into this key consultation and will be consulting with our members and stakeholders during the consultation period.”

David Styles, the FRC’s Director of Corporate Governance and Stewardship, says the Code’s success relied on companies, investors and a wide range of stakeholders engaging to improve the quality of governance and stewardship, and to embrace the comply-or-explain nature of the Code. “Boilerplate statements, playing back the words within the Code rather than applying the spirit of the Code, do not deliver the transparency that the market needs. Equally, investors and their advisers must consider explanations for departures from the Code thoughtfully, taking full account of company circumstances. 

“We hope that a wide range of stakeholders will engage with this consultation and, as always, we welcome views that will seek to improve the functioning of the Code still further.” 

Any comments on the questions set out in this consultation document are requested by Wednesday 13 September 2023 and should be sent by email to codereview@frc.org.uk.

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