The UK Corporate Governance Code has been updated by the Financial Reporting Council (FRC) following consultation. The new Code will apply to financial years beginning on or after 1 January 2025, apart from Provision 29, which will come in on 1 January 2026. 

The 2024 Code includes some small changes compared with the 2018 Code, particularly focused on audit, risk and internal controls. It outlines the board’s responsibilities when it comes to putting effective risk management and internal controls in place, and reporting requirements for their effectiveness. Provision 29 asks boards to make a declaration of effectiveness of material internal controls. 

The FRC has released two documents, Key Changes to the UK Corporate Governance Code and the UK Corporate Governance Code 2024 mythbuster, that outlines the changes.

The Code continues to operate on a ‘Comply or Explain’ basis. Companies that move away from the Code in some areas will be expected to explain how their alternative arrangements are more appropriate in meeting high governance standards in their case.

Peter van Veen, ICAEW’s Director of Corporate Governance and Stewardship says that the revised Code is a welcome step forward. “Increasing the focus of boards on internal controls and managing risk should strengthen corporate governance overall and, in turn, boost investor confidence. However, without adequate powers handed to the FRC we worry that these revisions could lack the desired impact.”

Even with the upcoming guidance, Van Veen stresses that it may not be possible to avoid a Sarbanes-Oxley-style regime by the back door. More work may be needed by the profession and the regulator to avoid this.

“We previously expressed our concerns that companies would have insufficient time to report on their internal controls and risk frameworks by the proposed deadline. We are pleased that FRC have listened to our calls and that of members in delaying the introduction of these requirements to January 2026, which should give companies enough time.”

The FRC’s decision not to run a public consultation or consult key stakeholders on the contents of the associated guidance is a missed opportunity, says Van Veen. The gap in alignment with the revised G20/OECD Principles for Corporate Governance, especially in relation to its section on sustainability, could also have been addressed.

Other professional bodies have spoken positively about the focus on internal controls and the balance between high standards and competitiveness. Anne Kiem OBE, CEO of the Chartered Institute of Internal Auditors, praises the increased focus on robust risk management. 

“The introduction of the internal controls’ declaration should lead to better corporate governance and internal audit functions can play a key role in providing the Board with independent assurance that the material controls have operated effectively,” she says.

However, she says that there was a missed opportunity to strengthen the role and requirement of internal audit. “This would have gone hand in hand with strengthening the other audit, risk and internal control provisions. With the new UK Corporate Governance Code now published, we urge the government to accelerate other vital aspects of the audit and corporate governance reform programme, including bringing forward the legislation to put the FRC on a statutory footing with the powers it needs to transition to the new Audit, Reporting and Governance Authority.”

Dr Roger Barker, Director of Policy and Corporate Governance for the Institute of Directors (IoD), says that the FRC has done a good job of balancing its objectives to improve governance while maintaining competitiveness. “Some of the more prescriptive proposals, which the IoD challenged in our consultation response last summer, have been dropped.” 

It made no sense to undertake a more wide-ranging revision at this time, he says, if broader reforms of corporate reporting were not being pursued by the government. “Beyond the Code, most of the post-Carillion reforms of corporate governance and audit remain in limbo, and are unlikely to be taken forward this side of a General Election. In their absence, the FRC has delivered a sensible revision to the UK Corporate Governance Code.”