Following extensive consultation, the Financial Reporting Council (FRC) published an updated version of the UK Corporate Governance Code (the 2024 Code), alongside updated guidance, in January 2024. Despite proposals to the contrary, the final changes are minimal, with the FRC having prioritised revisions to internal controls and risk management frameworks. 

Effective date

Applicable to all UK premium listed companies, the 2024 Code takes effect from 1 January 2025. However, the more significant change – a new requirement under Provision 29 for a declaration of effectiveness by the board in relation to material controls – does not come into force until 1 January 2026. Until then, the existing Provision 29 of the UK Corporate Governance Code 2018 applies. 

‘Comply or explain’ remains

The FRC has reiterated that the principles-based, ‘comply or explain’ nature of the Code remains. This approach recognises that there is no one-size-fits-all approach for companies reporting on their governance. While there may be instances where strict adherence with the Code’s provisions may not be the right approach for a company, explanations for any departures from the Code need to be clear, logical and well justified in the circumstances.

Most proposals dropped 

As signalled in its November 2023 policy statement, the FRC did not take forward many of the earlier proposals for revisions to the Code, including those relating to:

• the role of audit committees on environmental, social, governance (ESG) and sustainability issues;
• diversity and inclusion expectations;
• over-boarding; and 
• expectations around audit committee chairs’ engagement with shareholders. 

With reporting requirements developing at a rapid rate and via a range of different regulators and standards, the FRC concluded the Code was not the right place to be prescriptive on ESG and culture matters. Instead, the minimal changes reflected the FRC’s desire to focus on streamlining provisions and avoid duplication – an approach ICAEW thinks is sensible.

The main change 

Section 4 of the Code considers audit, risk and internal control. In the 2024 Code, 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 frameworks. While provision 29 already requires that boards monitor, review and report on all material controls (including financial, operational and compliance controls), the 2024 Code now asks that the board makes a declaration on the effectiveness of these controls as at the balance sheet date in annual reports. Furthermore, the 2024 Code extends these controls to include reporting controls, including around narrative reporting and sustainability. This represents a small but significant extension to director responsibilities.

The FRC’s intention with the amended provision is to empower boards to ask the right questions at the right time, but in a way that is proportionate and minimises reporting requirements on businesses. This is important to ensure the UK remains an internationally competitive and attractive place in which to invest and do business. By requiring the declaration of effectiveness to be as at the balance sheet date, it should be less onerous for companies than ‘continuous monitoring’ throughout the financial year and should also allow time for issues to be remedied.

Other minimal changes

The FRC has produced a summary of the other changes made to the 2024 Code. New additions include requirements around outcomes-based reporting in section 1 and malus and clawback provisions in section 5, among other minor changes aimed at streamlining existing provisions. The FRC has also published a helpful UK Corporate Governance Code 2024 mythbuster.

Digital accompanying guidance 

Updated guidance to accompany the 2024 Code was published by the FRC on 29 January. The guidance does not form part of the Code itself and is intended only as a supportive tool aimed at helping boards decide how best to apply (or to explain non-compliance with) the provisions of the Code. 

The new guidance compiles relevant content from previous publications into a single, streamlined and user-friendly digital resource. The guidance links to examples of good practice and includes questions to help boards implement the revised Code’s principles and provisions. It’s intended that the guidance will be a dynamic resource that will be continually updated as new themes emerge. Notifications will be issued when significant changes are made.

ICAEW’s views

Increasing the focus of boards on internal controls and managing risk should strengthen corporate governance overall, and in turn boost investor confidence. Having previously expressed concerns that companies would have insufficient time to report on their internal controls and risk frameworks by the initial proposed deadline, we are pleased that the FRC has listened to our calls and that of members, by delaying the introduction of these requirements until January 2026.

ICAEW welcomes greater individual and collective director accountability, which we believe sit at the heart of corporate governance reform. We're also pleased that the nature of the changes means the 2024 Code continues to remain broadly applicable, not just to UK listed companies and public interest entities (PIEs), but to any UK company that aspires to achieve best practice in corporate governance.

Victoria Geroe, Corporate Governance and Stewardship Manager, ICAEW