UK Corporate Governance Code – consultation

Of interest to all working in governance

Request for Support from Members

On 24 May, the Financial Reporting Council has published its long anticipated consultation on the UK Corporate Governance Code, the intention of which is to focus on the legislative and governance reforms that the Government proposed in its May 2022 white paper “Restoring trust in audit and corporate governance”. These are designed, amongst other things, to “support the FRC’s transition into the Audit, Reporting and Governance Authority (ARGA).”  The proposals now put out for consultation build on the white paper, and a subsequent position paper from the FRC. The consultation closes on 13 September 2023.

The FRC has indicated that this is a “limited revision [which] aims to enhance the Code's effectiveness in promoting good corporate governance, some of the changes include:

  • Setting out a revised framework of prudent and effective controls to provide a stronger basis for reporting on, and evidencing their effectiveness.
  • Improving the functioning of comply-or-explain, taking account of recently published FRC research and reports.
  • Making necessary revisions to reflect the responsibilities of the board and audit committee for sustainability and ESG reporting, and associated assurance in accordance with a company's audit and assurance policy.
  • 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.”

The “main proposed changes concern those parts of the Code which deal with the need for a more robust framework of prudent and effective risk management and internal controls. They are aimed at providing a stronger basis for reporting on, and evidencing the effectiveness of, the framework during the reporting period.”  The FRC has also taken the opportunity to remove areas of the Code which duplicate provisions in Audit Committees and the External Audit: Minimum Standard, published on Monday and to consult on areas identified in the most recent Review of Corporate Governance Reporting as those in which reporting can be improved.

We were particularly pleased to see the proposal to amend the Code to pick up some of the recommendations from the Institute’s Review of the effectiveness of independent board evaluation in the UK listed sector and that the FRC “propose(s) to incorporate many aspects of the CGI’s guidance in our revised guidance.”

There are summaries from Ashurst (3 pages), Bryan, Cave, Leighton, Paisner (3 pages) and Herbert Smith Freehills (1 page) available from their websites.

There will be an opportunity to hear direct from the FRC on the proposed changes at our annual conference on 5 and 6 July.

Overall, the proposed changes look very welcome, but the Institute will be discussing with members how we should respond to the consultation proposals over the Summer before the consultation closes on 13 September. Those who would like to be included in our working groups are asked to contact the team on policy@cgi.org.uk.

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