The Financial Reporting Council (FRC) has published its final version of the updated UK Corporate Governance Code, with key revisions designed to enhance transparency and accountability of UK plc and help support the growth of the UK.

The changes are in line with the policy statement shared by the FRC in November 2023, which confirmed that the council had decided to scrap many of its proposed changes to the code following its largest ever stakeholder consultation.

Instead, in a move aimed at promoting smarter regulation, the FRC opted to keep changes to the code to the minimum necessary, with this approach designed to ensure that the FRC is able to balance building trust and confidence in UK plc whilst keeping burdens on businesses to a minimum.

In particular, the FRC dropped its earlier proposals for revisions to the code related to the role of audit committees on environmental, social and governance issues; expanding diversity and inclusion expectations; over-boarding provisions, and expectations on Committee Chairs’ engagement with shareholders.

The FRC suggested that this approach, which is principles based and relies on boards making their own judgments on what is material, is better suited for the UK commercial and governance framework than a more intrusive and prescriptive approach required in other jurisdictions.

The existing expectations in relation to Internal Controls will therefore remain, with the main substantive change being that the FRC is now making is asking boards to explain through a declaration in their Annual Reports how they have done this and their conclusions.

However, in response to stakeholder feedback about the need for boards to have more time to develop their approaches to Internal Controls, the FRC confirmed that the new code expectation for the board declaration will come into effect from 1 January 2026, one year after the rest of the updated code comes into effect from 1 January 2025.

A small number of other more minor changes have been made to the code that aim to better streamline the expectations or clarify the language. This relates to the code provisions on malus and clawback and audit committee minimum standards.

Commenting on the new code, FRC CEO, Richard Moriarty, said: “A global reputation for high standards of corporate governance is a competitive advantage for UK plc and our revised code helps this by enhancing transparency on internal controls, but in a way that is proportionate and minimises reporting burdens on businesses.

“The small, but important, change to the expectations on Internal Controls will better support boards asking the right questions at the right time to help them gain the level of the assurance they require and to be able to demonstrate good governance to investors to and other stakeholders.

“It is important that the flexibility of the ‘comply or explain’ principle is properly utilised.

“The FRC is clear that compliance can mean either complying with the code provisions as set out or providing a cogent and justified explanation for why a provision is not suitable in the specific circumstances for the company whilst demonstrating the principles of good governance.

“Frankly, a good explanation illustrates better governance more than a situation where a board defaults to compliance with a specific code provision that manifestly doesn’t suit its circumstances but where the board lacks the confidence to make the explanation”.

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