The Financial Reporting Council (FRC) held back on the latest round of updates to the U.K.’s corporate governance code, as the country remains wary of pushing away businesses and investors.
Revisions to the code, announced Monday, focused on improving its section on internal controls, instead of tackling previously proposed subjects including environmental, social, and governance; diversity and inclusion; and expectations on audit committee chairs’ engagement with shareholders. The FRC said this determination was “aimed at promoting smarter regulation” and that it focused on what was necessary.
“The FRC is conscious that the expectations for effective governance must be targeted and proportionate,” the regulator said. “This approach ensures the FRC balances underpinning trust and confidence in U.K. plc for investors and others whilst keeping burdens on businesses to the minimum necessary.”
The primary change to the code is a new requirement boards explain through a declaration in their annual reports how they have carried out their risk management and internal control reviews and their conclusions on the state of the company’s material controls (e.g., financial, operational, reporting, and compliance).
The FRC said this approach of boards determining what should comprise material internal controls “is better suited for the U.K. commercial and governance framework than a more intrusive and prescriptive approach required in other jurisdictions.”
“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,” said FRC Chief Executive Richard Moriarty in a press release.
The updated code will take effect in January 2025, with the new declaration requirements for boards not effective until January 2026.
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