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On 22 January 2024, the Financial Reporting Council (FRC) announced some important revisions to the UK Corporate Governance Code (UKCGC). Most of the provisions of the updated UKCGC will come into effect on 1 January 2025. However the new provision (UKCGC Provision 29) which requires a board declaration of the effectiveness of material controls as at the balance sheet date comes into effect on 1 January 2026.
What's changing?
The changes to the 2018 UKCGC are fairly modest.
The main change is that UKCGC Provision 29 (set out in full below) now asks boards to make a declaration in relation to the effectiveness of their material internal controls.
A new Principle has been included to encourage companies to report on outcomes and activities.
Board declaration: effectiveness of material internal controls
The 2024 version of the UKCGC states at Provision 29 that: "The board should monitor the company’s risk management and internal control framework and, at least annually, carry out a review of its effectiveness. The monitoring and review should cover all material controls, including financial, operational, reporting and compliance controls. The board should provide in the annual report:
- A description of how the board has monitored and reviewed the effectiveness of the framework;
- a declaration of effectiveness of the material controls as at the balance sheet date; and
- a description of any material controls which have not operated effectively as at the balance sheet date, the action taken, or proposed, to improve them and any action taken to address previously reported issues"
Whats happened to the other proposed changes?
The FRC has confirmed that it will not be implementing any of its previous proposals for revisions to the UKCGC 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.
Next steps
The FRC will be hosting a deep dive on internal controls on 30 January. A recording of the webinar held on 23 January should be available shortly.
How can we help?
If you would like to discuss the changes to the UKCGC, please speak to your usual contact at Burges Salmon or Nick Graves, head of the firm's Corporate Group.
Commenting on the new UKCGC, the FRC’s 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”.
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