FRC urges companies to prepare for updated Corporate Governance Code

November 27th, 2024

As companies get ready to implement the revised UK Corporate Governance Code from January 2025, the Financial Reporting Council (FRC) has called on them to improve their preparedness for the upcoming changes.

In its annual review of corporate governance reporting, the FRC said it was encouraging to see that many companies are already preparing for changes relevant to their specific circumstances.

In particular, several companies have already outlined their preparations for the introduction of the new Provision 29 requirements, which will come into effect in 2026 and require strengthened reporting on risk management and internal controls from 2027.

However, the review also found that 25 out of 130 companies either failed to report or did not provide clear reporting on the effectiveness of their internal controls, indicating that these areas still require attention in some cases.

The review also highlighted the ongoing importance of the code’s ‘comply or explain’ approach, which allows companies to depart from provisions when necessary, provided they offer a clear and high-quality explanation for their alternative approach.

Even though the FRC acknowledged that companies do make good use of this flexibility, it noted that the quality of explanations for departures could be improved.

As a result, the FRC has urged investors, proxy advisors and service providers to support those companies that provide cogent explanations that demonstrate good governance.

Mark Babington, executive director of regulatory standards at FRC, said: “As companies prepare for the transition to the 2024 code, we're seeing positive signs in outcomes-focused reporting and risk disclosure practices. However, the review identifies clear areas for improvement, particularly in internal controls reporting and the quality of explanations when companies depart from the code.”

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