Thursday 25th May, 2023
The FRC have released their consultation on proposed amendments to the UK Corporate Governance Code in response to the government's consultation on Restoring Trust in Audit and Corporate Governance published in 2021.
The proposals follow on from the government’s plans for a shake-up of the UK’s audit and corporate governance regulations, triggered by the high-profile collapses of Carillion, Patisserie Valerie amongst others.
The consultation follows the unexpected U-turn from the government after they abandoned plans to create a tighter, US-style framework for internal controls, so called UK SOX, instead “inviting the regulator” to address the issue by strengthening the Corporate Governance Code.
The FRC has identified five key focal points among its proposed revisions. Among them are an increased focus on sustainability, an expectation of directors to disclose “material weaknesses or failures” and plans to strengthen company reporting on clawback arrangements affecting directors’ pay in the event of misconduct:
- Revising those parts of the Code that deal with the need for a framework of effective controls to provide a stronger basis for reporting:
- Making necessary revisions to reflect the responsibilities of the board and audit committee for sustainability and ESG reporting
- Amending the Code to take account of the new Audit Committee Standard (Audit Committees and the External Audit: Minimum Standard).
- Improving the functioning of comply-or-explain where reporting is currently weaker, taking account of recently published FRC research and reports.
- 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.
Sir Jon Thompson, CEO of the FRC, said: “Good corporate governance contributes to long-term company performance by helping to build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability, and business integrity.
Enhancing the corporate governance code will meet the needs of all corporate stakeholders, including investors, employees and suppliers, and boost the resilience of the UK economy, ensuring it continues to attract talent and investment.
“We look forward to receiving feedback from stakeholders and using this feedback to continue restoring trust in audit and corporate governance.”