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The Financial Reporting Council (FRC)’s latest consultation, focusing on internal control, assurance and resilience, represents the latest indication of its intended direction of travel with regards to the UK Corporate Governance Code.
The Code is a benchmark (that sits alongside regulatory requirements) frequently used to assess the adequacy of governance frameworks at UK-listed firms.
FRC consultation link
The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.
The strengthening of the Code by the FRC, in alignment with its supervisory regulatory priorities –corporate reporting, climate risk and ESG, risk management, resilience - confirms the importance that the regulator has placed on companies maintaining an effective governance and controls framework.
While many of our banking clients, tend to exhibit more mature and effective governance frameworks compared to other financial services firms or listed corporates, board members and senior management across the banking industry will need to have increased focus on managing risk and developing resilience, including threats to business continuity, supply chain and cyber security.
The FRC is looking to apply the revised Code to accounting periods commencing on or after 1 January 2025. Responses to the consultation document are requested by 13 September 2023.
Proposed changes to the existing Code
While a number of key changes are being proposed, the FRC is seeking to maintain the clarity and structure of the existing Code.
1 - Board leadership and Company purpose
Most significantly within this section, the FRC has proposed introducing a further principle, setting out the expectation that companies should, when reporting on governance activity, focus on activities and outcomes to be able to demonstrate the impact of governance practices.
2 - Division of responsibilities
Rather than introduce a cap on the number of board appointments that may be held by UK-listed Board directors to address investor concerns, the FRC is now making two proposals in this area:
3 - Composition, succession and evaluation
To support the regulatory focus and market initiatives in respect of diversity and inclusion, the following amendments are being proposed:
4 - Audit, risk and internal control
The most substantial proposed changes to the Code are likely to feature within Section 4 on Audit Risk and Internal Control. In particular:
5 - Remuneration
The FRC is proposing a number of amendments to the Code to strengthen the requirements of firms in respect of remuneration including:
For more information please contact BDO’s governance and board effectiveness specialists, Shrenik Parekh, or Jennifer Cafferky.
11.09.23
Shrenik Parekh, Director, Governance and Risk Advisory, BDO LLP
27.09.23
20.09.23
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