The Financial Reporting Council (FRC) has taken its first steps to revising the Corporate Governance Code with the launch of a public consultation.
The council’s revision of the code is the first one to take place in five years and focuses on how companies can promote good corporate governance. The proposed review offers five main focal points, including making necessary changes to reflect further sustainability and ESG reporting commitments and appropriate assurance in accordance with a company’s audit and assurance policy.
The consultation follows the government’s response to the white paper, entitled ‘Restoring trust in audit and corporate governance’, which flags directors’ responsibilities for internal control, risk, audit and corporate reporting as target points.
Fostering long-term investment
Sir Jon Thompson, CEO of the FRC, says: ‘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.’
Amendments to the code will also consider the new Audit Committee Standard and help improve the functioning of ‘comply or explain’ where reporting is currently weaker, the council says.
The code, which came into effect in 2018, is currently applicable to companies with a premium listing on the London Stock Exchange, irrespective of where they are incorporated.
Complying with the code becomes effective the day a company becomes publicly listed. As part of the rules, companies must disclose any areas of non-compliance and ‘explain reasons for [non-compliance] and offer a timeframe when the company will be compliant with the code’, according to the regulator.
The FRC consultation does not come as a surprise. On May 3, the Financial Conduct Authority (FCA) announced a proposed reform of its UK listing rules, which the FRC’s executive director of regulatory standards, Mark Babington, told IR Magazine he welcomed.
‘We welcome the FCA’s consultation and the potential for its proposals to increase the number of companies using our flexible and proportionate Corporate Governance Code to drive high-quality governance and reporting and improve market confidence,’ he said, adding at the time that the FRC planned to consult on revisions to its code ‘shortly’.
The FRC is accepting comments on the consultation until Wednesday, September 13, 2023.