What you need to know about the updated 2024 UK Corporate Governance Code

On the 29th of January 2024, the Financial Reporting Council (“FRC”) published the updated UK Corporate Governance Code (“the Code”) and associated guidance. The Code contains focused and limited updates that seek a balance between UK competitiveness and positive outcomes for companies, investors and the wider public. The FRC applies the Code on a ‘comply or explain’ basis. This offers flexibility for the firms while encouraging trust, transparency and accountability.

What changes were made to the Code?

The FRC highlighted the principal 2024 changes to the Code in a summary document published on their website. There were several minor amendments to clarify existing principles and provisions along with two new provisions.

An important addition was Provision 29; the board is now expected to monitor the company’s risk management and internal control framework. Furthermore, they must review the framework’s effectiveness annually at minimum. The monitoring and review should include all material controls, including financial, operational, reporting and compliance controls. The annual report must:

(a) describe how the board monitored and reviewed effectiveness;

(b) declare the effectiveness of the material controls; and

(c) describe any material controls that did not operate effectively along with actions taken or proposed for improvement.

When will my firm need to abide by the 2024 Code?

The 2024 Code will apply to financial years beginning on or after 1 January 2025, other than provision 29 which will apply to financial years beginning on or after 1 January 2026.

What does my firm need to do?

The FRC’s amendments to, and emphasis on, the board’s responsibilities is a key theme of this update. Considered within the context of the newly released Global Internal Audit Standards ("the Standards") from the IIA (effective 9 January 2025), there is an increasing importance placed on the board from various perspectives.

Moving forward there are several steps your firm’s board can take to prepare:

• Review your internal control framework with a focus on robustness, value-add, and effective monitoring.
• Ensure you have defined the non-financial material controls to be reported (i.e., operational, compliance, and reporting controls). We recommend a risk-based approach; take a look at your principal and sector-specific risks.
• Assess how your board makes decisions. Working with an unbiased, external firm to conduct corporate governance and board effectiveness reviews can simplify the improvement of management oversight.
• Add a project in 2024 to assess internal audit reforms to ensure your internal audit function’s approach and methodology aligns with the new Standards.
• If you have an External Quality Assessment ("EQA") review planned for 2024, conduct a gap analysis against the new IIA Standards and review management oversight. If your EQA is planned for 2025, consider moving it earlier to ensure conformance with the new Standards.
• Update your mandate/charter to reflect the new expectations for support from and communication with the board and other senior management, as well as the oversight of principal and material risks and controls.

Ultimately, the FRC’s goal is to increase trust, transparency and accountability in firms by emphasising management’s responsibilities. For regulated firms, such as those in financial services, these expectations should not be a surprise given the Senior Management Certification Regime (“SM&CR”) launched in 2016 by the Financial Conduct Authority (“FCA”).