The UK Financial Reporting Council (FRC) announced important revisions to the Corporate Governance Code to enhance transparency and help support the growth and competitiveness of the UK, a news release said. This significant move from the regulator aims to promote smarter regulation by keeping changes minimal.
The well-established principle of boards having the flexibility to “comply or explain” will remain, the release said. The regulator encouraged boards, investors, and their advisers to actively support the flexibility within the “comply or explain” approach to ensure governance expectations are better tailored to the specific circumstances of each company.
“The FRC is conscious that the expectations for effective governance must be targeted and proportionate,” the release said. “This approach ensures the FRC balances underpinning trust and confidence … for investors … whilst keeping burdens on businesses to the minimum necessary.”
Companies do not exist in isolation, according to the Corporate Governance Code. “Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity,” the publication said. “To succeed in the long term … they need to build and maintain successful relationships with a wide range of stakeholders.”
Principal code changes cover four main areas, an FRC document said: board leadership and company purpose; composition, succession, and evaluation; audit, risk, and internal control; and remuneration.
The main focus is on Internal Controls, the release said: “Namely that the board should monitor the company’s risk management and internal control framework and, at least annually, carry out a review of its effectiveness. … The main substantive change the FRC is now making is asking boards to explain through a declaration in their annual reports how they have done this and their conclusions.”
In response to stakeholder feedback about the need for boards to have more time to develop their approaches to Internal Controls, the new Code expectation for the board declaration will come into effect from 1 January 2026, the release said, one year after the rest of the updates come into effect.
Richard Moriarty, FRC CEO, said that changes to the Code will offer a competitive advantage to UK companies.
“The small, but important, change to the expectations on Internal Controls will better support boards asking the right questions at the right time to help them gain the level of assurance they require,” Moriarty said in the release, “and to be able to demonstrate good governance to investors and other stakeholders.”
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