Essential Corporate News: week ending 10 November 2023

FRC: Policy update statement concerning UK Corporate Governance Code

On 7 November 2023, the Financial Reporting Council (FRC) published a policy update on its recent consultation with stakeholders on certain revisions to the UK Corporate Governance Code (Code). The policy update was published in light of the fact that the Government’s previously announced plan for primary legislation to modernise the regulation of audit, corporate reporting and governance has not been included in the King’s Speech 2023.

Following its engagement with stakeholders in relation to the consultation on the Code, the FRC has decided to take forward only a small number of the original 18 proposals that were set out in the consultation document and to stop development of the remainder. As a result:

• There will be a small number of changes that streamline and reduce duplication associated with the Code that were overwhelmingly supported by stakeholders in the interests of reducing burdens.
• The main substantive change the FRC will take forward concerns revisions to its original proposal on internal controls. The FRC comments that this decision has been informed by very helpful stakeholder feedback to ensure there is a more targeted and proportionate Code revision. This includes allowing more time for its implementation and ensuring the UK approach clearly differentiates from the much more intrusive approach adopted in the US.
• The FRC will not take forward the remainder, over half, of the original proposals. These include: those relating to the role of audit committees on environmental and social governance and modifications to existing code provisions around diversity, over-boarding, and Committee Chairs engaging with shareholders. A number of other proposals will also not be taken forward as a result of the Government’s recent decision to withdraw its Statutory Instrument relating to an audit and assurance policy, reporting on distributable profits and resilience statement requirements.

The FRC intends to publish an updated Code in January 2024 and is publishing this policy statement to help stakeholders with their planning.

In light of concerns raised by some stakeholders about how the FRC’s guidance issued under the Code can have unintended effects on businesses, investors and their advisers, the FRC also wants to explore ways of ensuring any guidance is proportionate and limits burdens whilst not weakening effective governance. To this end, from January 2024, the FRC intends to give an additional remit to its Stakeholder Insight Group to provide the FRC with advice on whether there are aspects of its current and planned guidance associated with the Code that could be improved to ensure the right balance is struck between supporting effective governance and reducing unnecessary burdens.

The FRC also notes that during its consultation on the Code, some concerns were expressed by stakeholders about aspects of the UK Stewardship Code. The FRC notes that it is due to review the Stewardship Code in 2024. Once the updated UK Governance Code is issued in January 2024, the FRC will start to engage with stakeholders on how best to review the Stewardship Code, including understanding how it works in practice and what changes may be required going forward to ensure it remains fit for purpose. 

(FRC, Statement – Policy update in relation to UK Corporate Governance Code, 07.11.2023)

HM Treasury: Consultation response to financial promotion exemptions for high net worth individuals and sophisticated investors published

On 7 November 2023, HM Treasury (HMT) published its response to its consultation on proposed reforms to the financial promotions exemptions for high net worth individuals and sophisticated investors.

See further our Regulation Tomorrow blog post here.