The Financial Reporting Council (FRC) issued an updated Corporate Governance Code in 2024 (“The Code”).  The Code is applicable for companies listed in the UK in the commercial companies’ category or the closed-ended investment funds category irrespective of their place of incorporation.  These companies will need to provide an explicit statement in their annual report re effectiveness of internal controls, established to manage ‘material risks’. 

Searchlight Consulting work extensively supporting our clients to improve their compliance capabilities and implementing related procedures, process and technology changes, managing programmes, managing change and realising increased business value from technology investments. 

To help organisations prepare for these changes, we have distilled some key points to consider, so that you are ready for the UK Corporate Governance Code. 

Which organisations does the code apply? 

There are increasing requirements for board of directors / management of large UK companies, that are listed in the commercial companies or the closed-ended investment funds category, to establish risk and internal control frameworks and maintain their effectiveness. Companies will have to make declarations re control effectiveness, explanation for any material goals / material risk mitigation’s that are not working effectively and remediation actions considered.  Also, many companies not required to apply the UK Corporate Code choose to do so. 

What are the key benefits of having effective internal controls / compliance? 

• Credibility of financial and non-financial reporting can be further improved, which leads to improved shareholder value.

• Prevention and detection of financial loss / fraud can be improved.

• Well implemented controls can bring operational improvements / value add.

• Management reporting / decision making can be improved further increasing company value.

When does the Corporate Governance Code 2024 come into effect? 

The 2024 Corporate Governance Code applies to financial years beginning on or after 1 January 2025.  The requirement for declaration will apply to financial years beginning on or after 1 January 2026 based on FRC guidelines: “Provision 29 now asks boards to make a declaration in relation to the effectiveness of their material internal controls.”

Top tips to consider: 

• Start preparing now to align with the evolving UK Corporate Governance Standards, it takes time to assess and implement the required changes especially if multiple different system changes need to be involved e.g., ERP changes around access / segregation of duties / automated monitoring, control management system to ease auditability. 

• Consider managing your UK Corporate Governance Code preparations under the auspices of a change programme, working with internal / external audit experts to ensure enhanced controls cover the right scope required for the declaration, and changes are ready on time. 

What should companies do to prepare? 

• Businesses should identify their material risks and then identify the key controls that would address these risks. 

• Evaluate current internal controls and risk management processes in relation to the code’s requirements to identify any gaps.  The code follows a “comply or explain” approach, requiring companies to either adhere to it’s provisions or provide an explanation why they are not doing so. 

• Implement the required adjustments to system and non-system-based controls (e.g. policies, and procedures) to ensure alignment with the new code requirements. 

• Implementation should also involve embedding changes in the organisation, communicating the changes to relevant employees and provide necessary training to ensure understanding and adherence. 

Top tips when you consider your compliance programme: 

• Clarifying changed roles and accountabilities (e.g., ownership of control operation, new approval requirement for certain transactions), understanding data required for compliance (e.g., system logs to be turned on) and how technology is best used in the enhanced processes are all crucial for success. 

• People play a key role in realising benefits from operating compliance processes / workflows; it is key to manage organisational change when enhanced compliance controls are implemented. 

• Assess the resource requirement for implementing the compliance programme in time to comply with the legislation’s, and as required involve external support in managing the programme. 

In summary UK Corporate Governance Code changes mean listed companies (PLC’s), companies who choose to apply the code need to prepare for implementing enhanced compliance capabilities and maintain effective risk and internal control frameworks.  This will often require a complex set of preparation activities involving non-system and system changes and decisions on best fit solutions for implementation. 

Preparation to enable alignment for the upcoming compliance deadlines should be at the forefront of companies’ minds.  Are you ready for UK Corporate Governance Code? 

Contact us today to learn more about how Searchlight Consulting can help with successfully preparing for UK Corporate Governance Code, to receive more information about our services. 

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