Response to the FRC's proposed amendments to the Corporate Governance Code Consultation

The UK is widely recognised as a world leader in corporate governance. The importance of our corporate governance is ensuring market stability, predictability and investor trust is well established. TheCityUK recognises the role of good corporate governance in ensuring that the UK remains an internationally attractive and domestically competitive place for financial and related professional services firms to do business. 

We thank the FRC for the opportunity to provide feedback on the proposed amendments to the Corporate Governance Code. In summary, we have called for the following:

'Comply or Explain' Disconnect

  • The FRC must continue to promote the flexible nature of the Code and be mindful, in expanding its provisions, of the risk that these may be interpreted prescriptively in practice.
  • The Code should be explicit that an explanation for non-compliance is not a failure of governance, and reinforce the viability of the 'explain' option with proxy advisers to avoid a harmful ‘box-ticking’ approach to compliance.

Amendments to Provision 30

  • We do not agree with the proposed drafting of the new Provision 30.
  • The declaration by the board on risk management and internal controls ‘effectiveness’ is too absolute - there must be acceptance of some risk by investors.
  • We suggest an amendment to the language here to require the board to describe how the systems are ‘appropriate’ or ‘proportionate’ in light of the material risks faced by the company and identified by the board.
  • The FRC should explicitly acknowledge ‘risk appetite’ in this provision to allow boards to set the amount of risk they are willing to take to achieve objectives and define the systems in place to manage risk within those boundaries.
  • The requirement for the declaration to effectively require monitoring up to the date of the annual report will have significant cost and resource implications for premium-listed companies, due to the level of internal and external assurance that many directors will require.
  • We do not support the amendment of ‘financial’ to ‘reporting’ to capture controls on narrative as well as financial reporting. As stated in the consultation response, this creates an onus to report on environmental and social matters, which is counterproductive and duplicates other reporting requirements

A proportionate and consistent approach to reporting

  • Any changes proposed to the Code should, therefore, be considered in the light of what is proportionate, both in terms of the requirements set and the costs of complying with them.
  • The FRC should consider where overlap with other legal and/or regulatory requirements is necessary to avoid duplication of compliance and disclosure requirements. The Code should not duplicate existing governance requirements.
  • Further action is required here to maintain alignment with recent reviews and proposals, including Lord Hill’s Listing Review, the Secondary Capital Raising Review led by Mark Austin, the FCA’s Primary Markets Effectiveness Review and the most recent consultation CP23/10, and changes to the Prospectus Regime.
  • Environmental, social, and corporate governance (ESG) has already been brought under the FCA’s Listing Rules. FRC should avoid duplication, as too many overlapping ESG and sustainability requirements will deter or complicate compliance.