The 2024 version brings in updates designed to strengthen governance practices and investor confidence. Here’s what you need to know.
The new code replaces the 2018 version and is applicable to all companies listed in the ‘equity shares (commercial companies)’ and the ‘closed-ended investment funds’ categories on the UK Official List, regardless of where they are incorporated.
It is applicable for accounting periods beginning on or after 1 January 2025. The exception is a new requirement for internal controls (provision 29) which will take effect from 1 January 2026.
AIM companies and all others on the UK Official List, including those in the ‘equity shares (transition)’ category, are not required to comply. But many choose to adopt the code voluntarily as a demonstration of good governance.
Like the 2018 version, the 2024 code is in five sections as follows:
- Board Leadership and Company Purpose
- Division of Responsibilities
- Composition, Succession and Evaluation
- Audit, Risk and Internal Control
- Remuneration
Each contains principles and provisions. The principles set out the fundamental expectations for governance, while the provisions offer guidance on how to implement those principles effectively. There is no single way to apply the principles and comply with, or explain against, the provisions. Companies applying the code will differ in size, sector and maturity, and boards should take this into account when they decide their approach to implementation.
As before, the code operates under the ‘comply or explain’ principle. This allows companies flexibility in how they meet governance expectations, while requiring clear explanations for any deviations.
So what is new?
The 2024 code introduces a small number of targeted changes aimed at strengthening corporate governance, particularly in audit, risk, and internal controls. The overarching goal is to enhance investor confidence by improving transparency and accountability.
There are key amendments to one principle and two provisions, with a particular focus on internal controls and governance reporting.
Section 1 – Board Leadership
Principle C. Boards are expected to report on governance activities by focusing on decisions and their outcomes in the context of the company’s strategy and objectives. Where there are departures from the code’s provisions, boards should provide clear and meaningful explanations.
Section 4 – Audit, Risk and Internal Control
Provision 29 (effective from 1 January 2026). This revised and expanded provision is the most significant change to the code. It asks boards to monitor and review the company’s risk management and internal control framework annually. They must report on how effective these frameworks are and discuss any material weakness in the reporting period. The monitoring and review should cover all material controls – financial, operational, reporting and compliance. It also introduces a formal declaration of internal control for the first time.
This means the annual report must include:
- A description of how the board has monitored and reviewed the framework’s effectiveness.
- A declaration of effectiveness of material controls as of the balance sheet date.
- A description of any material controls that did not operate effectively, actions taken or proposed to improve them, and steps taken to address previously reported issues.
Section 5 – Remuneration
Provision 38. In conjunction with provision 37 which prescribes that directors’ contracts should incorporate malus and clawbacks, companies must include in their annual report a description of their malus and clawback provisions, including:
- The circumstances under which these provisions may be applied.
- The duration of the provisions and the rationale for the selected period.
- Whether the provisions were used during the reporting period – with a clear explanation if so.
What are the priorities?
Boards should already have begun implementing changes ahead of the reporting season. If not, they should be preparing for them now. While most provisions apply from 2025, the delayed implementation of provision 29 buys extra time for companies to strengthen internal control frameworks.
This is also a good opportunity to assess current governance practices, ensure they have robust monitoring and reporting mechanisms, and engage with auditors and advisors to prepare for the new requirements. So how should boards begin?
- Conduct a gap analysis against the new requirements
- Review internal control frameworks to ensure readiness for provision 29
- Update governance reporting to reflect decision-making outcomes
- Revisit remuneration policies to ensure compliance with new disclosure obligations
Non-executive directors (NEDs) also have an important role in the introduction of the new code. This particularly applies to provision 29, with its requirement for formal declaration of internal control effectiveness which raises the bar for assurance and accountability.
For NEDs this is an opportunity to reinforce their oversight role, challenge management constructively, and ensure the board is equipped to meet evolving expectations.
After all, boards that proactively engage with these changes will be better positioned to meet investor expectations and regulatory requirements.
For further guidance on any issues raised in this article, please contact Imogen Massey or Ryan Davies.
