Are firms prepared for ‘UK SOX?’ The Financial Reporting Council (the would-be ARGA) proposed a phased rollout of corporate governance reforms back in 2022, aiming to strengthen internal controls in a much-anticipated regulatory overhaul.
Known officially as the UK Corporate Governance Code, the delayed regulatory reforms have been dubbed ‘SOX lite,’ or ‘UK SOX’ based on its similarities to the Sarbanes–Oxley Act, a mainstay of US governance since the turn of the 21st century.
Borne out of several high-profile financial scandals (including the collapse of Enron), US regulators developed SOX to restore investor confidence, enhance regulatory oversight, and strengthen corporate governance.
While the UK’s corporate governance reforms bear a likeness, some noteworthy differences have garnered criticism for their leniency:
- The scope is currently narrower, primarily focusing on high-risk firms and premium listed companies (as opposed to the US SOX, which applies to all publicly traded companies, including foreign organisations on the US stock exchange).
- The reporting requirements differ in that the US SOX is heavily rooted in strict disclosure frameworks, unlike the UK’s offering, which takes a principle-based approach, where firms are required to operate on a ‘comply or explain’ basis.
- The UK SOX is relatively fluid in comparison to the US SOX, and it’s not legally binding (although breaches will likely incur sanctions and reputational damage).
When’s it Due?
The implementation date for UK SOX is yet to be announced, although we anticipate movement in late 2024.
While the reforms have been delayed, UK firms should start preparing for potential changes as soon as possible. We saw some firms get caught off guard when the 2023 deadline for the Consumer Duty Act rounded the corner, making the value of proactivity more obvious than ever before. As the FCA moves for a regulatory clampdown, we can expect a similar attitude elsewhere.
Between the uptick in financial crime, the climate crisis, and an AI-laden corporate environment, the need for comprehensive regulatory guidance has never been clearer.
The previous government were in the process of reforming corporate governance, although a lack of stability (including the withdrawal of several draft regulations) has proven burdensome for many business leaders.
As the nation waits to witness the changes promised by the newly elected Labour government, compliance functions and decision-makers are left with a familiar feeling, and policy stability is high on the wish list.
Getting Ready for Change
Broadgate’s specialist compliance recruiters have put together a few pointers to help you prepare for the oncoming changes:
- Conduct an internal audit – strengthening your financial reporting mechanisms should take precedence, given the regulatory focus on audit controls and transaction tracking.
- Stay Informed – we don’t have any concrete dates yet, so staying informed is essential. Check out the FRC’s website for updates.
- Build an adaptable Compliance Roadmap – develop a flexible plan outlining the steps needed to achieve compliance with the final UK SOX regulations. Our recruitment team can help you identify talent who can adapt and implement these changes. Our community-led approach creates access to a diverse talent pool, even in a candidate-short market.
- Review Your Board and Governance –a lack of clarity at the board level can spell disaster (it’s a common stumbling block for tech implementation). It’s worth reviewing your board structure and the roles and responsibilities of directors to ensure clear lines of accountability for the reforms.
