Prudential Regulation Authority Rulebook

1.1

This Part applies to:

1. (1) every firm; and
2. (2) the external auditor of such a firm (if appointed under 2 or appointed under or as a result of a statutory provision other than in FSMA).

1.2

In 1.1, where firm refers to a managing agent, it applies in respect of the managing agent’s own business and in respect of the insurance business of each syndicate that the managing agent manages.

1.3

In this Part the following definitions shall apply:

annual reports and accounts

means

1. (1) (in relation to a company incorporated in the UK) its annual accounts and reports as defined in section 471 of the Companies Act 2006; or
2. (2) (in relation to any other body) any similar or analogous documents which it is required to prepare whether by its constitution or by the law under which it is established.

accounting reference date

means

1. (1) (in relation to a company incorporated in the UK under the Companies Acts) the accounting reference date of that company determined in accordance with section 391 of the Companies Act 2006; or
2. (2) (in relation to any other body) the last day of its financial year.

balance sheet total

means the aggregate of the amounts shown as assets in the balance sheet.

ultimate parent undertaking

means, in relation to a firm, an undertaking that:

1. (1) is a parent undertaking of the firm; and
2. (2) is not a subsidiary undertaking of another undertaking.

2.1

A firm must:

1. (1) appoint an auditor;
2. (2) when it becomes aware that a vacancy in the office of auditor will arise or has arisen:
1. (a) notify the PRA; and
2. (b) give reasons for the vacancy,
3. without delay, using the form referred to in Notifications 10.3;
4. (3) appoint an auditor to fill any vacancy in the office of auditor;
5. (4) ensure that the replacement auditor can take up office at the time the vacancy arises or as soon as reasonably practicable after that; and
6. (5) when a new auditor is appointed:
1. (a) notify the PRA of that appointment; and
2. (b) advise the PRA of the name and business address of the auditor appointed and the date from which the appointment has effect,
7. using the form referred to in Notifications 10.2.

2.2

Where a firm that is not under an obligation to appoint an auditor imposed by an enactment other than FSMA fails to appoint an auditor within 28 days of a vacancy arising, the PRA may appoint an auditor for that firm on the following terms:

1. (1) the auditor to be remunerated by the firm on the basis agreed between the auditor and firm or, in the absence of agreement, on a reasonable basis; and
2. (2) the auditor to hold office until he resigns or the firm appoints another auditor.

2.3

A firm must comply with and is bound by the terms on which an auditor has been appointed by the PRA.

3.1

Before a firm appoints an auditor, it must take reasonable steps to ensure that the auditor:

1. (1) has the required skill, resources and experience to perform its functions under the regulatory system commensurate with the nature, scale and complexity of the firm's business and the requirements and standards under the regulatory system to which it is subject; and
2. (2) is eligible for appointment as an auditor under any applicable laws.

3.2

A firm must not appoint as auditor a person who is disqualified under Part XXII of FSMA (Auditors and Actuaries) from acting as an auditor either for that firm or for a relevant class of firm.

3.3

A firm must take reasonable steps to ensure that an auditor, which it is planning to appoint or has appointed, provides information to the PRA about the auditor's qualifications, skills, experience and independence in accordance with the reasonable requests of the PRA.

4.1

A firm must take reasonable steps to ensure that the auditor which it appoints is independent of the firm.

4.2

If a firm becomes aware at any time that its auditor is not independent of the firm, it must take reasonable steps to ensure that it has an auditor independent of the firm. The firm must notify the PRA if independence is not achieved within a reasonable time.

5.1

A firm must cooperate with its auditor in the discharge of the auditor’s duties under this Part. In complying with this rule, and in each case subject to section 413 of FSMA (Protected items):

1. (1) a firm must give its auditor a right of access at all times to the firm’s accounting and other records, in whatever form they are held, and documents relating to its business; and
2. (2) a firm must allow its auditor to copy documents or other material on the premises of the firm and to remove copies or hold them elsewhere, or give the auditor such copies on request.

5.2

A firm must take reasonable steps to ensure that:

1. (1) each of its:
1. (a) appointed representatives;
2. (b) suppliers under a material outsourcing arrangement; and
3. (c) tied agents,

where applicable, gives the firm’s auditor the same rights of access to their own books, accounts and vouchers, and entitlement to information and explanations from their officers as are given in respect of the firm by section 341 of FSMA (Access to books etc); and

1. (2) all its employees cooperate with its auditor in the discharge of the duties of the auditor under this Part,

in each case subject to section 413 of FSMA (Protected items).

6.1

A firm must notify the PRA if the firm expects, or knows, that the auditor will qualify the report on the audited annual financial statements or include any emphasis of matter.

7.1

An auditor of a firm must cooperate with the PRA in the discharge of its functions under any relevant legislation.

7.2

An auditor of a firm must give a skilled person appointed by the firm or appointed by the PRA in respect of the firm all assistance that person reasonably requires.

7.3

An auditor of a firm must be independent of the firm when performing duties in respect of that firm.

7.4

An auditor of a firm must take reasonable steps to be satisfied that no conflict of interest exists in respect of that firm from which bias may reasonably be inferred. The auditor must take appropriate action where this is not the case.

7.5

An auditor must notify the PRA without delay if the auditor:

1. (1) is removed from office by a firm;
2. (2) is formally notified of such removal from office;
3. (3) resigns before the term of office expires;
4. (4) is not re-appointed by a firm; or
5. (5) is disqualified from being the auditor of:
1. (a) any undertaking or particular class of undertaking; or
2. (b) any firm or particular class of firm.

7.6

In the circumstances set out in 7.5, the auditor must notify the PRA without delay:

1. (1) of any matter connected with the removal or ceasing of the office of auditor that the auditor thinks ought to be drawn to the PRA’s attention; or
2. (2) that there is no such matter.

8.1

This Chapter applies in relation to annual reports and accounts with an accounting reference date on or after 1 November 2016 but 8.3(2) and (3) and 8.3A apply only in relation to annual reports and accounts with an accounting reference date on or after 31 December 2018.

8.2

Unless otherwise stated, this Chapter applies to an auditor of a firm that:

1. (1) is a UK bank or building society;
2. (2) is not itself the subsidiary undertaking of an undertaking that is not an UK undertaking; and
3. (3) meets at least one of the following criteria:
1. (a) it has an individual balance sheet total greater than £50,000,000,000; or
2. (b) it is a member of a group that has a consolidated balance sheet total greater than £50,000,000,000,

as at the last accounting reference date.

8.3

An auditor must provide annually a written report to the PRA in relation to:

1. (1) a firm’s audited annual report and accounts;
2. (2) where a firm has an ultimate parent undertaking, the audited annual report and accounts of the ultimate parent undertaking; and
3. (3) where a firm is a ring-fenced body and there is a ring-fenced holding company in relation to the firm, the audited annual report and accounts of the ring-fenced holding company.

8.3A

But an auditor is not required to report in relation to the audited annual report and accounts of the firm’s ultimate parent undertaking if the auditor is not also the auditor of the ultimate parent undertaking.

8.4

The report in 8.3 must:

1. (1) be provided within 120 days beginning with the relevant accounting reference date;
2. (2) provide information about key judgment areas, including:
1. (a) matters of valuation;
2. (b) quality of earnings;
3. (c) key accounting judgments; and
4. (d) the quality of the systems and controls relevant to the preparation of the annual report and accounts; and
3. (3) be prepared with due skill, care and diligence.

8.5

An auditor must consult with the PRA in advance of preparing the report.

8.6

A firm must cooperate with its auditors in preparing the report.