Engagement between external auditors and supervisors and commencing the PRA's disciplinary powers

Policy Statement 1/16 | Consultation Paper 8/15

Published on 21 January 2016

Engagement between external auditors and supervisors and commencing the PRA’s disciplinary powers over external auditors and actuaries - PS1/16

This Prudential Regulation Authority (PRA) Policy Statement sets out feedback and links to final rules, an associated supervisory statement, a new statement of policy on the imposition and amount of financial penalties on auditors and actuaries of PRA-authorised persons, and an amendment to the PRA’s statement of policy on statutory notices and the allocation of decision making which relates to the exercise of disciplinary powers over auditors and actuaries. The new and amended statements of policy are incorporated in the updated Statement of Policy ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’, January 2016. The Policy Statement and other associated publications follow on from proposals in Consultation Paper 8/15 ‘Engagement between external auditors and supervisors and commencing the PRA’s disciplinary powers over external auditors and actuaries’.

The requirement for written auditor reporting to the PRA applies to the external auditors of the largest (ie with a balance sheet total greater than £50 billion – either individual or at consolidated group level) UK-headquartered deposit-taking institutions that are not subsidiaries of non-UK firms. The regime will commence during the audit cycle for financial reporting periods ending on or after 1 November 2016.

The Policy Statement includes the following appendices with links.

Appendix 1 PRA RULEBOOK: NON-AUTHORISED PERSONS: WRITTEN REPORTS BY AUDITORS TO THE PRA INSTRUMENT 2016 available below.

Appendix 2 Supervisory Statement 1/16 ‘Written reports by external auditors to the PRA’. 

Appendix 3 Updated Statement of Policy ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’.

PDFPolicy Statement 1/16

PRA RULEBOOK: NON-AUTHORISED PERSONS: WRITTEN REPORTS BY AUDITORS TO THE PRA INSTRUMENT 2016 PRA 2016/1

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Published on 27 February 2015

Engagement between external auditors and supervisors and commencing the PRA’s disciplinary powers over external auditors and actuaries – CP8/15

This consultation paper (CP) introduces two proposals on the interaction between the Prudential Regulation Authority (PRA) and external auditors and actuaries.

The PRA looks to external auditors to contribute to its supervision of firms by directly engaging with the PRA in a pro-active and constructive way. In particular, an effective auditor-supervisor relationship supports judgement-based supervision and helps promote the safety and soundness of PRA-authorised firms. The PRA believes the benefits delivered by effective auditor-supervisor relationships are enhanced by the insights gained from auditors that carry out high-quality audits. 

There have been improvements in the last few years in how external auditors and the PRA engage with each other, framed by documents such as the PRA Code of Practice and by closer and more frequent engagement between supervisors and external auditors. The PRA has monitored the quality of auditor-supervisor dialogue and, as noted in its response on this topic to the Parliamentary Commission on Banking Standards, it has reported to the PRA Board on the dialogue. This paper contains some observations on the current quality of that dialogue.

The PRA considers that, to achieve maximum value from the auditor-supervisor dialogue, it is right to review this engagement regularly so that it continues to be focused on issues that pose the most significant risks to advancement of the PRA’s objectives.  Against this background, the PRA makes proposals which, it believes, will further enhance the benefits derived from the auditor-supervisor dialogue.

This CP is relevant to large banks, building societies and insurers and also to the auditors and actuaries of all PRA-authorised firms.

Summary of proposals

  • The PRA will require the external auditors of the largest UK-headquartered deposit-taking institutions that are not subsidiaries of non-UK firms to provide written reports to the PRA as part of the statutory audit cycle.
  • HM Treasury has laid regulations to commence the PRA’s disciplinary powers over actuaries and auditors under s 345A of FSMA.  This consultation sets out how the PRA intends to use those powers, including how it will cooperate with other regulators.

Responses

This consultation closed on Wednesday 27 May 2015. 

PDFConsultation Paper 8/15

PDFPress release

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