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SUP 3.2 Purpose

Purpose: general

SUP 3.2.1GRP

This chapter sets out rules and guidance on the role auditors play in the FSA's monitoring of firms' compliance with the requirements and standards under the regulatory system. In determining whether a firm satisfies the threshold conditions, the FSA has regard to whether the firm has appointed auditors with sufficient experience in the areas of business to be conducted by the firm (COND 2.5.7 G (11)). Auditors act as a source of information for the FSA in its supervision. They report, where required, on the financial resources of the firm, the accuracy of its reports to the FSA and its compliance with particular rules, such as the Client asset rules.

SUP 3.2.2GRP

The Act, together with other legislation such as the Companies Acts 1985 and 1989, the Building Societies Act 1986 and the Friendly Societies Act 1992, provides the statutory framework for firms' and auditors' obligations.

SUP 3.2.3G

The requirements in SUP 3.9 represent an interim approach to the use of auditors, based mainly on the requirements which previous regulators applied to firms.

Limited application for certain types of firm and their auditors

SUP 3.2.4G

SUP 3.1.1 R and SUP 3.1.2 R limit the application of this chapter in relation to:

  1. (1)

    authorised professional firms to which COB 9.1 (Custody) and COB 9.3 (Client money) do not apply or which are not required by IPRU(INV) 2.1.2R to comply with chapter 3, 5, 10 or 13 of IPRU(INV);

  2. (2)

    oil market participants, and energy market participants, to whom IPRU(INV) 3 does not apply;

  3. (3)

    small personal investment firms;

  4. (4)

    service companies;

  5. (5)

    exempt insurance intermediaries;4

  6. (6)

    insurance intermediaries not subject to SUP 3.1.2 R (10);4

  7. (7)

    mortgage intermediaries; and4

  8. (8)

    mortgage administrators.4

Such firms are not required, under this chapter, to appoint an auditor because SUP 3.3 (Appointment of auditors) does not apply. If such firms appoint an auditor under or as a result of a statutory provision other than in the Act, for example, under the Companies Act 1985, SUP 3.7 (Notification of matters raised by auditor) and SUP 3.8 (Rights and duties of all auditors) nevertheless apply to help the FSA discharge its functions under the Act. See SUP 3.1.2 R, Note 4, for further clarification concerning insurance intermediaries and those which qualify as exempt insurance intermediaries.1234

Insurance intermediaries and their auditors

SUP 3.2.5GRP

4It is the responsibility of an insurance intermediary's senior management to determine, on a continuing basis, whether the insurance intermediary is an exempt insurance intermediary for the purposes of this requirementand to appoint an auditor if management determines the firm is no longer exempt. SUP 3.7 (amplified by SUP 15) sets out what a firm should consider when deciding whether it should notify the FSA of matters raised by its auditor.

SUP 3.2.6GRP

4The rights and duties of auditors are set out in SUP 3.8 (Rights and duties of all auditors) and SUP 3.10 (Duties of auditors: notification and report on client assets). SUP 3.8.10 G includes the auditor's statutory duty to report certain matters to the FSA imposed by regulations made by the Treasury under sections 342(5) and 343(5) of the Act (information given by auditor or actuary to the FSA). An auditor should bear these rights and duties in mind when carrying out client asset report work, including whether anything should be notified to the FSA immediately.