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Bank of England consults on interaction of the PRA with external auditors and actuaries

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03 Mar 2015

The Bank of England has issued a consultation paper introducing two proposals on the interaction of the Prudential Regulation Authority (PRA) with external auditors and actuaries. The consultation paper ‘CP8/15 ‘Engagement between external auditors and supervisors and commencing the PRA’s disciplinary powers over external auditors and actuaries’ is open for comment until 27 May 2015.

The paper proposes that the external auditors of each of the largest UK-headquartered banks and building societies (those with a balance sheet total in excess of £50bn or are members of groups with a balance sheet total in excess of £50bn) that are not subsidiaries of non-UK firms should be required to provide a written report to the PRA as part of the statutory audit of that firm.  The written report will consist of answers to specific questions set out in advance by the PRA, designed to gather qualitative information about key judgement areas within the audit. Two example questions, covering loan loss provisioning and provisions and contingencies for customer redress and litigation, are included in the consultation paper.

The PRA intends to engage with stakeholders ahead of the 2015 reporting season to identify how 2015 year-end audits could be used as an opportunity for a ‘dry run’ of the process. This proposal is expected to be introduced in relation to the audits of financial reporting periods ending on or after 1 November 2016.

The paper is also consulting on a draft supervisory statement setting out how the PRA intends to use its disciplinary powers over actuaries and auditors under s345A of the Financial Services and Markets Act 2000. The PRA has been able to exercise these powers since 20 February 2015. The draft supervisory statement sets out the PRA’s approach as to whether a penalty is warranted and, if so, to the determination of an appropriate level of penalty.

The full consultation paper can be accessed from the Bank of England website.

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