PRA consults on changes to audit committee requirements as a result of EU audit reform
18 Sep, 2015
The Prudential Regulation Authority (PRA) has issued a consultation paper that proposes changes to audit committee requirements for banks, building societies and insurance undertakings as a result of the UK implementation of the EU Audit Directive (2014/56/EU); specifically implementing the requirements of Article 39. The PRA has also proposed that these requirements will apply to UK designated investment firms.
The consultation follows a recent policy announcement by the Department for Business, Innovation and Skills (BIS) on the UK implementation of the EU audit reforms. The proposed requirements will apply for financial years commencing on or after 17 June 2016.
The Financial Conduct Authority (FCA) has already issued its consultation on changes to audit committee requirements for companies with securities admitted to trading on an EEA regulated market. If a firm falls within the scope of the FCA and PRA audit committee rules, it will have to follow both sets of rules.
The key proposals contained within the PRA consultation paper (CP34/15: Implementing audit committee requirements under the revised Statutory Audit Directive) are:
Scope
-
Audit committees will generally be required for: CRD credit institutions; Solvency II insurers, the Society of Lloyd's and managing agents; and UK designated investment firms
-
Subsidiaries of EEA parents that have an audit committee in accordance with article 39 do not need to have an audit committee, unless those subsidiaries are significant. If the non-executive directors (NEDs) of the significant subsidiary are the same as those of the parent, then the significant subsidiary does not need to have an audit committee.
Structure
-
The audit committee must be a sub-committee of the board.
Membership
-
The audit committee of a significant firm should consist entirely of independent non-executive directors (independent NEDs). For other firms (lower impact firms) audit committees must consist entirely of NEDs provided that a majority, and the chairman, are independent NEDs.
Functions
-
The audit committee must carry out the responsibilities prescribed by article 39. In addition, the audit committee of a lower impact firm is allowed to be combined with, and carry out the functions of, the risk committee.
The Financial Reporting Council (FRC) and BIS will be separately consulting on other aspects of the UK implementation of the EU Audit Directive, including on aspects related to governance.
Comments are invited until 18 December 2015.
Click for:
