18 May 2016

Bank of England: Implementing audit committee requirements under the revised Statutory Audit Directive

This PRA policy statement provides feedback to responses to Consultation Paper ‘Implementing audit committee requirements under the revised Statutory Audit Directive’. It also sets out the final rules in Appendix 1.

The Prudential Regulation Authority (PRA) has made the following changes to the proposals set out in CP34/15 in light of the consultation responses:

• The smallest firms are invited to apply for a waiver or modification of the rules, having regard to the Directive minimum requirements. Refer to Proportionality in Chapter 2.
• The PRA has introduced transitional arrangements for a period of two years. Refer to Transitional measures in Chapter 2.
• The PRA has amended the independence of membership requirements for significant subsidiaries of parent undertakings in the European economic area (EEA) and outside it also (non-EEA). The requirement in the final rules is for a majority of, rather than all, the members of the subsidiary audit committee to be independent, including the chairman, provided that the audit committee of the subsidiary’s parent is comprised fully of independent non-executive directors (independent NEDs). Refer to Independence of membership in Chapter 3.

The PRA has taken the opportunity in this PS to offer clarification as to the intent of the policy in certain areas without a resultant change to the rules. These include the PRA’s approach to independence, clarification of the PRA’s expectations regarding competence, aspects of audit committee functions and how the audit committee requirements will operate alongside the Senior Managers Regime (SMR) and Senior Insurance Managers Regime (SIMR).

The PRA will take forward the proposed requirements, grouped into four distinct themes, in line with CP34/15:

• scope;
• structure;
• membership; and
• functions.

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Policy statement

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