ENF 17
Disqualification
of auditors and actuaries
ENF 17.1
Application and purpose
- 01/12/2004
Application
ENF 17.1.1
See Notes
- 01/09/2003
Purpose
ENF 17.1.2
See Notes
Auditors and actuaries fulfil a vital role in the management
and conduct of firms and AUTs. Provision of the Act, rules made under the Act and the OEIC Regulations 2000 impose various duties
on auditors and actuaries.
These duties and the FSA's power
to disqualify auditors and actuaries if
they breach them will assist the FSA in
pursuing its regulatory
objectives. The FSA's power
to disqualify auditors in breach of duties imposed by trust scheme rules will also assist the FSA to achieve these regulatory objectives by
ensuring that auditors fulfil the duties imposed upon them by these rules.
- 01/09/2003
ENF 17.2
Introduction
- 01/12/2004
ENF 17.2.1
See Notes
This chapter outlines:
(1) the FSA's power
to disqualify auditors and actuaries under
section 345 of the Act (Disqualification);
(2) the FSA's power
to disqualify auditors under section 249 of the Act (Disqualification of auditor for breach
of trust scheme rules);
(3) the FSA's approach
to the exercise of its powers under section 345 and 249;
(4) the FSA's procedure
for exercising the powers; and
(5) the effect of the FSA's decision to exercise the powers.
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ENF 17.3
The FSA's power to disqualify auditors and actuaries
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ENF 17.3.1
See Notes
Under section 345 of the Act (Disqualification),
if it appears to the FSA that
an auditor or actuary to
whom section 342 of the Act applies
has failed to comply with a duty imposed on him under the Act, it may disqualify him from acting as
an auditor or actuary for
any firm or
any class of firm.
Section 342 of the Act applies
to those auditors and actuaries referred
to in ENF
17.1.1 G (1) and (2).
- 01/09/2003
ENF 17.3.2
See Notes
The duties imposed on the auditors and actuaries of firms under the Act are:
(1) the duties imposed by rules made under section 340(3) of the Act (Appointment) contained
in SUP
3 (Auditors) and SUP 4 (Actuaries)
and, in the case of firms which
are ICVCs,
contained in COLL 4 (Investor relations), COLL
7 (Suspension of dealings and termination of authorised
funds), CIS 10 (Report and accounts) and CIS 14 (Termination of authorised funds);
(2) the duties under sections 342(6) (Information
given by auditor or actuary to the FSA) and 343(6) (Information given by auditor
or actuary to the FSA: persons with close links) of the Act to communicate to the FSA any matter prescribed in The Financial
Services and Markets Act 2000 (Communications by Auditors) Regulations 2001
(SI 2001/2587) and The Financial Services and Markets Act 2000 (Communications
by Actuaries) Regulations 2003 (SI 2003/1294);
(3) a duty to notify the FSA (under section 344(2) of the Act (Duty
of auditor or actuary resigning etc to give notice)), if:
(a) they are removed from office by a firm;
(b) they resign before the expiry of their
term of office with a firm;
or
(c) they are not re-appointed by a firm;
(4) a duty under section 344(3), on ceasing
to be an auditor or an actuary of
a firm, to
notify the FSA without
delay:
(a) of any matter connected with their ceasing
to be an auditor or actuary for
that firm which
they think ought to be drawn to the FSA's attention;
or
(b) that there is no such matter; and
- 01/04/2004
ENF 17.3.3
See Notes
Under section 249 of the Act (Disqualification of
auditor for breach of trust scheme rules) if it appears to the FSA that an auditor has
failed to comply with the duties imposed on him by trust scheme rules it may disqualify him
from being the auditor for any AUT or ICVC. These duties are
set out in COLL 4 (Investor relations), COLL
7 (Suspension of dealings and termination of authorised
funds), CIS 10 (Report and accounts), and CIS 14 (Termination of authorised funds).
- 01/04/2004
ENF 17.3.4
See Notes
The FSA's powers
to disqualify auditors and actuaries under
section 345 and auditors under section 249 of the Act are separate powers. However, the procedures
for exercising the powers in each case are the same and are set out in section
345:
(1) if the FSA proposes to disqualify an auditor or actuary, it must give him
a warning notice (section
345(2): see DEC 2.2 (Warning notice procedure));
(2) if the FSA decides to disqualify an auditor or actuary, it must give him
a decision notice (section
345(3): see DEC 2.3 (Decision notice procedure));
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ENF 17.4
The FSA's policy on disqualification of auditors and actuaries
- 01/12/2004
ENF 17.4.1
See Notes
The FSA recognises
that the use of its powers to disqualify auditors and actuaries will have serious consequences for
the auditors or actuaries concerned
and their clients; it will therefore exercise
its power to impose a disqualification in a way that is proportionate to the
particular breach of duty concerned. The FSA will
consider the seriousness of the breach of duty when deciding whether to exercise
its power to disqualify and the scope of any disqualification.
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ENF 17.4.2
See Notes
Actuaries appointed
by
firms
under SUP 4.3.1 R are approved persons and as such will be subject to
the Statements of Principle and Code of Practice for Approved Persons.
When deciding whether to exercise its power to disqualify an
actuary
who is an approved person, the FSA will consider whether
the particular breach of duty can be adequately addressed by the exercise
of its disciplinary powers in relation to approved persons. These powers and the factors
that the FSA will
take into account when deciding whether to exercise them are set out in ENF 11 (Discipline of authorised firms and approved persons:
the FSA's general approach), ENF 12 (Discipline of firms
and approved persons: public censures and public statements) and ENF 13 (Discipline of firms and approved persons: financial
penalties).
- 31/12/2004
ENF 17.4.2A
See Notes
In
cases where the nature of the breach of duties set out in ENF
17.3.2 G and ENF
17.3.3 G is
such that the FSA has
concerns about the fitness and propriety of an individual auditor or actuary, the FSA will consider whether
it is appropriate to make a prohibition
order instead of, or in addition to, disqualifying the individual
(see ENF
8 (Prohibition of individuals)).
- 01/09/2003
ENF 17.4.3
See Notes
(1) Under section 345(1) of the Act (Disqualification),
the FSA may
disqualify an auditor or actuary to
whom section 342 of the Act applies
(see ENF
17.3.1 G) from acting for a specific firm or a particular class
of firm.
Under section 249(1) of the Act (Disqualification
of auditor for breach of trust scheme rules), the FSA may disqualify an auditor appointed by
an AUT from
acting for any AUT or ICVC.
(2) A disqualification order will be made
against the person appointed
as auditor or actuary of
the firm.
In the case of actuaries, the
disqualification order will be made against the individual appointed by the firm. In the case of auditors,
the disqualification order will depend on the terms of the appointment. Where
the firm has
appointed a named individual as auditor the disqualification will be made
against that individual and this will be the case where the individual concerned
is a member of a firm of auditors. Where the firm has appointed a firm as auditor the
disqualification order will be against that firm. Where the person appointed is a limited liability partnership the disqualification
order will be against the limited
liability partnership rather
than its members.
- 01/09/2003
ENF 17.4.4
See Notes
When it decides whether to exercise its
power to disqualify an auditor or actuary under
section 345(1), and what the scope of any disqualification will be, the FSA will take into account
all the circumstances of the case. These may include, but are not limited
to, the following factors:
(1) the nature and seriousness of any breach
of rules and
the effect of that breach: the rules are
set out in SUP 3 (Auditors) and SUP
4 (Actuaries), and in the case of firms which are ICVCs, in COLL 4 (Investor
relations), COLL 7 (Suspension of dealings
and termination of authorised funds), CIS 10 (report and accounts)
and CIS 14 (Termination of authorised funds). The FSA will regard as particularly
serious any breach of rules which
has resulted in, or is likely to result in, loss to consumers or damage to confidence in the financial system or an
increased risk that a firm may
be used for the purposes of financial
crime;
(2) [deleted]
(a) [deleted]
(b) [deleted]
(c) [deleted]
(d) [deleted]
(e) [deleted]
(3) the nature and seriousness of any breach
of the duties imposed under the Act referred
to in ENF
17.3.2 G: the FSA will regard as particularly serious any
failure to disclose to it information which has resulted in, or is likely
to result in, loss to consumers or
damage to confidence in the financial
system or an increased risk that a firm may be used for the purposes of financial crime;
(4) action taken by the auditor or actuary to remedy the breach:
this may include whether the auditor or actuary brought
the breach to the attention of the FSA promptly,
the degree of cooperation with the FSA in
relation to any subsequent investigation, and whether remedial steps have
been taken to rectify the breach and whether reasonable steps have been taken
to prevent a similar breach from occurring;
(5) action taken by professional bodies:
the FSA will
consider whether any disciplinary action has been or will be taken against
the auditor or actuary by
a relevant professional body and whether that action adequately addresses
the particular breach of duty;
(6) the previous compliance record of the
auditor or actuary concerned:
whether the FSA (or
a previous regulator)
or professional body has imposed any previous disciplinary sanctions on the
firm or individual concerned.
- 01/04/2004
ENF 17.4.5
See Notes
When deciding whether or not to disqualify
an auditor under section 249(1) of the Act (Disqualification
of auditor for breach of trust scheme rules), and in setting the disqualification,
the FSA will
take into account all the circumstances of the case. These may include, but
are not limited to, the following circumstances:
(1) the effect of the auditor's breach of
a duty imposed by trust
scheme rules: the FSA will
regard as particularly serious a breach of a duty imposed by trust scheme rules (set
out in COLL
4 (Investor relations), COLL 7 (Suspension of dealings and termination of authorised funds), CIS 10 (Report and accounts) and CIS 14 (Termination of authorised funds)) which has resulted in, or is
likely to result in, loss to consumers or
damage to confidence in the financial
system or an increased risk that a firm may be used for the purposes of financial crime;
(2) action taken by the auditor to remedy
its breach of a duty imposed by trust
scheme rules: this may include any steps taken by the auditor
to bring the breach to the attention of the FSA promptly, the degree of co-operation
with the FSA in
relation to any subsequent investigation, and whether any steps have been
taken to rectify the breach or prevent a similar breach;
(3) action taken by a relevant professional
body:
The FSA will
consider whether any disciplinary action has or will be taken against the
auditor by a relevant professional body and
whether such action adequately addresses the particular breach of a duty imposed
by trust scheme rules;
(4) the previous compliance record of the
auditor concerned: whether the FSA (or
a previous regulator)
or professional body has
imposed any previous disciplinary sanctions on the firm or individual concerned.
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ENF 17.5
Removal of a disqualification
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ENF 17.5.1
See Notes
- 01/12/2004
ENF 17.5.2
See Notes
The FSA will
remove a disqualification if it is satisfied that the disqualified person will in future
comply with the duty in question (and other duties under the Act). When it considers
whether to grant or refuse a request that a disqualification be removed on
these grounds, the FSA will
take into account all the circumstances of a particular case. These circumstances
may include, but are not limited to:
(1) the seriousness of the breach of duty that resulted
in the disqualification;
(2) the amount of time since the original
disqualification; and
(3) any steps taken by the auditor or actuary after the disqualification
to remedy the factors which led to the disqualification and any steps taken
to prevent a similar breach of duty from
happening again.
- 01/09/2003
ENF 17.6
The effect of a disqualification
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ENF 17.6.1
See Notes
A disqualification will come into effect
on the date stated in the final
notice.
- 01/09/2003
ENF 17.6.2
See Notes
A firm must
not appoint as an auditor a person who
is the subject of an order disqualifying him from acting for that firm or that class of firm (see SUP 3.4.5 R5 (Disqualified auditors)). Similarly, an AUT or ICVC must
not appoint as auditor a person who
is the subject of an order disqualifying him from acting for that AUT or ICVC or any AUT or ICVC.
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ENF 17.7
Publication of disqualification
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ENF 17.7.1
See Notes
- 01/12/2004
ENF 17.7.2
See Notes
Under section 347 (1)(i) of the Act
(The record of authorised persons etc), the FSA must keep a record of every person falling within
such class as the FSA may
determine. To help it fulfil its regulatory
objectives of protecting consumers and
promoting public awareness, the FSA will
keep on the FSA Register a record of firms and individuals
who have been the subject of disqualification orders.
- 01/12/2004
ENF 17.7.3
See Notes
Once the decision to make a disqualification
order has been set out in a final
notice, the FSA will
consider what additional information about the circumstances of the order
to include on the FSA Register and will take
into account any possible prejudice to the auditor or actuary concerned. In general, the FSA considers that publication
of relevant information about orders to disqualify auditors or actuaries will be in the
interests of firms and consumers.
- 01/12/2004
ENF 17.7.4
See Notes
Under section 347(3) of the Act, if it appears to the FSA that an entry on the
public record ceases to apply to a person,
it may remove the relevant entry from the record. Section 347(4) states that,
if the FSA decides
not to remove the entry in the record, it must make a note to that effect
on the FSA Register and
state why it believes the entry on the record no longer applies to the person.
- 01/12/2004
ENF 17.7.5
See Notes
While a disqualification order is effective,
the FSA will
keep a record of the order on the FSA Register. The FSA's policy in relation
to section 347(4) of the Act is
that where an application to revoke a disqualification order is granted, a
note will be made on the FSA Register giving reasons for the revocation. The availability of a record of action taken
by the FSA in
relation to action taken against auditors and actuaries will assist the FSA in furthering its regulatory objectives, in particular, the
maintenance of confidence in the financial system. For this reason, the FSA will keep the annotated
record of the revoked disapplication order for a period of six years from
the date of the revocation. The record will then be removed from the FSA Register.
- 01/12/2004