ENF 17.4 The FSA's policy on disqualification of auditors and actuaries

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.

Actuaries appointed by3 firms under SUP 4.3.1 R3 are approved persons and as such31 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 person3, 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).

1In 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)).

1. (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 G1) 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. (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.

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. (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;21

2. (2)

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   1. (a)

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   2. (b)

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   3. (c)

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   4. (d)

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   5. (e)

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3. (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;1

4. (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;1

5. (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;1

6. (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.1

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. (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; 21

2. (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. (3)

   action taken by a relevant professional body1: The FSA will consider whether any disciplinary action has or will be taken against the auditor by a relevant professional body1 and whether such action adequately addresses the particular breach of a duty imposed by trust scheme rules;

4. (4)

   the previous compliance record of the auditor concerned: whether the FSA (or a previous regulator) or professional body1 has imposed any previous disciplinary sanctions on the firm1 or individual concerned.