This chapter applies to:1

1. (1)

   a person who is, or has been, an auditor of a firm appointed under or as a result of statutory provision;1

2. (2)

   a person who is, or has been, an actuary acting for a firm and appointed under or as a result of a statutory provision; and1

3. (3)

   an auditor appointed by an AUT.1

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.1

This chapter outlines:

1. (1)

   the FSA's power to disqualify auditors and actuaries under section 345 of the Act (Disqualification);

2. (2)

   the FSA's power to disqualify auditors under section 249 of the Act (Disqualification of auditor for breach of trust scheme rules);

3. (3)

   the FSA's approach to the exercise of its powers under section 345 and 249;

4. (4)

   the FSA's procedure for exercising the powers; and

5. (5)

   the effect of the FSA's decision to exercise the powers.

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).1

The duties imposed on the auditors and actuaries of firms under the Act are:

1. (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

2. (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);1

3. (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:

   1. (a)

      they are removed from office by a firm;

   2. (b)

      they resign before the expiry of their term of office with a firm; or

   3. (c)

      they are not re-appointed by a firm;

4. (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:

   1. (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

   2. (b)

      that there is no such matter; and

5. (5)

   the duties imposed on auditors of ICVCs in the OEIC Regulations 2000.

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). 2

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. (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. (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));

3. (3)

   an auditor or actuary who has been disqualified by the FSA may refer the matter to the Tribunal (section 345(5): see DEC 5.1 (The Tribunal)); and

4. (4)

   the FSA may remove any disqualification if it is satisfied that the disqualified auditor or actuary will, in future, comply with the duty in question.

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 by3firms 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)

   [deleted] 1

   1. (a)

      [deleted]1

   2. (b)

      [deleted] 1

   3. (c)

      [deleted]1

   4. (d)

      [deleted]1

   5. (e)

      [deleted]1

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.

An auditor or actuary may ask the FSA to remove the disqualification at any time after it has been imposed.

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. (1)

   the seriousness of the breach of duty1 that resulted in the disqualification;

2. (2)

   the amount of time since the original disqualification; and

3. (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 duty1 from happening again.

A disqualification will come into effect on the date stated in the final notice.1

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.

DEC 5.2 (Publication) set out certain requirements of the Act in relation to the FSA's publication by of its decisions.

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.

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.

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.

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.