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SUP 3.1 Application

SUP 3.1.1RRP

This chapter applies to:

  1. (1)

    every firm within a category listed in column (1) of the table in SUP 3.1.2 R; and

  2. (2)

    the external auditor of such a firm (if appointed under SUP 3.3 or appointed under or as a result of a statutory provision other than in the Act);

in accordance with column (2) or (3) of that table, except as described in the remainder of this section.2

SUP 3.1.1AGRP

9For the avoidance of doubt, this chapter does not apply to the following firms if they do not hold client money or client assets and do not appoint an auditor under or as a result of a statutory provision other than in the Act:

  1. (1)

    authorised professional firms;

  2. (2)

    energy market participants, including oil market participants to whom IPRU(INV) 3 does not apply;

  3. (3)

    exempt insurance intermediaries;

  4. (4)

    insurance intermediaries not subject to SUP 3.1.2 R(10);

  5. (5)

    investment management firms;

  6. (6)

    home finance administrators;10

    10
  7. (7)

    home finance intermediaries;10

    10
  8. (8)

    home finance providers;10

    10
  9. (9)

    personal investment firms, including small personal investment firms;

  10. (10)

    securities and futures firms; and

  11. (11)

    service companies.

SUP 3.1.2RRP

Applicable sections (see SUP 3.1.1 R)

(1) Category of firm

(2) Sections applicable to the firm

(3) Sections applicable to its auditor

(1)

Authorised professional firm which is required by IPRU(INV) 2.1.2R to comply with chapters 3, 5,10 or 13 of IPRU(INV) and which has an auditor appointed under or as a result of a statutory provision other than in the Act 9 (Note 1)

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8 - SUP 3.10

(2)

Authorised professional firm not within (1) to which either or both of CASS 2 (Client assets) and CASS 4 (Client money and mandates: designated investment business) applies , unless the firm is regulated by The Law Society (England and Wales), The Law Society of Scotland or The Law Society of Northern Ireland (Note 2)

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10

(3)

Authorised professional firm not within (1) or (2) which has an auditor appointed under or as a result of a statutory provision other than in the Act

SUP 3.1, SUP 3.2, SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

(4)

Bank or building society which in either case carries on designated investment business (Note 2A)

SUP 3.1-SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10

(5)

Bank or building society which in either case does not carry on designated investment business (Note 2A)

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

(5A)

Credit union

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

(5B)

ELMI

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

(6)

Insurer, the Society of Lloyd's, underwriting agent or members' adviser, UK ISPV11 (Note 5)7

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

(7)

Investment management firm, personal investment firm (other than a small personal investment firm), or securities and futures firm (Note 3) which, in each case, has an auditor appointed under or as a result of a statutory provision other than in the Act 9

9

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8 - SUP 3.10

9(7A)

Investment management firm, personal investment firm (other than a small personal investment firm), or securities and futures firm not within (7) to which either or both of CASS 2 (Client assets) and CASS 4 (Client money and mandates: designated investment business) applies

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10

9(7B)

UCITS firm13

13

SUP 3.1 - SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8 - SUP 3.10

13(7C)

BIPRU investment firm or exempt CAD firm

SUP 3.1 - 3.7

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.1014

(8)

Small personal investment firm or service company which, in either case, has an auditor appointed under or as a result of a statutory provision other than in the Act

SUP 3.1, SUP 3.2, SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

(9)8

Home finance provider10 which has an auditor appointed under or as a result of a statutory provision other than in the Act9

10

SUP 3.1 - SUP 3.78

SUP 3.1, SUP 3.2, SUP 3.88

(10)8

Insurance intermediary (other than an exempt insurance intermediary) to which CASS 5 (Client money and mandates) (except for CASS 5.2 (Holding money as agent)) applies (see Note 4)8

SUP 3.1 - SUP 3.78

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.108

(11)8

Exempt insurance intermediary and insurance intermediary not subject to SUP 3.1.2 R(10) which has an auditor appointed under or as a result of a statutory provision other than in the Act

SUP 3.1, SUP 3.2, SUP 3.78

SUP 3.1, SUP 3.2, SUP 3.88

(12)8

Home finance intermediary10 or home finance administrator10 which has an auditor appointed under or as a result of a statutory provision other than in the Act.

1010

SUP 3.1, SUP 3.2, SUP 3.78

SUP 3.1, SUP 3.2, SUP 3.88

Note 1 = This chapter applies to an authorised professional firm in row (1) (and its auditor) as if the firm were of the relevant type in the right-hand column of IPRU(INV) 2.1.4R.

Note 2 = In row (2):

(a) CASS 2 (Client assets) is treated as applying only if (i) the firm safeguarding and administering investments in connection with managing investments (other than when acting as trustee) or (ii) it safeguarding and administering investments in relation to bonded investments;

(b) CASS 4 (Client money and mandates: designated investment business) is treated as applying only if the firm receives or holds client money other than under an arrangement where commission is rebated to the client;

but, if CASS 2 or CASS 4 is treated as applying, then SUP 3.10 (Duties of auditors: notification and report on client assets) applies to the whole of the business within the scope of CASS 2 or CASS 4.

Note 2A = For this purpose, designated investment business does not include either or both:

(a) dealing which falls within the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc) (or agreeing to do so); and

(b) dealing in investments as principal (or agreeing to do so):

(i) by a firm whose permission to deal in investments as principal is subject to a limitation to the effect that the firm, in carrying on this regulated activity, is limited to entering into transactions in a manner which, if the firm was an unauthorised person, would come within article 16 of the Regulated Activities Order (Dealing in contractually based investments); and

(ii) in a manner which comes within that limitation;

having regard to article 4(4) of the Regulated Activities Order (Specified activities: general: core investment services by investment firms).

Note 3 = This note applies in relation to an oil market participant to which IPRU(INV) 3 does not apply and in relation to an energy market participant to which IPRU(INV) 3 does not apply. In SUP 3:

(a) only SUP 3.1, SUP 3.2 and SUP 3.7 are applicable to such a firm; and

(b) only SUP 3.1, SUP 3.2 and SUP 3.8 are applicable to its auditor;

and, in each case, only if it has an auditor appointed under or as a result of a statutory provision other than in the Act.

Note 4 = The client money audit requirement in SUP 3.1.2 R(10) therefore applies to all insurance intermediaries except:8

• those which do not hold client money or other client assets in relation to insurance mediation activities; or 8

• those which only hold up to, but not exceeding, £30,000 of client money under a statutory trust arising under CASS 5.3.8

Insurance intermediaries which, in relation to insurance mediation activities, hold no more than that amount of client money only on a statutory trust are exempt insurance intermediaries.8

Note (5) = In row (6):7

(a)7

SUP 3.1 - SUP 3.7 applies to a managing agent in respect of its own business and in respect of the insurance business of each syndicate which it manages; and7

(b)7

SUP 3.1, SUP 3.2 and SUP 3.8 apply to the auditors of a managing agent and the auditors of the insurance business of each syndicate which the managing agent manages.1234567
SUP 3.1.2AGRP

8If a firm falls within more than one row in column (1) of the table in SUP 3.1.2 R, SUP 3.1.1 R requires the firm and its external auditor to comply with all the sections referred to in column (2) or (3). For example, a bank which carries on designated investment business which is also a mortgage lender, falls in rows (4) and (9). Therefore, the bank must comply with SUP 3.1 to SUP 3.7, and its external auditor must comply with SUP 3.1, SUP 3.2, SUP 3.8 and SUP 3.10.

Incoming firms

SUP 3.1.3RRP

This chapter does not applyto an incoming EEA firm without atop-up permission or an auditor of such a firm.

SUP 3.1.4GRP

The application of SUP 3.10 to the auditor of an incoming EEA firm with a top-up permission is qualified in SUP 3.10.3 R.

SUP 3.1.5RRP

This chapter does not apply to an incoming Treaty firm, which:

  1. (1)

    does not have a top-up permission; and

  2. (2)

    is not required to comply with the client asset rules.

SUP 3.1.6GRP

The application of SUP 3.7 and SUP 3.9 to an incoming Treaty firm or an auditor of such a firm is further qualified in SUP 3.7.1 G and SUP 3.9.2 R.

Auditors of lead regulated firms

SUP 3.1.7GRP

The application of SUP 3.9 and SUP 3.10 to the auditor of a lead regulated firm is qualified in SUP 3.9.2 R and SUP 3.10.3 R.

Authorised professional firms

SUP 3.1.8G

This chapter applies to an authorised professional firm as set out in rows (1) to (3) of SUP 3.1.2 R:

  1. (1)

    a firm in row (1) is treated in the same way as its equivalent in row (7);

  2. (2)

    large parts of this chapter apply to a firm in row (2) and its auditor; the report on client assets under SUP 3.10 (Duties of auditors: notification and report on client assets) must cover compliance for the whole of the business within the scope of whichever ofCASS 2 and CASS 4 is treated as applying; but there is no requirement for the auditor to prepare a report to the FSA on the firm'sfinancial statements;

  3. (3)

    this chapter has limited application to a firm in row (3) and its auditor.3

Material elsewhere in the Handbook

SUP 3.1.9GRP

A firm which is a friendly society or other insurer, investment management firm, personal investment firm or a 13securities and futures firm,7 should see the Prudential Standards part of the Handbook13 for further provisions on auditors as set out in SUP 3.1.10 G. For the categorisations employed in SUP 3.1.2 R and SUP 3.1.10 G see SUP App 1.

1313713713131313

7Lloyd's

7Enabling provision and application

SUP 3.1.11G

7The insurance market direction in this chapter is given under section 316(1) of the Act (Direction by Authority) and applies to members.

7Purpose

SUP 3.1.12G

7The insurance market direction in this chapter is intended to enable the rules in SUP 3 and SUP 4 to be applied to a managing agent in respect of the insurance business of each syndicate which it manages.

7Insurance market direction on rules concerning auditors and actuaries

SUP 3.1.13D
  1. (1)

    7With effect from 1 January 2005, Part XXII of the Act (Auditors and Actuaries) applies to the carrying on of insurance business by members as modified by paragraph (3).

  2. (2)

    For the purposes of (1) "insurance business" means the regulated activities of effecting or carrying out contracts of insurance written at Lloyd's.

  3. (3)

    Regulations made by the Treasury under section 342(5) and section 343(5) of Part XXII of the Act apply only to actuaries appointed by a managing agent in respect of the insurance business of a syndicate, in relation to the long-term insurance business of that syndicate.

  4. (4)

    In Part XXII of the Act (Auditors and Actuaries) as applied by this insurance market direction:

    1. (a)

      a reference to an auditor of an authorised person is to be read as including an auditor appointed by a managing agent in respect of the insurance business of a syndicate; and

    2. (b)

      a reference to an actuary acting for an authorised person is to be read as including an actuary appointed by a managing agent in respect of the insurance business of a syndicate.

SUP 3.1.14G

7Part XXII (Auditors and Actuaries) is a core provision mentioned in section 317(1) of the Act (The core provisions).

SUP 3.1.15G

7Section 317(2) of the Act (The core provisions) provides that references in an applied core provision to an authorised person are to be read as references to a person in the class to which the insurance market direction applies. The effect of this, and of the insurance market direction set out at SUP 3.1.13 D, is that Part XXII of the Act (Auditors and Actuaries), applies also to auditors and actuaries who are appointed to report on the underwriting business of members. Part XXII is modified in its application to members by paragraph (3) of SUP 3.1.13 D with the effect that the regulations made under sections 342(5) and 343(5) of the Act relating to communications by actuaries will only apply where the actuary is appointed to evaluate the long-term insurance business of the syndicate. The regulations made under sections 342(5) and 343(5) in relation to communications by auditors will apply in relation to both general insurance business and long-term insurance business.

SUP 3.1.16G

7SUP 3.3 sets out rules the effect of which is to require a managing agent to appoint an auditor in respect of its own business and the insurance business of each syndicate which it manages.

SUP 3.1.17G

7References in SUP 3, as applied by SUP 3.1.2 R, to a firm include, where appropriate:

  1. (1)

    a managing agent; and

  2. (2)

    one or more members carrying on insurance business at Lloyd's through a syndicate,

and references to an actuary of a firm should be read accordingly.

SUP 3.1.18G

7SUP 4.6 sets out rules the effect of which is to require a managing agent to appoint an actuary in respect of the insurance business of each syndicate which it manages.