The Financial Services Authority (FSA) has today issued a consultation paper outlining proposals to remove the statutory audit requirements under the Companies Act for small firms and Appointed Representatives (ARs). This is a further move in its ongoing commitment to challenge regulations whose costs outweigh the benefits they bring.
The FSA estimates that, if introduced, this would save 3,200 small firms and 1,490 ARs £12.9m each year. Most of the firms that benefit are likely to be financial advisers. The average cost of a statutory audit for a small firm or an AR is estimated to be between £2,150 and £3,370 . Using an average audit cost of £2,760, this will produce savings of £8.9m for small firms and £4m for ARs.
The proposal is backed by the Department of Trade and Industry (DTI). If the consultation meets with support, the FSA and DTI will take the necessary steps to implement the changes in companies legislation and FSA Handbook. The FSA consultation period will run for two months from 7 April. Subject to the necessary support for the proposal, the FSA aims to revise its Handbook by the end of the year.
Stephen Bland, Director of Small Firms at the FSA, said:
"We are committed to better regulation. Small limited liability companies currently compete with sole traders and partnerships which are not subject to audit. We are working with the DTI to produce a level playing field for these small firms which should promote competition and thus bring benefits to consumers."
The FSA has considered whether this change would affect the amount of protection for consumers dealing with these small firms and ARs. It believes that the degree of protection would not be reduced for the following reasons:
- most small authorised firms are now subject to the Retail Mediation Activities Return (RMAR)
- the capital requirements for firms will remain unchanged; and
- any firm holding client money will still be required to have a client money audit.
Under the Companies Act 1985, limited liability companies that are defined as small may also qualify for exemption from the statutory audit requirement. However, certain categories of small companies cannot benefit from the exemption; one of those categories is small companies that are authorised by the FSA. In September 2005, the DTI amended the Companies Act to exempt small FSA authorised firms and ARs that only undertake mortgage and general insurance business from the audit requirement. At the time the FSA said that it would consider extending this exemption to other small firms.
Background
- The proposals to remove the statutory audit requirements under the Companies Act for small firms and Appointed Representatives can be found in Chapter 4 of the April 2006 Quarterly Consultation Paper (CP06/6) on the FSA website. The consultation closes on 6 June.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.
