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FSA/PN/074/2006
28 July 2006

The Financial Services Authority (FSA) today announced there has been a positive response from the industry to its proposal to remove audit requirements from regulated small firms and Appointed Representatives (ARs). The project is part of the FSA's ongoing commitment to better regulation.

The next steps are now with the government, and the Department of Trade and Industry (DTI) has agreed with the FSA's proposal. The DTI will make regulations under the Companies Act 1985 to implement the proposal as soon as possible. The aim is that these will apply to financial years ending on or after 31 December 2006, so that affected companies will not be required to have their accounts audited for that or subsequent financial years.

The FSA estimates that this change will save 3,200 small firms and 1,490 ARs¹ £12.9m each year. Most of the firms that will benefit are likely to be financial advisers.

Stephen Bland, Director of Small Firms at the FSA, said:

"The FSA is committed to providing a level playing field for all regulated small firms which should promote competition and benefit consumers. We are challenging regulations whose costs outweigh the benefits they bring, and our work with the DTI to extend the audit exemption will bring firms that are limited companies in line with partnerships and sole traders."

The amount of protection for consumers will not be affected as:

• most authorised small firms are subject to the Retail Mediation Activities Return;
• the capital requirements for firms, which apply on an ongoing basis, will remain unchanged;
• and any firm holding client money will still be required to have a client money audit.

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.

¹ These are firms not required to appoint an auditor under any European Union or UK legislation other than the Companies Act.

Notes to editors

1. The Feedback Statement is available in the Handbook Notice on the FSA website.
2. The proposals to remove the statutory audit requirements under the Companies Act for regulated small firms and Appointed Representatives can be found in chapter 4 of the April 2006 Quarterly Consultation Paper (CP06/6), and in the press release.
3. The exemption applies to the following types of financial adviser: non-Investment Services Directive (ISD) Investment Management firms, non-ISD Personal Investment firms, non-ISD Securities and Futures firms, authorised professional firms, mortgage lenders, mortgage administrators and service companies.
4. 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.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.