Do you need an FCA audit?

Under the Companies Act 2006 (or as applied to LLPs) a business will normally need an audit if it is fairly large and exceeds 2 out of the 3 size limits of a small firm:

• assets > £3.26m (£5.1m from 1/1/16)
• turnover > £6.5m (£10.2m from 1/1/16)
• employees > 50

However, an FCA registered firm which is an MiFID investment firm is likely to require an FCA audit even if it would otherwise be a small firm (see notes below)*.

FCA registered

“FCA registered” refers to financial firms registered and authorised by the Financial Conduct Authority which is one of the successor bodies to the Financial Services Authority (FSA).

FCA registered firms come under intense scrutiny and so it is vital that they only engage auditors with the skills and resources to ensure that their financial affairs are in order. This is also mentioned in the FCA handbook:

[quote style=”boxed”]SUP 3.4.2R: Before a firm, to which SUP 3.3.2 R applies, appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to perform his functions under the regulatory system[/quote]

How we can help

We have experience of auditing FCA registered firms and use all of our skills, resources and experience to ensure that the audit goes smoothly. Some of the key aspects of our work specific to an FCA audit are:

1. checking your FCA permissions and capital requirements in detail;
2. obtaining a full understanding of your business and systems;
3. understanding your key risks and the controls to mitigate them;
4. recalculating fees/commissions/brokerage;
5. reconciling open positions, trading balances and fund/managed accounts to 3rd party reports;
6. checking if you have held client assets or money;
7. investigating any regulatory breaches;
8. working fast and efficiently to meet your audit deadline;
9. submitting client asset reports to the FCA upon completion

Expertise

Despite our small size we are highly skilled auditors. For example, we were invited to respond to the FRC’s new draft standard about FCA client asset audits. In fact, we were the only firm to participate not ranked in the Top 10 audit firms:

MAH response to FRC consulation

Are you paying too much for your audit?

Some firms may ratchet up their prices as soon as they hear “FCA”, however we prepare our quotes on a fair basis and will normally be able to offer very competitive prices.

Under s.478b(i) of the Companies Act 2006 MiFID investment firms are not exempt from an audit, even if they would otherwise be small companies.

s.539 explains that an “MiFID investment firm” means an investment firm within the meaning of Article 4.1.1 of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, other than—
(a) a company to which that Directive does not apply by virtue of Article 2 of that Directive,
(b) a company which is an exempt investment firm within the meaning of regulation 4A(3) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2007, and
(c) any other company which fulfils all the requirements set out in regulation 4C(3) of those Regulations;

We can review your situation to check if your firm meets any of the exemptions under Articles 2 and 3 of Directive 2004/39/EC. If it doesn’t, Title II of Directive 2004/39/EC is likely to apply under 4A(3) of FSMA 2000 (MiFID) 2007. This means that your firm could be an MiFID investment firm which doesn’t appear to meet any of the exemptions in s.539 (a,b,c) , and therefore, required to have an audit.

Want to find out more?