The decision comes after 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 ARs £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.
