External audit requirements for BIPRU investment firms

External audit requirements for BIPRU investment firms (including exempt BIPRU commodities firms) or exempt CAD firms.

Incorporated entities (a limited liability company or limited liability partnership) regulated by the FCA

Accounts audit (Companies Act)

Under the Companies Act legislation you are required to appoint a statutory auditor who performs an annual external audit on the firm's accounts.

However, if you are an exempt CAD firm that has opted into MiFID, you are not required to appoint a statutory auditor who performs an external audit on the firm's accounts if:

  • you meet the Companies Act criteria for the small companies audit exemption
  • and you fulfil the conditions of regulation 4C(3) of FSMA 2000 (Markets in Financial Instruments) Regulations 2007

The small companies audit exemption is available if at least two of the following criteria are met:

  • the annual turnover is not more than £10.2m
  • the balance sheet total for the year is not more than £5.1m
  • the company has 50 or fewer employees on average

Client assets report (FCA rules)

If you are having your annual accounts audited your auditor should also report to the FCA on your firm's client assets.

Unincorporated entities (sole traders or partnerships) that are BIPRU investment firms

Accounts audit 

If you are an unincorporated entity (i.e. you are a sole trader or a partnership) and a BIPRU investment firm, and you do not have a permission to hold client assets, you do not need to have your annual accounts audited. However, if you do have permission to hold client assets, then your firm must have its annual accounts audited by an auditor.

If you are an unincorporated exempt CAD firm then you do not need to have your annual accounts audited.

Client assets report (FCA rules)

If you have permission to hold client assets, you are required to appoint an auditor who must report to the FCA on your firm's client assets.

Capital calculation (FCA rules)

Firms also need to be aware of the rules in the FCA Handbook relating to the calculation of capital resources, which require retained earnings to be audited and interim net profits to be externally verified (eg, see IPRU(INV) 9.3.1R(5) and (6)), even if no Companies Act audit is required.