June 07, 2019

FSB published a summary of topics discussed at the External Audit Roundtable, which was held in Toronto on June 06–07 and was hosted by OSFI, Canada. The objective of the Roundtable was to engage in constructive dialog on ways to promote international financial stability by enhancing public confidence in auditors and the quality of audits, especially for systemically important financial institutions.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.


    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • Roundtable participants comprised senior representatives from FSB members, including national prudential authorities, market regulators and audit oversight bodies, the International Forum of Independent Audit Regulators (IFIAR), the international auditing standard-setter, and the six largest global audit networks. In the context of the objective of the Roundtable, the following areas were considered:

    • The recurrence, level, and root causes of audit inspection findings identified by IFIAR members in their individual inspections of audit firms affiliated with the global networks
    • Observations from initial audits of expected credit loss estimates under IFRS 9, including the audit work needed to assess the related governance and controls, management judgments and assumptions, and the resulting presentation and disclosures
    • The global networks’ progress in preparing for the implementation of IFRS 17 and the related audits
    • Support for IFIAR in promoting collaboration in regulatory activity to foster the effectiveness of audit oversight globally
    • Effective avenues to strengthen the dialog between the official sector and the global networks, as a means to inform strong financial-sector policies to advance audit quality and promote international financial stability
    • Characteristics of audit services, particularly for financial statement audits of systemically important financial institutions, and the potential implications for the role of financial reporting in international financial stability
    • The importance of a robust and proactive approach by the global networks in continuing to improve audit quality


    Related Link: Press Release


    Keywords: International, Accounting, Banking, Insurance, Systemic Risk, SIFI, IFRS 9, IFRS 17, External Audit, Financial Stability, FSB

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