On 17 October 2018, the PRA published a policy statement, PS25/18 which provides feedback to responses to its April 2018 consultation paper, CP8/18, in which the PRA proposed to remove the external audit requirement for the solvency and financial condition reports (SFCRs) of certain small Solvency II firms, and certain small Solvency II groups (collectively small insurers). The SFCR is the key public disclosure under Solvency II.
Appendix 1 to the policy statement contains amendments to the External Audit Part of the PRA Rulebook and appendix 2 contains an updated version of Supervisory Statement 11/16 on Solvency II external audit. These changes take effect from 15 November 2018.
The PRA says that respondents to the consultation paper generally welcomed its proposals to remove the audit requirement for small insurers. However, a number of observations and requests for clarification were made. Responses to comments are set out in chapter 2 of the policy statement. Following consideration of respondentsâ€™ comments, the PRA has made changes to the proposals consulted on. One of these, the introduction of a two year smoothing mechanism to reduce volatility in application of the rule, is significant in the opinion of the PRA. Further details on this change as well as an impact assessment on firms, and specifically mutuals, are set out in paragraphs 2.23-2.26 of the policy statement.Â
The PRA has made minor changes to the draft version on which it consulted:Â Â
The PRA has also made minor clarifications and typographical changes to Supervisory Statement 11/16, to improve the clarity of its expectations. These changes were not consulted on as part of CP8/18 and the PRA does not consider them to be significant.Â