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Delegation Agreement FRC and ICAS

THIS DELEGATION AGREEMENT is made the 28th day of September 2016

BETWEEN:

THE FINANCIAL REPORTING COUNCIL LIMITED (1) a company registered in England and Wales (company registration no. 02486368) whose registered office is at 8th Floor, 125 London Wall, London EC2Y 5AS (the "FRC"); and

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SCOTLAND (2), (registered by Royal Charter under Company No.: RC000247) of CA House, 21 Haymarket Yards, Edinburgh, EH12 5BH (the "RSB").

BACKGROUND

AUnder the Statutory Auditor and Third Country Auditors Regulations 2016 ("SATCAR 2016") the FRC is designated as the competent authority with ultimate responsibility for the performance and oversight of certain audit regulation tasks including those provided for in the Audit Regulation (with each such task being a "Regulatory Task").

BThe RSB is a recognised supervisory body under Schedule 10 of the Companies Act 2006.

CFurther to SATCAR 2016 and any Secretary of State direction made under regulation 3 (12) of SATCAR 2016 (to the extent not revoked or not having ceased to have effect, a "Secretary of State Direction") it is the intention that in support of establishing a proportionate regulatory regime focussed on the common objective of promoting high quality audit (the "Audit Objective") the FRC will, in the exercise of its powers under regulation 3 of SATCAR 2016, delegate to the RSB certain Regulatory Tasks and retain those Regulatory Tasks which are not delegated, in each case in accordance with the terms and conditions of this Delegation Agreement and applicable law.

IT IS AGREED:

1. Interpretation and Definitions

1.1In this Delegation Agreement the words defined in Regulations 2 and 5 of SATCAR 2016 shall have the meanings set out there and, in addition:

"Appropriate Person" means, for the purposes of clause 21.3(b) the Chair of the ICAS Regulation Board

"Audit Enforcement Procedure" means the audit enforcement procedure made available by the FRC to the RSB and updated by the FRC from time to time;

"Audit Regulation" has the meaning given to "Audit Regulation" in SATCAR 2016;

"Ceding RSB" means, as applicable, the RSB which performed a Regulatory Task before the:

FRC reclaimed the Regulatory Task pursuant to this Delegation Agreement;
FRC notified the RSB that the FRC intends to or may reclaim the Regulatory Task; or
RSB, to the extent permitted by this Delegation Agreement or otherwise in accordance with applicable law, cedes the Regulatory Task to the FRC or, at the instruction of the FRC, to a Replacement RSB;

"Central Government Body" means a body listed in one of the following sub-categories of the Central Government classification of the Public Sector Classification Guide, as published and amended from time to time by the Office for National Statistics:

Government Department;
Non-Departmental Public Body or Assembly Sponsored Public Body (advisory, executive, or tribunal);
Non-Ministerial Department; or
Executive Agency;

"Conditions of Delegation" means the conditions of delegation set out at clause 3;

"Conduct Committee" has the meaning given to it in the Audit Enforcement Procedure;

"Confidential Information" means all information, whether written or oral (however recorded), provided by the disclosing Party to the receiving Party and which (i) is known by the receiving Party to be confidential; (ii) is marked as or stated to be confidential; or (iii) ought reasonably to be considered by the receiving Party to be confidential;

"Data" means Personal Data processed (as defined under Data Protection Legislation) as a result of, or in connection with, this Delegation Agreement;

"Data Protection Legislation" means UK Data Protection Law and, where relevant, EU Data Protection Law;

"Delegated Tasks" has the meaning set out in clause 2.1;

"Delegation Agreement" means this Agreement;

"Dispute Resolution Procedure" means the procedure set out in clause 21;

"Effective Date" means the date specified in clause 4;

"Eligibility Criteria" means criteria determined by the FRC pursuant to regulation 3(f) of SATCAR 2016;

"EU Data Protection Law" means:

Regulation 2016/679 of the European Parliament and of the Council on the protection of natural persons with regard to the Processing of Personal Data and on the free movement of such data (General Data Protection Regulation) (the "EU GDPR");
the EU e-Privacy Directive (Directive 2002/58/EC); and
any and all applicable national data protection laws made under, pursuant to or that apply in conjunction with any of (a), (b) or (c);

in each case as may be amended or superseded from time to time;

"FOIA" means the Freedom of Information Act 2000;

"FRC Procedures" means the Audit Enforcement Procedure and such processes and procedures which the FRC may have in place from time to time including in particular for the conduct by the FRC of Retained Tasks and Reclaimed Tasks;

"FRC Representative" means a suitably qualified nominated contact appointed by the FRC and named in Appendix 6;

"Individual Case" means, in the context of a reclamation, a Delegated Task as it applies to (i) the conduct of, or the activities undertaken by, a particular Registered Auditor; (ii) a particular audit or (iii) a particular audited person;

"Information" has, as applicable, the meaning given to "information" under section 84 of the FOIA or the meaning given to "environmental information" under regulation 2 of the Environmental Information Regulations 2004;

"Insolvency Event" means in relation to any relevant person:

proposing a voluntary arrangement;
an application is made to court to have, or having, a receiver, administrator or a manager appointed, or a notice of intention to make such an appointment is given, over the whole or any part of its business or assets;
if any petition will be presented, order will be made or resolution passed for its winding up (except for the purposes of a bona fide amalgamation or reconstruction), bankruptcy or dissolution;
if it will otherwise propose or enter into any composition or arrangement with its creditors or any class of them (except for the purposes of a bona fide amalgamation or reconstruction);
if it suspends or ceases, or threatens to suspend or cease, carrying on all or a substantial part of its business or if it claims the benefit of any statutory moratorium;
if it applies to court for, or obtains, a moratorium under Part A1 of the Insolvency Act 1986;
a creditor or encumbrancer attaches or takes possession of, or a distress, execution, sequestration or other such process is levied or enforced on or sued against, the whole or any part of its assets and such attachment or process is not discharged within 14 days;
any event occurs, or proceeding is taken, with respect to it in any jurisdiction to which it is subject that has an effect equivalent or similar to any of the events mentioned in (a) to (g) above; or
its financial position deteriorates so far as to reasonably justify the opinion that its ability to give effect to the terms of this Delegation Agreement is in jeopardy;

"Partial Regulatory Task" means, in the context of a reclamation, a Delegated Task to the extent it is comprised of a substantial part, but not the whole, of a Regulatory Task including any such part as can be defined by reference to a particular description of activity, a particular description of statutory auditor or a particular description of audited person;

"Party" means the RSB or the FRC (as appropriate) and "Parties" will mean both of them;

"Personal Data" has the meaning contained in the applicable Data Protection Legislation;

"Public Interest Entity" has the meaning given to "public interest entity" in SATCAR 2016 and includes entities of the type listed under the heading 'Public Interest Entities' in Appendix 8;

"Processing" (and "process "and "processes" shall be construed accordingly) has the meaning contained in the applicable Data Protection Legislation;

"Reclaimed Task" means any Regulatory Task which the FRC reclaims in whole or in part under this Delegation Agreement;

"Reclamation Notice" has the meaning given in clause 3.5;

"Regulatory Task" has the meaning given to it in the Background (and shall, as the context requires, encompass Individual Case(s), Delegated Tasks, Reclaimed Tasks, Retained Tasks and Partial Regulatory Task(s));

"Request for Information" has the meaning set out in the FOIA or the Environmental Information Regulations 2004 as relevant (where the meaning set out for the term "request" will apply);

"Registered Auditors" means those individuals and firms appointed, registered or otherwise regulated by the RSB pursuant to this Delegation Agreement;

"Registration Protocol” means the protocol referenced at paragraph 7 of Appendix 1;

"Replacement RSB" has the meaning given to it in Appendix 7 (Exit Management)

"Retained Tasks" means:

determining technical standards (which must meet the requirements of Schedule 1 of SATCAR 2016) and of other standards (which must meet the requirements of that schedule) on professional ethics and internal quality control of statutory auditors and statutory audit work;
determining the manner in which the standards under (a) are to be applied in practice;
determining the Eligibility Criteria;
setting procedures for maintaining the competence of persons eligible for appointment as statutory auditors;
the application of the Eligibility Criteria for the purposes of determining whether persons are eligible for appointment as statutory auditors of Public Interest Entities (within the meaning given to the term "public interest entity" in SATCAR 2016) and may otherwise be registered as statutory auditors of such Public Interest Entities;
monitoring statutory audits and auditors of the entities listed in Appendix 8;
investigations, adjudication and disciplinary measures arising out of (e) and (f) above or arising otherwise (including as a result of whistleblowing or from referrals from other authorities) in relation to the entities listed in Appendix 8;
cooperation with third country competent authorities;
oversight of the Audit Regulation including the RSB's performance of the Delegated Tasks;
any Regulatory Task which (A) cannot pursuant to applicable law (including SATCAR 2016) be delegated to the RSB and/or (B) is not at the relevant time a Delegated Task,

(with each of (a) to (j) above being a "Retained Task");

"RSB Audit Materials" means any materials created or developed by the RSB and used in the performance of any Delegated Tasks, including (but not limited to) audit processes, methodology, software, forms, reports, checklists, helpsheets, guidance notes, articles, course materials and videos;

"RSB Representative" means a suitably qualified nominated contact appointed by the RSB and named in Appendix 6;

"RSB Review Meetings" has the meaning given in Appendix 6;

"RSB's Rules" means any and all rules, practices, bye-laws, regulations and arrangements maintained by the RSB pursuant to the requirements of Schedule 10 Companies Act 2006 (and any other applicable law) and/or for the purposes of regulating those firms and individuals it registers or otherwise regulates pursuant to this Delegation Agreement;

"SATCAR 2016" has the meaning given to it in the Background;

"Secretary of State Direction" has the meaning given to it in the Background;

"Staff" means all directors, officers, employees, agents, consultants and contractors of the RSB and/or of any sub-contractor of the RSB engaged in the performance of all or any part of the RSB"s obligations under this Delegation Agreement;

"Term" means the period from the Effective Date until termination in accordance with the provisions at clause 16 (Termination), by agreement between the Parties or otherwise pursuant to applicable law;

"UK Data Protection Law" means:

the EU GDPR as saved into domestic law by virtue of section 3 of the European Union (Withdrawal) Act 2018 (the "UK GDPR");
the Data Protection Act 2018; and
the Privacy and Electronic Communications (EC Directive) Regulations 2003,

in each case as may be amended, repealed, revoked or replaced from time to time; and

"Working Day" means a day (other than a Saturday or Sunday) on which banks are open for business in the City of London.

1.2In this Delegation Agreement, unless the context otherwise requires:

the Background and appendices form part of this Delegation Agreement and will have the same force and effect as if expressly set out in the body of this Delegation Agreement and any reference to this Delegation Agreement will include the Background and the appendices;
any reference to the Background is a reference to the statements included in the background to this Delegation Agreement as set out at paragraphs (A), (B) and (C) above;
references to numbered clauses are references to the relevant clause in this Delegation Agreement;
any obligation on any Party not to do or omit to do anything will include an obligation not to allow that thing to be done or omitted to be done;
the headings to the clauses of this Delegation Agreement are for information only and do not affect the interpretation of this Delegation Agreement;
any reference to an enactment includes reference to that enactment as amended or replaced from time to time and to any subordinate legislation or byelaw made under that enactment;
the word "including" or "includes” will be understood as meaning "including or includes in each case without limitation";
any reference to "person" includes any individual, firm, company, government, state or agency of state or any joint venture, association, trust or partnership, works council or employee representative body (whether or not having a separate legal personality);
any reference to a "company" is to any company, corporation or other body corporate wherever and however incorporated or established;
any reference to a document is to that document as supplemented, otherwise amended, replaced or novated from time to time;
any reference to a "task" is to a Regulatory Task or, as applicable, to a part thereof; and
writing will include any modes of reproducing words in a legible and non-transitory form provided that emails will be deemed to be in writing for these purposes.

2. Delegation

2.1The FRC delegates to the RSB and the RSB accepts the delegation of the performance of, and agrees to perform (subject to the terms of this Delegation Agreement), the following Regulatory Tasks in relation to Registered Auditors (and any Regulatory Task (or part thereof) falling within the scope of clause 2.2) save to the extent that any such Regulatory Task is a Retained Task or a Reclaimed Task:

the application of technical standards and of other standards on professional ethics and internal quality control of statutory auditors and statutory audit work (including provision for securing compliance with those standards);
the application of the Eligibility Criteria to determine whether persons are eligible for appointment as statutory auditors, the registration of such persons and keeping the register and making it available for inspection;
the application of procedures for maintaining the competence of such persons;
monitoring of statutory auditors and audit work; and
investigations and imposing and enforcing sanctions in relation to breaches of Relevant Requirements by statutory auditors,

with the tasks above being, collectively, "Delegated Tasks" and each a "Delegated Task".

2.2Subject to applicable law, the FRC may delegate to the RSB (subject to the terms of this Delegation Agreement) any:

Reclaimed Task or part of a Reclaimed Task; or
Retained Task or part of a Retained Task,

including, in each case, such part as can be defined by reference to a particular description of activity, a particular description of statutory auditor or a particular description of audited person, and such that, on and from the relevant time, that same task will be and will be deemed to be a Delegated Task (and not, in the case of (a), a Reclaimed Task or, in the case of (b), a Retained Task) for the purposes of this Delegation Agreement.

2.3For the avoidance of doubt, the Parties agree that nothing in this clause 2 or otherwise in this Delegation Agreement, will be capable of delegating, or will serve to delegate, any Regulatory Task which cannot be delegated to the RSB pursuant to applicable law (including SATCAR 2016).

3. Conditions of Delegation

3.1The RSB may only exercise those tasks delegated to it pursuant to, or expressly permitted by, this Delegation Agreement or by a decision of the FRC's Board or Conduct Committee pursuant to the FRC's Audit Enforcement Procedure and only whilst recognised as a recognised supervisory body under Schedule 10 of the Companies Act 2006.

3.2The RSB has and will continue to comply with its duties, conditions, representations, warranties and undertakings at clauses 5 (Duties of the Parties) and 11 (Warranties).

3.3The FRC may, subject to the provisions of this clause 3, reclaim any Delegated Task such that any such Delegated Task shall be a Reclaimed Task and will no longer, subject to clause 2.2, be a Delegated Task.

3.4Without prejudice to clause 21, the FRC may reclaim:

an Individual Case or any number of Individual Cases (whether or not related) by written notice to the RSB indicating the date on and from which the reclaim of each such Individual Case shall take effect, which date shall not be earlier than one (1) working day after the date on which the aforementioned notice is given to the RSB (provided that where the number of related Individual Cases to be reclaimed would result in the permanent reclamation of a Regulatory Task or a Partial Regulatory Task, the process referenced in clause 3.4(b) shall apply);
any Regulatory Task or Partial Regulatory Task in accordance with the process described at clauses 3.5 and 3.6 below;

3.5Where the FRC is proposing to reclaim a Regulatory Task or a Partial Regulatory Task pursuant to clause 3.4(b), it shall first serve a written notice on the RSB (a "Reclamation Notice") which notice shall:

describe, in reasonable detail, the Regulatory Task or Partial Regulatory Task that the FRC is proposing to reclaim;
set out, in reasonable detail, the FRC's then current view (if any) of the likely effective date of, or timetable for, the proposed reclamation;
set out, in reasonable detail, the FRC's reasons for proposing to reclaim the Regulatory Task or the Partial Regulatory Task, as appropriate; and
invite the RSB to submit to the FRC, within twenty-one (21) days of the date of service of the notice and in reasonable detail, any representations that the RSB may wish to make to the FRC concerning the matters contemplated by (a) to (c) above (such representations to include, where relevant, whether the reclamation could reasonably have the effect of eliminating all or substantially all of the regulatory income used by the RSB to fund the carrying out of the Delegated Tasks).

3.6If the FRC, having:

issued a Reclamation Notice in accordance with clause 3.5;
given reasonable consideration to any representations made by the RSB in response to the Reclamation Notice; and
taken account of any other matters, events or circumstances which the FRC considers, at its discretion, to be relevant or appropriate,

decides to proceed pursuant to 3.4(b) with the reclamation of the Regulatory Task or Partial Regulatory Task (as applicable) that was the subject of the Reclamation Notice, the FRC shall give the RSB:

in relation to a Regulatory Task, but subject to (iii) below, at least twelve (12) months' prior written notice of the date on and from which the reclamation of the Regulatory Task shall take effect; or
in relation to a Partial Regulatory Task, but subject to (iii) below, at least six (6) months' prior written notice of the date on and from which the reclamation of the Partial Regulatory Task shall take effect; or
in relation to a Regulatory Task or a Partial Regulatory Task, at least eighteen (18) months' prior written notice if the reclamation would, in the FRC's opinion after complying with clause (b) above, have the effect of eliminating all or substantially all of the regulatory income used by the RSB to fund the carrying out of the remaining Delegated Tasks,

unless, in any case, the RSB agrees a shorter notice period.

3.8Where a Delegated Task or any part thereof is reclaimed pursuant to this clause 3, that Delegated Task (or part thereof), shall on and from the effective date for the reclaim, be a Reclaimed Task and will no longer, subject to clause 2.2, be a Delegated Task.

3.9The RSB will fund:

its performance of all Delegated Tasks; and
the FRC's performance of all Retained Tasks and all Reclaimed Tasks (including, without limitation, all costs (including legal costs) and expenses incurred by the FRC and/or for which the FRC is liable (including costs and expenses of another party) in connection with any reconsideration, review or appeal processes that are associated with those Retained Tasks and/or Reclaimed Tasks) insofar as such performance and funding relates to the RSB's Registered Auditors.

3.10The RSB will comply with the following task-specific conditions:

the conditions set out at Appendix 1 in relation to the Delegated Task set out at clause 2.1(b) above;
the conditions set out at Appendix 2 in relation to the Delegated Task set out at clause 2.1(c) above;
the conditions set out at Appendix 3 in relation to the Delegated Task set out at clause 2.1(d) above; and
the conditions set out at Appendix 4 in relation to the Delegated Task set out at clause 2.1(e) above.

3.11The RSB will comply with the reporting, information, monitoring and inspections conditions set out at Appendix 5 and with the governance and reporting conditions set out at Appendix 6.

4. Commencement and Duration

4.1This Delegation Agreement will take effect on 1 October 2016 (the "Effective Date") and will continue for the duration of the Term.

5. Duties of the Parties

5.1In consideration for each agreeing to enter into this Delegation Agreement, the Parties will:

perform their respective tasks in accordance with this Delegation Agreement and the provisions of SATCAR 2016 and any other applicable law from time to time;
co-operate with the other and with any other recognised supervisory bodies as may be required by the FRC from time to time in furtherance of the Audit Objective including but not limited to co-operating with arrangements reasonably requested by the FRC to facilitate the transfer of Reclaimed Tasks and the effective performance of Retained Tasks and Reclaimed Tasks by the FRC and/or a Replacement RSB.

6. Confidentiality, Transparency and Publicity

6.1Subject to clause 6.2 and 6.4, each Party will:

treat all Confidential Information it receives as confidential, safeguard it accordingly and not disclose it to any other person without the prior written permission of the disclosing Party; and
not use or exploit the disclosing Party's Confidential Information in any way except for the purposes anticipated under this Delegation Agreement.

6.2A Party may disclose Confidential Information which it receives from the other Party:

where disclosure is required by applicable law or by a court of competent jurisdiction;
to its auditors or for the purposes of regulatory requirements;
on a confidential basis, to its professional advisers;
to the Serious Fraud Office where the Party has reasonable grounds to believe that the other Party is involved in activity that may constitute a criminal offence under the Bribery Act 2010;
where the receiving Party is the RSB, to the Staff on a need to know basis to enable performance of the RSB's obligations under this Delegation Agreement provided that the RSB will procure that any Staff to whom it discloses Confidential Information under this clause (e) will observe the RSB's confidentiality obligations under this Delegation Agreement; and
where the receiving Party is the FRC:
1. on a confidential basis to the employees, agents, consultants and contractors of the FRC;
2. on a confidential basis to any other Central Government Body, any successor body to a Central Government Body or any company to which the FRC transfers or proposes to transfer all or any part of its business;
3. to the extent that the FRC (acting reasonably) deems disclosure necessary or appropriate in the course of carrying out its public functions; or
4. in accordance with clause 7 (Freedom of Information).

and for the purposes of the foregoing, references to disclosure on a confidential basis will mean disclosure subject to a confidentiality agreement or arrangement containing terms no less stringent than those placed on the FRC under this clause 6.

6.3Save as otherwise agreed by the parties, this Delegation Agreement is not intended to be Confidential Information. The parties will consult with the other before making any press announcement in relation to this Delegation Agreement.

6.4The obligations set out in clause 6.1 above shall not apply, or shall cease to apply, to Confidential Information which the receiving Party can show to the disclosing Party's reasonable satisfaction:

that it is, or has become generally available to the public other than as a direct or indirect result of the information being disclosed by the receiving Party in breach of these terms;
was already lawfully known to the receiving Party before it was disclosed by the disclosing Party; or
has been received by the receiving Party from a third party source which is not connected with the disclosing Party and that such source was not under any obligation of confidence in respect of that information.

7. Freedom of Information

7.1The FRC is subject to the requirements of the FOIA and the Environmental Information Regulations 2004. Accordingly, the RSB will:

assist and cooperate where reasonably requested by the FRC to enable the FRC to comply with such obligations;
transfer to the FRC all Requests for Information relating to this Delegation Agreement that it receives as soon as practicable and in any event within 2 Working Days of receipt;
provide the FRC with a copy of all Information belonging to the FRC requested in the Request for Information which is in its possession or control in the form that the FRC requires within 5 Working Days (or such other period as the FRC may reasonably specify) of the FRC's request for such Information; and
not respond directly to a Request for Information unless authorised in writing to do so by the FRC.

7.2Save always that the FRC will be responsible for determining in its sole discretion whether any Information relating to the RSB is exempt from disclosure in accordance with the FOIA and/or the Environmental Information Regulations 2004 the FRC will take reasonable steps, where appropriate, to give the RSB advance notice of an intended disclosure of Information concerning the RSB or, failing that, draw the disclosure to the RSB's attention after such disclosure.

8. Protection of Personal Data and Security of Data

8.1The Parties are separate and independent controllers. The Parties will comply with any obligations that they have under the Data Protection Legislation which arise in connection with this Delegation Agreement and will:

process any Data only for the purposes of this Delegation Agreement and/or the proper performance of their statutory duties in the pursuit of the Audit Objective and / or for compliance with any legal or regulatory obligation;
not disclose the whole or any part of the Data to any third party, except to the extent reasonably necessary for the purposes of this Delegation Agreement, the proper performance of their statutory duties in the pursuit of the Audit Objective and/or as required under the Data Protection Legislation or other applicable law or regulation;
put in place and maintain appropriate technical and organisational measures to protect the Data against unauthorised or unlawful processing and against accidental loss, alteration or destruction of, or damage to, such Data;
not unlawfully process or permit the unlawful processing of Data;
not perform their obligations under this Delegation Agreement in such a way as to cause the other Party to breach any of their respective obligations under Data Protection Legislation;
promptly notify the other Party of:
1. any breach of the security requirements referred to in clause 8.1(c); and
2. any complaint, request, notice or communication in relation to the Data if such breach, complaint, request, notice or other communication is relevant to the other Party; and
put in place within 21 days of the Effective Date and maintain reasonable organisational measures to notify existing and new members of the RSB and bring to the attention of third parties that Personal Data held by the RSB in the performance of the Delegated Tasks may be provided to the FRC (or to another RSB as delegate of the FRC) for the necessary exercise of the FRC's public functions in the public interest as Competent Authority for statutory audit (reasonable organisational measures may include but need not be limited to direct correspondence and clear and accessible website notices).

8.2When handling the FRC data (whether or not Personal Data), the RSB will ensure the security of the data is maintained in line with the security requirements of the FRC, including as set out in clause 8.1(a) and as notified to the RSB from time to time.

8.3Where either Party fails to comply with any of its obligations under this clause 8, the non-compliant Party will indemnify and keep indemnified and defend at its own expense the other Party against all costs, claims, damages or expenses incurred by the compliant Party or for which the compliant Party may become liable due to any failure by the non-compliant Party, its employees or agents or any data processor, to comply with any of its obligations under this clause 8.

8.4The FRC shall indemnify, and keep the RSB indemnified, against costs, claims, damages or expenses reasonably and properly incurred by the RSB arising out of, or in connection with, any claim made against the RSB by a Data Subject or investigation by the Information Commissioner arising out of, or in connection with, the RSB's proper performance of its obligations under Appendix 7, paragraph 2, subject to the RSB having acted reasonably throughout the term of this Delegation Agreement to mitigate such prospective losses including but not limited to having complied with its obligations under clause 8.1 above.

8.5The Parties shall not process the Data (nor permit the Data to be processed) in a territory outside the UK or (where applicable) the EU unless it has taken such measures as are necessary to ensure that the transfer is in compliance with the Data Protection Legislation.

9. Prevention of Fraud and Corruption

9.1The RSB will not offer, give, or agree to give anything to any person as an inducement or reward for doing, refraining from doing, or for having done or refrained from doing, any act in relation to the obtaining or execution of this Delegation Agreement or for showing or refraining from showing favour or disfavour to any person in relation to this Delegation Agreement.

9.2The RSB will take all reasonable steps, in accordance with good industry practice, to prevent fraud by the Staff and the RSB (including its shareholders, members and directors) in connection with this Delegation Agreement and will notify the FRC immediately if it has reason to suspect that any fraud has occurred or is occurring or is likely to occur.

9.3If the RSB or the Staff engages in conduct prohibited by clause 9.1 or commits fraud in relation to this Delegation Agreement or any other contract with the Crown (including the FRC) the FRC may:

terminate this Delegation Agreement and recover from the RSB the amount of any loss suffered by the FRC resulting from the termination, including the cost reasonably incurred by the FRC of making other arrangements for the performance of the Delegated Tasks and any additional expenditure reasonably incurred by the FRC throughout the remainder of this Delegation Agreement; and/or
recover in full from the RSB any other loss sustained by the FRC in consequence of any breach of this clause.

10. Variation of the Delegation Agreement

10.1At any time, the FRC or the RSB may request changes in writing to any part or parts of this Delegation Agreement, including additions, deletions or other amendments.

10.2Where the RSB proposes a change to the FRC, the RSB will provide, at its own cost, such information as the FRC may reasonably request which may include the following:

the impact of implementing the proposed change on the performance of the Delegated Tasks;
whether any new third party contracts are to be entered into by the RSB as part of the proposed change;
material changes which will be required to this Delegation Agreement, including any changes to the Delegated Tasks, the Conditions of Delegation and any applicable performance criteria; and
any impact on the funding arrangements set out in or otherwise referred to in this Delegation Agreement.

10.3The FRC may decide in its absolute discretion whether to accept the RSB's proposed variation (in which case this Delegation Agreement will be amended accordingly) or refuse the proposed change (in which case this Delegation Agreement will continue in force unchanged).

10.4Without prejudice to clause 10.3, if there is disagreement between the Parties regarding a variation proposed by the RSB either Party may refer the matter in accordance with the Dispute Resolution Procedure.

10.5Until a change is formally agreed in writing between the Parties in accordance with this clause 10 the RSB will continue to perform its obligations under this Delegation Agreement as if the change had not been proposed.

11. Warranties

11.1Each of the Parties represents, warrants and undertakes to the other that:

it will comply with all applicable laws;
it will not do or say anything which negatively impacts the reputation of the other; and
it has full capacity and authority, and all necessary consents, licences and permissions to enter into and perform its obligations under this Delegation Agreement, and that this Delegation Agreement is executed by its duly authorised representative.

11.2As a condition of delegation the RSB represents warrants and undertakes to the FRC that the RSB's Rules:

require its Registered Auditors to be subject to and comply with the FRC Procedures;
specify that monitoring and enforcement of all Retained Tasks and all Reclaimed Tasks will be performed by the FRC;
in the case of Reclaimed Tasks permit the FRC (and any Replacement RSB to which a Reclaimed Task has been delegated) to apply:
1. the RSB's Rules; or
2. its own rules,
in the conduct of that Reclaimed Task; and
in the case of Retained Tasks and Reclaimed Tasks provide that an obligation which a statutory auditor or statutory audit firm has by virtue of the RSB's Rules is an obligation owed to the FRC or the Replacement RSB, as applicable.

11.3The RSB undertakes that it will:

perform its obligations under this Delegation Agreement with the skill, care and diligence to be expected of a recognised statutory body acting reasonably;
perform the Delegated Tasks in accordance with the Conditions of Delegation;
adequately resource the performance of the Delegated Tasks with appropriately skilled personnel;
organise itself in such a manner that conflicts of interest are avoided;
implement and maintain appropriate continuity arrangements and provide the FRC with such information as it reasonably requires from time to time concerning such continuity arrangements; and
not amend or vary the RSB's Rules in relation to the matters in clause 11.2 without the FRC's prior written approval.

12. Indemnities

12.1Each Party will indemnify, and keep indemnified, the other Party in full against all costs, expenses, damages and losses (whether direct or indirect) including any interest, penalties, and any reasonable legal and other professional fees awarded against or incurred or paid by the other in respect of any breach of clause 6 (Confidentiality) or any claim that the use of any intellectual property by either Party, as permitted by clause 13 (Intellectual Property Rights) below, infringes the intellectual property of any third party.

12.2The RSB will indemnify, and keep indemnified, the FRC in full against all costs, expenses, damages and losses (whether direct or indirect), including any interest, penalties, and reasonable legal and other professional fees awarded against or incurred or paid by the FRC as a result of or in connection with any claim made against the FRC arising as a result of or in connection with the RSB's performance of its obligations under this Delegation Agreement.

12.3In relation to any claim to be indemnified under this clause 12 or elsewhere in this Delegation Agreement, the indemnified Party shall:

as soon as is reasonably practicable give written notice of that matter to the indemnifying Party, specifying in reasonable detail the nature of the relevant matter and shall use its reasonable endeavours to avoid and mitigate the losses it incurs;
not make any admission of liability, or enter into any agreement or compromise in relation to the matter in respect of which it seeks to be indemnified without the prior written consent of the indemnifying Party (such consent not to be unreasonably withheld or delayed); and
allow the indemnifying Party to have conduct of the proceedings relating to the indemnity (and cooperate with the indemnifying Party in relation to all such proceedings, at the indemnifying Party's costs) and the indemnifying Party shall at its sole discretion decide what action (if any) to take in respect of such matter and shall not be obliged to bring or defend any such proceedings if it decides in its sole discretion not to do so.

13. Intellectual Property Rights

13.1All intellectual property rights in any materials provided by the FRC to the RSB for the purposes of the parties carrying out their responsibilities under this Delegation Agreement will, to the extent that they were owned by the FRC at the time of such provision, remain the property of the FRC but the FRC grants the RSB a personal, non-assignable, non-sub licensable, royalty-free, irrevocable, non-exclusive and non-transferable licence to use such materials (excluding FRC codes, standards, guidance and/or other materials provided by the FRC to the RSB for corporate governance, stewardship, corporate reporting, accounting, auditing, assurance services and actuarial work) to perform its obligations under this Delegation Agreement during the Term. If and to the extent that any intellectual property rights in such materials vest in the RSB by operation of law the RSB assigns to the FRC by way of present assignment of future rights all its intellectual property in such materials (with full title guarantee and free from all third party rights).

13.2All intellectual property rights (foreground and background) in the RSB Audit Materials will vest in the RSB. If, and to the extent that, any intellectual property rights in such materials vest in the FRC by operation of law, the FRC assigns to the RSB by way of a present assignment of future rights that will take place immediately on the coming into existence of any such intellectual property rights, all its intellectual property rights in such materials (with full title guarantee and free from all third party rights).

13.3The RSB grants the FRC a royalty-free, irrevocable, non-exclusive non-transferable licence to use the RSB Audit Materials for the purposes of performing one or more Reclaimed Tasks, and such licence shall be effective from the day that the FRC reclaims a Delegated Task and shall continue until reinstatement of the Delegated Task to the RSB.

13.4Where the FRC reclaims from the RSB any Regulatory Task and instructs another party to complete such Reclaimed Task the RSB hereby grants the appointed party an irrevocable, non-exclusive, non-transferable licence to use such RSB Audit Materials as are reasonably required to enable the appointed party to complete the transferred work in progress. Such licence shall expire on the earlier of:

in the case of Reclaimed Tasks deriving from the Delegated Tasks at clause 2.1(e), completion by the appointed party of the respective transferred investigation(s); or in the case of Reclaimed Tasks deriving from the Delegated Tasks at clauses 2.1(a)-(d), completion by the appointed party of the transferred matters for the applicable regulatory year;
reinstatement of the Delegated Task to the RSB; or
the retention by the FRC of the Delegated Task as a Retained Task by the FRC.

13.5The RSB acknowledges that it may be the recipient of a licence granted by another RSB under a different delegation agreement which is identical to or substantially the same as the licence set out above at clause 13.4. The RSB unconditionally and irrevocably:

undertakes to use RSB Audit Materials granted under any such licence in good faith and solely for the purpose of completion of the transferred matters, not to exploit the Ceding RSB's intellectual property for benefit or commercial gain and to use its best endeavours to adhere to the terms of any such licence; and
acknowledges that a Ceding RSB may rely on this clause 13.5 as a cause of action accordingly.

14. Transfer of Staff

14.1Where an RSB voluntarily cedes a Delegated Task or where the FRC reclaims a Delegated Task, or where the FRC has performed a Retained Task or Reclaimed Task and subsequently delegates the same to an RSB (Ceding Employer), and transfer of staff from the Ceding Employer is effected by law or by agreement to the FRC or a Replacement RSB (Transferring Employee(s), Relevant Transfer and New Employer respectively), the Ceding Employer shall indemnify the New Employer against any Employee Liabilities in respect of such Transferring Employees arising from or as a result of:

any act or omission by the Ceding Employer or any of its sub-contractors, whether occurring before, on or after the Relevant Transfer Date.
any act or omission of the Ceding Employer in relation to their obligations under the Transfer of Undertakings (Protection of Employment) Regulations 2006 save to the extent that such liability arises from the New Employer's act or omission in relation to its obligations under those Regulations.

14.2For the purposes of this clause 14, "Employee Liabilities" means all claims, actions, proceedings, orders, demands, complaints, investigations and any award, compensation, damages, tribunal awards, fine, loss, order, penalty, disbursement, payment made by way of settlement and costs, expenses and legal costs reasonably incurred in connection with a claim or investigation; and "Relevant Transfer Date" means the date upon which a transfer of employment takes place by operation of law or agreement and arising out of or in connection with the FRC's delegation of Regulatory Tasks pursuant to applicable law (including SATCAR 2016) and/or this Delegation Agreement,

15. Liability

15.1Exemptions from liability in Schedule 10 Companies Act 2006 and/or in orders or regulations made under s.18A of the Companies (Audit, Investigations and Community Enterprise) Act 2004 will have effect.

15.2The RSB will not be responsible for any injury, loss, damage, cost or expense suffered by the FRC if and to the extent that it is caused by the negligence or wilful misconduct of the FRC or by breach by the FRC of its obligations under this Delegation Agreement.

15.3Subject always to clauses 15.4 and 15.5:

in no event will the FRC be liable to the RSB for any:
1. loss of profits;
2. loss of business;
3. loss of revenue;
4. loss of or damage to goodwill;
5. loss of savings (whether anticipated or otherwise); and
6. any indirect, special or consequential loss or damage.

15.4Nothing in this Delegation Agreement will be construed to limit or exclude either Party's liability for:

death or personal injury caused by its negligence or that of its Staff;
fraud or fraudulent misrepresentation by it or its Staff; or
any other matter which, by law, may not be excluded or limited.

15.5The Parties' liability under the indemnity in clause 12.1 will be limited to £1 million.

16. Termination

16.1This Delegation Agreement will terminate with immediate effect if at any time during the Term:

the RSB's status as a recognised supervisory body under Schedule 10 of the Companies Act 2006 is revoked or suspended (either temporarily or permanently) for any reason;
the RSB rescinds, varies or adds any term or condition which has the effect of altering (whether materially or non-materially) a term or condition requiring a statutory auditor to submit to the FRC's jurisdiction in relation to:
1. audits carried out for such period as the statutory auditor may be registered by the RSB; or
2. investigations and/or regulatory action by the FRC concerning acts or omissions of the statutory auditor which occurred during the period in which the statutory auditor was registered by the RSB,
without the FRC's prior written consent (which the FRC may withhold in its sole discretion);
the FRC's designation as the single competent authority under the SATCAR 2016 expires or is revoked; or
the FRC is required to terminate this Delegation Agreement due to any direction or order by the Secretary of State or a change in law.

16.2Without prejudice to any other right or remedy it might have, the FRC may terminate this Delegation Agreement by written notice to the RSB with immediate effect if the RSB:

fails to perform any of its funding obligations under this Delegation Agreement;
(without prejudice to clause 16.2(e)), is in material breach of any obligation under this Delegation Agreement which is not capable of remedy;
repeatedly breaches any of the terms and conditions of this Delegation Agreement in such a manner as to reasonably justify the opinion that its conduct is inconsistent with it having the intention or ability to give effect to the terms and conditions of this Delegation Agreement;
is in material breach of any obligation which is capable of remedy, and that breach is not remedied within 30 days of the RSB receiving notice specifying the breach and requiring it to be remedied;
breaches any of the provisions of clauses 7, 8 and 9;
undergoes an Insolvency Event; or
fails to comply with its legal obligations in the fields of environmental, social or labour law.

16.3The RSB will without delay notify the FRC where an event occurs that gives rise to automatic termination of this Delegation Agreement under clause 16.1 or a right to terminate under clause 16.2.

16.4Either party may terminate this Delegation Agreement for convenience by giving 18 months' written notice.

16.5Termination or expiry of this Delegation Agreement will be without prejudice to the rights of either Party accrued prior to termination or expiry and will not affect the continuing rights of the Parties under this clause and clauses 1, 6, 7, 8, 9, 12, 13, 14, 15, 16, 17, 18, 21, 23, 24.1, 24.3, paragraph 6 of Appendix 4 and paragraph 3 of Appendix 6 or any other provision of this Delegation Agreement that either expressly or by implication has effect after termination.

17. Effect of Termination

17.1Upon termination or expiry of this Delegation Agreement, the RSB will:

immediately cease to perform the Delegated Tasks;
return (or destroy, at the FRC's absolute discretion) all requested documents, information and data provided to the RSB pursuant to this Delegation Agreement to the FRC as soon as reasonably practicable;
give all reasonable assistance to the FRC and/or any third party that is or will be performing any or all Reclaimed Tasks (both during the Term and during any extension period under clause 17.2, and for a reasonable period after the Term and any extension period under clause 17.2); and
at the FRC's election and at no cost to the FRC, assign or novate to the FRC (or procure the assignment or novation to the FRC of) the benefit of any agreement between the RSB and a third party insofar as it relates exclusively to the performance of the Delegated Tasks. The RSB will not terminate any such agreement without giving the FRC 30 days' prior notice that it intends to do so.

17.2Where this Delegation Agreement is due to expire or is terminated under clause 16.2 or 16.4 the FRC may, by giving the RSB written notice prior to expiry or termination of this Delegation Agreement, extend this Delegation Agreement in whole or in part for periods of up to 6 months so as to phase the transfer of the performance of the Delegated Tasks back to the FRC or to a new or different recognised supervisory body as nominated by the FRC.

18. Exit Management

The provisions of Appendix 7 (Exit Management) will apply.

19. Force Majeure

Neither Party will have any liability under or be deemed to be in breach of this Delegation Agreement for any delays or failures in performance of this Delegation Agreement which result from circumstances beyond the reasonable control of the Party affected. Each Party will promptly notify the other Party in writing when such circumstances cause a delay or failure in performance and when they cease to do so.

20. Assignment and sub-contracting

20.1Subject to clause 20.2 and 20.4, the RSB will not assign, sub-contract, novate or in any way dispose of the benefit and/or the burden of this Delegation Agreement or any part of this Delegation Agreement.

20.2Subject to clause 20.4, the RSB will not sub-contract any obligation under this Delegation Agreement or any part of this Delegation Agreement without the written consent of the FRC which the FRC may withhold in its absolute discretion. The FRC may, in the granting of such consent, provide for additional terms and conditions relating to such sub-contract. The RSB will be responsible for the acts and omissions of its sub-contractors as though those acts and omissions were its own.

20.3Where the FRC has consented to the placing of sub-contracts, the RSB will, at the request of the FRC, send copies of each sub-contract, to the FRC as soon as is reasonably practicable redacting, where appropriate, any commercially sensitive information which is not reasonably required by the FRC in the proper performance of its statutory duties or for the purposes of assessing the RSB's performance of its obligations under this Delegation Agreement.

20.4Clauses 20.1 and 20.2 shall not apply to the hiring of individual sub-contractors by RSBs from time to time to assist the RSBs' permanent staff in the completion of Delegated Tasks.

20.5The Parties agree that the FRC (and its successors and assignees) may, notwithstanding any other provision of this Delegation Agreement, assign or transfer (including by novation to which the RSB hereby consents) all of its rights and, as applicable, obligations arising under or in connection with this Delegation Agreement to any person.

21. Dispute Escalation and Enforcement Measures

Disputes in relation to performance of Tasks

21.1If there is a dispute in relation to the performance of the Delegated Tasks (a "Performance Issue"), the Parties will use their reasonable endeavours to negotiate and settle the Performance Issue in accordance with the following escalation procedure.

Escalation to the FRC's Director of Professional Oversight and the RSB Representative, who will engage in oral and written communication to resolve the Performance Issue. If appropriate, the RSB Representative may prepare a remediation plan which may include:
1. proposals for re-performing the Delegated Tasks; and
2. proposed changes to this Delegation Agreement,
and the Performance Issue will be deemed settled if the FRC's Director of Professional Oversight approves such remediation plan (and such approval may be withheld in their absolute discretion).
If a remediation plan under clause 21.1(a) has not within 15 Working Days been:
1. proposed by the RSB; or
2. approved by the FRC,
the Parties may escalate the Performance Issue to the FRC's Executive Director of Supervision and an Executive Director of the RSB, who will engage in oral and written communication to resolve the Performance Issue.
If the Performance Issue has not been resolved under clause 21.1(b) within a further 15 Working Days the Parties may refer the Performance Issue to the FRC's and the RSB's respective Chief Executive Officers, who will engage in oral and written communication to resolve the Performance Issue.
If the Performance Issue has not been resolved under clause 21.1(c) within a further 15 Working Days the FRC Executive may refer the Performance Issue to the FRC's Board for a decision in accordance with clause 21.2 below.

21.2Where a Performance Issue has been referred to the FRC Board:

the FRC Executive will notify the RSB that the Performance Issue has been referred to the FRC Board and of the date of the FRC Board Meeting;
the RSB may make a written submission to the FRC Board for consideration at its meeting;
the FRC Board shall consider any representations from the RSB and may decide to exercise any or a combination of the following measures:
1. a direction to do or refrain from doing a particular action;
2. a decision to reclaim any one or more Individual Case(s), a Partial Regulatory Task or a Regulatory Task;
3. termination of this Delegation Agreement; and/or
4. such other measure(s) as the Board deems reasonable and appropriate in all the circumstances; and
a decision of the FRC Board to exercise the measures at clause 21.2(c) above is a decision taken pursuant to its statutory designation and is subject to judicial review.

Other disputes

21.3Save in respect of the FRC's qualitative assessment of the RSB's performance of a Delegated Task (which shall be addressed under the Performance Issue provisions of clauses 21.1 and 21.2 above), if there is a dispute in relation to the meaning or effect of or rights or obligations under this Delegation Agreement (a "Dispute"), the Parties may:

refer the Dispute to the FRC's and the RSB's respective Chief Executive Officers, who will use best endeavours to attempt to resolve the dispute;
if resolution under clause 21.3(a) has not been achieved within 15 Working Days, refer the Dispute to the Chairman of the FRC and the Appropriate Person at the RSB to use best endeavours to attempt to resolve the dispute;
if resolution under clause 21.3(b) has not been achieved within 15 Working Days, refer the Dispute to mediation in accordance with the Centre for Effective Dispute Resolution (CEDR) Model Mediation Procedure. Unless otherwise agreed between the parties within 10 Working Days of the notice of referral to CEDR, the mediator will be nominated by CEDR; and
if resolution under clauses 21.3(a) - (c) has not been achieved seek a declaration of the High Court as to the meaning or effect of the provision(s) in dispute.

22. Notices

22.1Any notice to be given under this Delegation Agreement will be in writing (which includes, for the avoidance of doubt, email sent to a Party's primary email contact address as listed on its public website or sent to any email address otherwise known to be customarily used by a Party in connection with this Delegation Agreement) and may, where applicable, be served by personal delivery or by first class recorded post to the address of the relevant Party set out in this Delegation Agreement or such other address as that Party may from time to time notify to the other Party in accordance with this clause 22.

22.2Notices served as above will be deemed served on the Working Day of delivery provided delivery is before 5.00pm on a Working Day. Otherwise delivery will be deemed to occur on the next Working Day. An email will be deemed delivered when sent unless an error message is received.

22.3Notices under clauses 16 (Termination) and 19 (Force Majeure) may be served by email only if the original notice is then sent to the recipient by personal delivery or recorded delivery in the manner set out in this clause 22.

23. Governing Law and Jurisdiction

The validity, construction and performance of this Delegation Agreement, and all contractual and non-contractual matters arising out of it, will be governed by English law and will be subject to the exclusive jurisdiction of the English courts to which the Parties submit.

24. General

24.1Except where otherwise indicated in this Delegation Agreement, a person who is not a party to this Delegation Agreement will have no right to enforce any of its provisions which, expressly or by implication, confer a benefit on him, without the prior written agreement of the Parties.

24.2This Delegation Agreement cannot be varied except in writing signed by a duly authorised representative of both the Parties.

24.3This Delegation Agreement contains the whole agreement between the Parties and supersedes and replaces any prior written or oral agreements, representations or understandings between them. The Parties confirm that they have not entered into this Delegation Agreement on the basis of any representation that is not expressly incorporated into this Delegation Agreement. Nothing in this clause will exclude liability for fraud or fraudulent misrepresentation.

24.4Any waiver or relaxation either partly, or wholly of any of the terms and conditions of this Delegation Agreement will be valid only if it is communicated to the other Party in writing and expressly stated to be a waiver. A waiver of any right or remedy arising from a breach of contract will not constitute a waiver of any right or remedy arising from any other breach of this Delegation Agreement.

24.5This Delegation Agreement will not constitute or imply any partnership, joint venture, agency, fiduciary relationship or other relationship between the Parties other than the contractual relationship expressly provided for in this Delegation Agreement. Neither Party will have, nor represent that it has, any authority to make any commitments on the other Party's behalf.

24.6Except as otherwise expressly provided by this Delegation Agreement, all remedies available to either Party for breach of this Delegation Agreement (whether under this Delegation Agreement, statute or common law) are cumulative and may be exercised concurrently or separately, and the exercise of one remedy will not be deemed an election of such remedy to the exclusion of other remedies.

24.7If any provision of this Delegation Agreement is prohibited by law or judged by a court to be unlawful, void or unenforceable, the provision will, to the extent required, be severed from this Delegation Agreement and rendered ineffective as far as possible without modifying the remaining provisions of this Delegation Agreement, and will not in any way affect any other circumstances of or the validity or enforcement of this Delegation Agreement.

24.8Each Party shall, from time to time, at its own cost, do, perform, sign, execute and deliver all such acts, deeds, documents and things (or procure the doing, performance, signing, execution or delivery thereof) as the other party may from time to time reasonably require, in a form and in terms satisfactory to the other Party (acting reasonably), to give full effect to this Delegation Agreement and to secure to the other Party the full benefit of the rights, powers and remedies conferred upon the other Party in this Delegation Agreement.

24.9Without prejudice to any other rights or remedies that the FRC may have, the RSB acknowledges and agrees that damages alone would not be an adequate remedy for any breach of the terms of this Delegation Agreement by the RSB. Accordingly, the FRC will be entitled to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the terms of this Delegation Agreement.

SIGNED for and on behalf of THE FINANCIAL REPORTING COUNCIL:

Signature

Print name

Chief Executive

SIGNED for and on behalf of THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SCOTLAND:

Signature

Print name

Chief Executive

Appendix 1 - Registration of Statutory Auditors and Statutory Audit Firms Conditions

1.The RSB has submitted to the FRC key principles of its work plan in relation to this task by way of the RSB's submission to the FRC of its regulatory plan in accordance with Appendix 5 or such other information as the FRC may reasonably request.

2.The RSB's Rules shall contain provisions covering:

eligibility for approval and registration as a statutory auditor or audit firm;
application for registration as a statutory auditor or audit firm;
cessation and removal of registration;
assessment of continuing eligibility for registration; and
submission of accurate data on a timely basis to update the public audit register.

3.The RSB's Rules must, at a minimum, require the RSB to comply with the Eligibility Criteria issued by the FRC and otherwise be to the FRC's reasonable satisfaction in relation to the task of registration.

4.The RSB will have a committee (the "Committee") which has responsibility for the task of registering persons eligible for appointment as statutory auditors and for considering whether the registration of such persons should continue including:

ensuring registrations are carried out to a consistent standard in accordance with the requirements of Schedule 10 Companies Act 2006 and the FRC's Eligibility Criteria;
considering applications for dispensations from the requirements; and
considering cessation of registration.

5.The processes relating to registration and cessation of registration shall be documented in a procedures manual which is approved by the Committee.

6.The RSB will inform the FRC of significant changes to its procedures manual and to the RSB's Rules.

7.For the purposes of facilitating the effective performance by the FRC of Retained Task (e) (namely, the application of the Eligibility Criteria for the purposes of determining whether persons are eligible for appointment as statutory auditors of Public Interest Entities (within the meaning given to the term "public interest entity" in SATCAR 2016) and may otherwise be registered as statutory auditors of such Public Interest Entities), the RSB:

shall provide information and documents; and
co-operate with the FRC,

in accordance with the Registration Protocol as published and amended from time to time by the FRC after consultation with the RSBs.

Appendix 2 - Continuing Professional Development Conditions

1.The RSB has submitted to the FRC key principles of its work plan in relation to this task by way of the RSB's submission to the FRC of its Regulatory Plan in accordance with Appendix 5 or such other information as the FRC may reasonably request.

2.The RSB's Rules in relation to continuing professional development shall be to the FRC's satisfaction and shall ensure that its Registered Auditors continue to maintain an appropriate level of competence in the conduct of statutory audits.

3.The RSB shall set an appropriate approach, subject to FRC approval, to assess the CPD of its Registered Auditors. The RSB should establish its preferred approach to measuring CPD activity from three models: output based, input-based, or combination approaches.

4.The RSB should establish a regime designed to ensure that its Registered Auditors comply or explain with the RSB's CPD requirements, and that compliance is adequately monitored and enforced. The RSB's CPD requirements should include compliance with IES7 and IES8. If the RSB's requirements depart from these standards (insofar as they relate to statutory audit) then it must explain the reasons to the FRC.

5.The RSB shall establish a regime that requires the CPD undertaken by its Registered Auditors to be appropriate to their work and professional responsibilities, taking into account factors such as industry focus and client base.

6.The RSB may liaise with employers of its Registered Auditors to provide training and development. An RSB may establish a scheme whereby its Registered Auditors are automatically deemed to have complied with the RSB's CPD requirements.

7.The RSB should promote the importance of CPD and maintenance of professional competence to its Registered Auditors.

Monitoring of CPD compliance

8.The RSB shall require its Registered Auditors to submit an annual declaration of compliance with the RSB's CPD requirements. A Registered Auditor which is a firm may make the annual declaration on behalf of its individual principals and employees.

9.Each year the RSB shall select a sample of its Registered Auditors. The RSB shall require the selected Registered Auditors to submit their CPD record to the RSB in a timely manner. Once received, the RSB will review the CPD record to determine if the Registered Auditor has complied with the RSB's CPD approach and requirements.

10.The RSB may conduct the review of the CPD records within a monitoring visit to an employer or via sample of Registered Auditors.

11.If the RSB has established an employer CPD regime the regime should be subject to regular review and monitoring by the RSB to ensure that it continues to comply with the RSB's approach.

Non-compliance of Statutory Auditor/Audit Firms with requirements

12.The RSB should establish a range of follow up actions which may be employed if a Registered Auditor is found not to be complying with the CPD requirements. The follow up actions and/or penalties should be proportionate.

Appendix 3 - Audit Monitoring Conditions

2.The RSB shall have a committee which has responsibility for discharging the function of audit monitoring (the "Committee") - including reviewing the results of audit inspections, in particular those which result in an unsatisfactory grade [^1] and for ensuring that inspections are carried out to a consistent standard.

Key performance indicators

3.The RSB shall agree key performance indicators ("KPIs") with the FRC which focus on the improvement of audit quality. Where targets are not met the RSB may be required to conduct a root cause analysis.

4.KPIs shall also be agreed which relate to the RSB's annual review activity.

Selection of Registered Auditors[^2] for review

5.Where a Registered Auditor has carried out a statutory audit of an entity not subject to the small companies regime during any of the previous five years, the RSB should use a risk based approach to selecting a Registered Auditor for review, subject to inspecting that Registered Auditor at least once every six years, as required by Schedule 10[^3] to the Companies Act 2006.

6.Where a Registered Auditor has carried out statutory audits only of entities subject to the small companies regime during the previous five years, the RSB should use a risk based approach to selecting a Registered Auditor for review, subject to inspecting that audit firm at least once every ten years.

7.For Registered Auditors that have not carried out a statutory audit during any of the previous five years the RSB shall agree an appropriate risk-based approach with the FRC.

8.The risk factors to be considered by the RSB under paragraphs 5-7 above should include: the risks of non-compliance with the RSB's Rules; the size/ complexity of the Registered Auditor (if a firm) and of its audit clients; the instructions of the Committee; past review outcomes; intelligence from other departments of the RSB, and current circumstances.

Selection of audits for review

9.The number and selection of audits to be reviewed as part of an audit inspection monitoring visit should appropriately reflect the risk and size profile of the audit clients of the Registered Auditor and not solely focus on coverage of those individuals in the firm responsible for statutory audit work.

Scope of review work relating to individual audits

10.In selecting the areas of an audit to be reviewed the RSB shall adopt a risk based approach which has regard to the materiality and complexity of the different aspects of the audit.

11.The proportion of audit work reviewed should be sufficient to enable an appropriate and justifiable conclusion on the quality of the audit overall to be reached.

Review methodology and documentation

12.The audit review methodology to be followed before, during, and after a monitoring visit shall be documented in a review manual which is reviewed and updated by the RSB at least annually and is subject to periodic approval at the FRC's discretion.

13.The audit file grading and visit grading systems for review results should be agreed with the FRC and should ensure consistency of grading of results between inspectors and over time. The system should include appropriate quality control review within the RSB.

Post monitoring visit follow-up actions

14.The RSB shall have procedures for the notification to, and consideration by, the Committee of visits with an unsatisfactory review grade, or which otherwise indicate non-compliance with the Relevant Requirements and/or any applicable FRC processes and procedures or with the RSB's Rules. Circumstances where the results of a review shall be considered by the Committee and circumstances where such considerations may be delegated to staff shall be set out in the Committee's terms of reference and notified to the FRC.

15.Such procedures should aim to ensure steps are taken by a Registered Auditor to identify areas for performance improvement and appropriate follow up actions.

16.Such follow up actions should be actions designed to produce and maintain an appropriate improvement in the quality of audit work within a reasonable but expeditious timeframe.

17.The RSB should also consider the impact of the review result on its own selection of Registered Auditors for review, for example by scheduling an early follow up visit to that firm.

18.Failure of the Registered Auditor to improve the standard of work carried out in respect of statutory audit functions, as reflected by consistently unsatisfactory review grades, should be referred to the Committee with a view to the possible imposition of regulatory penalties or referred for disciplinary action as set out within the constitution of the Committee.

Appendix 4 - Enforcement Conditions

Rules and Procedures

2.The RSB's Rules must be to the FRC's satisfaction and:

incorporate at least the requirements set out in this Appendix in particular and this Delegation Agreement in general insofar as they apply to Enforcement (as defined below);
incorporate an effective system for the handling and investigation of complaints and conduct of administrative and disciplinary proceedings in order to detect, correct and prevent breaches of relevant requirements as defined in SATCAR 2016 (Relevant Requirements, Enforcement and Enforcement Arrangements respectively); and
specify the RSB committees to be involved in its Enforcement Arrangements and the governance arrangements relating to the composition of those committee(s) and the conduct of business by those committee(s).

3.The Enforcement Arrangements must furthermore:

incorporate processes to ensure that the conduct of complaints and investigations and the imposition of administrative measures and/or sanctions are consistent appropriate and timely;
provide effective, proportionate and dissuasive sanctions where there has been a breach of a Relevant Requirement;
include at least those sanctions set out in SATCAR 2016;
provide that when determining the type and level of administrative sanctions and measures to be imposed, the RSB will take into account all relevant circumstances including where appropriate:
1. the gravity and duration of the breach;
2. the degree of responsibility of the responsible person;
3. the financial strength of the responsible person (for example, in respect of a firm, as indicated by its turnover and, in respect of an individual, the annual income of that individual);
4. the amounts of the profits gained or losses avoided by the responsible person in so far as they can be determined;
5. the level of cooperation of the responsible person with the RSB and/or other authorities including the FRC; and
6. previous breaches by the responsible legal or natural person.
ensure that decisions taken are subject to a right of appeal; and
contain effective mechanisms to encourage reporting of breaches of the relevant requirements to that RSB and other relevant authorities. Such mechanisms should be designed to protect the Personal Data concerning the person who reports the suspected breach and the Personal Data and human rights of any person suspected or accused of committing a breach, save as permitted by law.

4.Financial penalties recovered from a person under its Enforcement Arrangements shall be retained and used by the RSB for the purposes of recovering its costs of that investigation and/or administrative or disciplinary action and for funding future delegated Enforcement tasks.

Publication Conditions

5.Following the imposition of a sanction under its Enforcement Arrangements the RSB shall publish on its website as soon as reasonably practicable after the person has been informed of the decision:

information concerning the type of contravention and its nature;
the identity of the person sanctioned unless the RSB considers the publication of Personal Data would be disproportionate, jeopardise the stability of financial markets, jeopardise an ongoing criminal investigation or cause disproportionate damage to an institution or individual concerned; and
information concerning the status and outcome of any appeal, where the sanction is subject to appeal.

6.The RSB must keep such information available on its website for at least 5 years from the date of the sanction or, in where the sanction has been appealed, at least 5 years from the conclusion of that appeal, or such longer period as is proportionate to the breach in question.

7.The RSB shall ensure that the publication of sanctions and measures and any public statement issued pursuant to its Enforcement Arrangements shall, save as otherwise permitted by law, respect all applicable law including in relation to the human and data protection rights of the person in question.

Specific Reporting Conditions

8.The RSB must:

inform the FRC of any temporary prohibitions immediately;
refer to the FRC any complaint or issue of which the RSB becomes aware otherwise which relates to the audit of a Public Interest Entity; and
inform the FRC if the RSB receives a complaint about a person eligible to be a statutory auditor which is not in relation to the audit of a Public Interest Entity but raises or appears to raise important issues affecting the public interest in the UK.

Appendix 5 - Reporting and Information, Inspection and Monitoring Conditions

Approval

1.The FRC will review the RSB's regulatory plan setting out the RSB's intended work plan annually.

2.To the extent not already contained in the regulatory plan, the RSB will provide to the FRC at least the following information annually in relation to the Delegated Tasks:

in relation to Audit Monitoring, at least the planned number of monitoring visits; the criteria used to select firms for review - including the measures of risk applied and details of changes to review methodology and documentation since the previous year;
in relation to Continuing Professional Development, at least the proposed scope and size of the sample of members to be selected in the year in relation to CPD activity relating to those eligible for appointment as a statutory auditor. The sample should be selected on a risk based approach, taking into account for example: type and size of employer, personnel seniority level, amount and type of audit work performed, audit monitoring performance history of the employer, information from other departments in the RSB and other regulators; and
in relation to registration and enforcement any material changes to procedures or turnaround targets, such other information as the parties may agree from time to time and such information as the FRC may reasonably request to be included.

Reporting

3.The RSB will report to the FRC upon its performance of the Delegated Tasks as follows:

a report prepared annually in accordance with paragraph 4 below (an "Annual Return"); and
interim reporting by exception to include any:
1. significant changes proposed to its rules and regulations and/or processes in relation to the Delegated Tasks;
2. material developments in performance of each of the Delegated Tasks, any material uncertainties in current or anticipated performance of Delegated Tasks, or eligibility for this Delegation Agreement; and
3. significant complaints received by the RSBs in relation to the RSB's performance of Delegated Tasks.

4.Each Annual Return shall contain at least the following information:

in relation to registration (see Appendix 1): (1) the number of applications and withdrawals approved in the period covered by the Annual Return; (2) an explanatory commentary covering any significant trends or issues arising from the approval and registration of statutory auditors and audit firms process; (3) any internal quality review report on the registration function completed during the year; and (4) reconciliation of the RSB's registration records to the Register of statutory audit at the end of the year;
in relation to Continuing Professional Development (see Appendix 2), at least: (1) the percentage of annual compliance returns received; (2) the number of members CPD records which have been reviewed in the period covered by the Annual Return; (3) the number of CPD records found to be unsatisfactory; and (4) the number of any specific incidents where a lack of CPD contributed to deficiencies in audit work;
in relation to Audit Monitoring (see Appendix 3), and subject to the confidentiality of the review results of individual firms: (1) the number of reviews completed in the period covered by the Annual Return compared to plan; (2) the outcomes of completed reviews; (3) an explanatory commentary covering the number of reviews completed during the period and in the year to date, the outcomes, and any significant trends or issues resulting from the reviews; and (4) comparison of review results against those of previous years. It should also identify areas for improvement by its Registered Auditors; and
in relation to Enforcement (see Appendix 4), at least providing annually aggregated information regarding all administrative measures and all sanctions imposed under its Procedure for Audit Enforcement.

Information

5.The RSB's Regulatory Plan or Annual Return (as applicable) and interim reporting will contain such detail as the FRC reasonably requires for the FRC to fulfil its statutory oversight and reporting responsibilities.

6.The RSB will provide to the FRC such other information as may be reasonably requested by the FRC (and will in good faith volunteer provision of such information as the FRC may reasonably consider to be relevant were the FRC to be aware of the existence of such information) in relation to the parties' exercise of their rights and responsibilities arising out of or in connection with the Audit Objective and/or this Delegation Agreement.

FRC Inspection

7.The FRC can inspect the RSB to assess the RSB's compliance with the terms of this Delegation Agreement as follows:

upon 30 days' notice; or
without notice or at short notice, where the FRC has reasonable grounds for believing that the RSB has not complied with its obligations under this Delegation Agreement and where appropriate in all the circumstances.

8.The FRC will have full access, only for the purposes as set out in this Appendix, and to the extent reasonably required to the RSB's offices, minutes of the relevant committee meetings, and/or such other documentation as the FRC reasonably requires, to staff working on and decision makers in relation to Delegated Tasks, and those elements of RSBs' systems, controls and procedures which relate to the Delegated Tasks. If an FRC inspection reveals non-compliance with the RSB's obligations in this Delegation Agreement the Dispute Resolution Procedure shall apply, and the RSB will be responsible for the cost of a follow up inspection.

FRC Monitoring

9.The FRC will monitor the performance of the Delegated Tasks and assess compliance with the Conditions of Delegation including (but not limited to) the following:

review of interim reporting;
review of the RSB's annual work plan already submitted for the applicable year;
inspection(s) in accordance with paragraphs 7 - 8 above; and
accompanying RSB review staff on monitoring visits at the FRC's discretion.

10.The FRC may report the results of its monitoring to the RSB with recommendations and/or directions for improvement as the FRC deems reasonably necessary. In the event of non-compliance with recommendations or directions the FRC may at its discretion consider whether to enter into a Delegation Agreement.

11.The FRC may from time to time request such additions or other changes to the reporting requirements as it considers reasonably necessary in order to fulfil its statutory oversight, reporting and regulatory responsibilities.

Appendix 6 - Governance and Records

1.The RSB appoints the Executive Director of Regulation (the "RSB Representative") and the FRC appoints the Director of Professional Oversight (the "FRC Representative"). The RSB Representative and FRC Representative will be responsible for the management and oversight of all matters relating to the performance of the Delegated Tasks. The RSB and FRC will also appoint a suitably qualified deputy to act in the absence of either the RSB Representative or the FRC Representative.

2.Regular meetings to review the RSB's performance of the Delegated Tasks will take place at a location agreed between the Parties throughout the Term at the direction of the FRC ("RSB Review Meetings"). The RSB Review Meetings will be attended, at a minimum, by the RSB Representative and the FRC Representative or such substitute as may be agreed. Each party will use reasonable endeavours and cooperate with the other to meet actions agreed at the RSB Review Meetings. In cases where the RSB Representative and the FRC Representative fail to reach a solution within a reasonable period of time, the matter will be dealt with in accordance with the Dispute Resolution Procedure.

3.The RSB will keep and maintain for a rolling seven (7) year period, or as long a period as may be agreed between the Parties, full and accurate records of this Delegation Agreement in accordance with good industry practice and law including records relating to its performance of the Delegated Tasks, all payments made to the FRC and agreed minutes of RSB Review Meetings held in accordance with this Appendix. The RSB will provide such access to those records as may be reasonably requested by the FRC in connection with this Delegation Agreement.

Appendix 7 - Exit Management

Where:

the FRC notifies the RSB that, in accordance with this Delegation Agreement, it intends to, or that it may, reclaim either to perform it directly or to delegate the same to another recognised supervisory body (a "Replacement RSB");
the RSB, to the extent permitted by this Delegation Agreement or otherwise in accordance with applicable law, cedes to the FRC or transfers to a Replacement RSB,

the Ceding RSB shall in each case:

1.use its best endeavours and in good faith cooperate with the FRC and (as applicable) any Replacement RSB both before and after it ceases to perform the relevant task (or any relevant element thereof) in order to maintain the continuity of performance of the relevant task (or any relevant element thereof) and shall, where applicable, do so in accordance with the provisions of this Appendix.

2.Within 10 Working Days of service of a notice by either party to terminate this Delegation Agreement or by the FRC to reclaim a Delegated Task:

2.1take such steps and provide all the information reasonably necessary and/or reasonably requested within such time frame and in such form as is reasonably requested by the FRC and/or a Replacement RSB to enable the FRC or Replacement RSB to continue to perform the Reclaimed Task(s) upon the effective date of termination or reclaim as applicable including, but not limited to the information set out in (a)-(d) below:

in relation to the Delegated Task at clause 2.1(b) [Registration] (and associated licensing)
1. the Ceding RSB's applicable rules for eligibility and registration as a statutory auditor or audit firm;
2. copies or records of applications for such registration and or current licences including at least the identity of the applicant, date of application, date of registration and/or status of their/its application over the last 12 months or such other period as the FRC reasonably requests;
3. copies, records and information in relation to decisions or consideration of cessation and/or removal of registration;
4. assessments of continuing eligibility for registration; and
5. the most recent submission by the Ceding RSB of information to the public audit register and date on which it was supplied,
6. provide information, account for and hold to the FRC's or Replacement RSB's account such reasonable, pro-rata apportionment of annual licence revenue as may be reasonably requested to be transferred to the FRC or the Replacement RSB in relation to the discharge of the Ceding RSB's obligations for the year to which the licence revenue relates;
in relation to the Delegated Task at clause 2.1(c) [CPD]
1. the RSB's applicable rules in relation to continuing professional development and confirmation of any current departure from IES7 and IES8;
2. copies or a record of annual declarations of compliance received from its Registered Auditors for the past 12 months or such other period as the FRC reasonably requests;
3. a record of which of its Registered Auditors have been assessed as being CPD compliant over the last 12 months or such other period as the FRC reasonably requests;
4. details of any CPD monitoring visits carried out on Registered Auditors over the last 12 months or such other period as the FRC reasonably requests; and
5. details of any employer CPD regimes accepted by the RSB as being compliant and dates of applicable RSB reviews and monitoring of such employer regimes;
in relation to the Delegated Task at clause 2.1(d) [Audit Monitoring]
1. the number and selection criteria applied for audit reviews over the last 12 months or such other period as the FRC reasonably requests;
2. the results of audit inspections completed over the last 12 months or such other period as the FRC reasonably requests categorised to indicate satisfactory and unsatisfactory inspections and any post monitoring visits or actions agreed with the firm/auditor in question;
3. files in relation to audit inspections completed in (ii) above with a content and length of history of up to 6 years where such information has been gathered and/or is reasonable available and relevant to the audit inspection in question;
4. the identity of audit inspections in progress at the date of handover and in each case a high level summary note reasonably sufficient to enable the FRC or the Replacement RSB to takeover and complete the review including in relation to:
  1. the risk approach taken for the audit review in question;
  2. a handover note summarising the extent of review undertaken to date and remaining recommended areas for review/completion;
  3. any draft audit review reports completed; and
  4. any steps taken or recommendations in connection with constructive engagement or enforcement action; and
in relation to the Delegated Task at clause 2.1(e) [Enforcement]
1. a record of Enforcement cases concluded (by imposition of sanction, acceptance of undertaking, constructive engagement or discontinued or otherwise) by the Ceding RSB over the last 12 months or such other period as the FRC reasonably requests;
2. a schedule of matters under the Ceding RSB's consideration for audit enforcement action, in progress at the date of handover;
3. case files for each matter in (ii) above including at least:
  1. the complaint;
  2. any decision imposed or offered;
  3. relevant evidence gathered;
  4. details of any third parties instructed (external advisors or experts);
  5. a summary reasonably sufficient to enable the FRC or Replacement RSB to take over and complete the enforcement matter including the stage of consideration by the Ceding RSB, any reports or draft reports, agreed facts, facts in dispute, identification of any matters for expert evidence and a recommendation of next steps in the investigation or matter;
  6. handover of all evidence gathered in their original format;
  7. costs schedules and/or estimates on each matter of the Ceding RSB costs and third party disbursements incurred up to the date of transfer for the purposes of the FRC and/or Replacement RSB reimbursing in whole or in party such expenditure from any future costs award successfully collected from the respondent; and
  8. confirmation of payment by the Ceding RSB of all third party costs and disbursements incurred up to the date of transfer; and
4. a schedule (and case files as above) of any matter under appeal under the Ceding RSB's disciplinary or enforcement processes;

2.2inform those statutory auditors that it regulates of the fact and effective date that the Ceding RSB shall cease performing the task;

2.3consult with the FRC in relation to the Ceding RSB's communications in relation to the cessation of Delegated Task by the Ceding RSB; and

2.4co-operate in good faith with the FRC and any applicable Replacement RSB to effect an orderly and timely transfer of worker arrangements which is reasonably acceptable to the FRC or the Replacement RSB as applicable and which do not unreasonably impede the transfer and effective performance of a Reclaimed Task(s) by the FRC or a Replacement RSB.

3.The FRC will:

3.1agree a reasonably time period for any of steps at paragraph 2 to be performed where such steps are not reasonably capable of performance within 10 working days; and

3.2consult with the Ceding RSB in relation to FRC communications in relation to the cessation of the Reclaimed Task(s) by the Ceding RSB.

Appendix 8 - Entities within scope of Retained tasks

1. Public Interest Entities

1.1UK entities with transferable securities (equity/debt) admitted to trading on a UK regulated market

1.2Credit institutions: UK incorporated banks not already included in any other category

1.3Credit institutions: UK building societies

1.4Credit institutions: UK credit institutions authorised by the Bank of England other than unlisted banks and building societies.

1.5Insurance undertakings: Non-listed UK insurers

1.6Society of Lloyds

2 Other entities within scope

2.1UK companies admitted for trading on AIM or NEX (other than the Main Board) with a market capitalisation of more than €200m, using the formula in MiFID II

2.2Lloyd's Syndicates

[^1] Grading terminology used by the RSBs differ and the appropriate grading level for the purpose of this specification will be agreed between the RSB and the FRC. [^2] The term Registered Auditor is used to refer to statutory auditors and audit firms approved and registered to carry out statutory audits [^3] Paragraph 13(3)(b)(ii)

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Name Delegation Agreement FRC and ICAS

Publication date 27 September 2023

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Delegation Agreement FRC and ICAS

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