Governance of the Bank including matters reserved to court

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GOVERNANCE OF THE BANK
INCLUDING
MATTERS RESERVED TO COURT
Approved by Court on 10 December 2014
CONTENTS
The Court of Directors ............................................................................... 3
Statutory Committees................................................................................ 3
Court Committees ..................................................................................... 4
Regulatory Functions ................................................................................ 5
Court Procedures ...................................................................................... 5
Court Code on Business Ethics and Conflicts ............................................ 6
Matters Reserved for Court ........................................................................ 8
General Delegation .................................................................................... 8
Strategy and Management ......................................................................... 8
Monetary Stability ..................................................................................... 9
Financial Stability ..................................................................................... 9
Market Operations .................................................................................... 9
Prudential Regulation Authority .............................................................. 10
Capital, Financial Reporting, Controls and Litigation ............................... 10
Structure and Organisation ..................................................................... 11
Appointments .......................................................................................... 11
Remuneration ......................................................................................... 12
Transactions outside the normal course of business ................................ 13
Memoranda of Understanding and Service Level Agreements ................... 13
Secretarial ............................................................................................... 13
Policies .................................................................................................... 14
Annex A - Financial Policy Committee...................................................... 15
Annex B - Oversight Committee ............................................................... 17
Annex C - FMI Board ............................................................................... 19
Annex D - Transactions Committee ......................................................... 29
Annex E - Nominations Committee .......................................................... 30
Annex F - Remuneration Committee ........................................................ 32
Annex G - Sealing Committee .................................................................. 34
Annex H - Audit and Risk Committee ...................................................... 35
3
GOVERNANCE OF THE BANK
The Court of Directors
The Court of Directors is responsible for managing the affairs of the Bank,
other than the formulation of monetary policy, which is the responsibility of
the Monetary Policy Committee (see below). Court’s responsibilities are set out
in the Bank of England Act 1998 (the 1998 Act)1. They include determining
the Bank’s objectives and strategy, and ensuring the effective discharge of the
Bank’s functions and the most efficient use of its resources. The Bank also
has a statutory objective to “protect and enhance the stability of the financial
system of the United Kingdom” and Court, consulting HM Treasury and the
Financial Policy Committee (see below) determines the Bank’s strategy in
relation to that objective.
The 13 members of Court are appointed by the Crown. There are four
executive members: the Governor and the three Deputy Governors. The
Deputy Governors have designated responsibility respectively for Monetary
Policy, Financial Stability and Prudential Regulation. A further Deputy
Governor, for Markets and Banking, has been appointed by the Court and
attends its meetings, as does the Bank’s Chief Operating Officer (COO). The
remainder are Non-Executive Directors, among whom the Chair and Deputy
Chair of Court are appointed by the Chancellor of the Exchequer.
Court delegates to the Governor the day-to-day management of the Bank,
including the discharge of statutory functions, while reserving certain key
decisions to itself. These “matters reserved to Court” are set out in this
document.
Statutory Committees
The Monetary Policy Committee (MPC) is a Committee of the Bank and not a
Committee of Court. It consists of the Governor, the Deputy Governors for
Monetary Policy, Financial Stability and Markets and Banking, the Executive
Director responsible for monetary analysis, and four external members
appointed by the Chancellor. The MPC has responsibility within the Bank for
formulating monetary policy. The 1998 Act requires the Bank to maintain
price stability and, subject to that, to support the Government’s economic
policy, including its objectives for growth and employment. At least once a
year the Government specifies the price stability target, and the MPC meets
each month to set interest rates and other monetary conditions so as to meet
that target.
References in this document to the 1998 Act include amendments introduced by the
Financial Services Act 2012.
1
4
The Financial Policy Committee (FPC) is a statutory sub-committee of
Court. It consists of the Governor, the three Deputy Governors, the chief
executive of the Financial Conduct Authority, the Executive Director
responsible for Financial Stability, and four external members appointed by
the Chancellor. The FPC contributes to the achievement by the Bank of its
Financial Stability Objective by identifying, monitoring and taking action to
reduce risks to the financial system: subject to that, it is required to support
the Government’s economic policy, including its objectives for growth and
employment. The Committee may give directions to the PRA and the FCA in
relation to macroprudential measures prescribed by secondary legislation
under the 1998 Act (See Annex A).
The Oversight Committee is a statutory sub-committee of Court and has the
principal function of keeping under review the performance of the Bank in
relation to its objectives and strategy. The Oversight Committee may appoint a
person to conduct a performance review (including into policy decisions) and
has responsibility for monitoring the Bank’s response to, and implementation
of, recommendations. The 1998 Act also confers on the Oversight Committee
certain specific review and decision-making functions. (See Annex B).
Court Committees
As noted above, the FPC and Oversight Committee are statutory subcommittees of Court.
In addition, Court has formed a number of non-statutory committees to help
discharge its responsibilities, including:
Audit and Risk Committee (ARCo), which assists Court in meeting its
responsibilities for an effective system of financial reporting, internal control
and risk management, amongst other duties. (See Annex I)
Nominations Committee, which advises Court on appointments to senior
positions within the Bank and advises Court on recommendations to be made
by Court to HM Treasury as to appointments and reappointments as members
of Court. It also assists Court on the appointment of members of the PRA
Board (other than those who serve in an ex officio capacity). (See Annex E)
Remuneration Committee (RemCo), which advises Court on pay and other
remuneration of the Bank’s most senior executives; Governors, members of
the Executive Directors’ Committee, Advisers to the Governor and external
members of the FPC, the MPC and the PRA Board. (See Annex F)
Transactions Committee, which may be consulted by the Governor about any
loan, commitment or other transaction which is not in the ordinary course of
the Bank’s business, and where it is not practicable for the Governor to
consult the Court. (See Annex D)
A fuller explanation of the roles played by these and other Committees is set
out in this document.
5
Regulatory Functions
The Prudential Regulation Authority (PRA) is a subsidiary of the Bank. Its
Board consists of the Governor, the Deputy Governor for Financial Stability,
the Deputy Governor for Prudential Regulation (its chief executive), executive
members appointed by Court, the chief executive of the Financial Conduct
Authority and sufficient independent non-executive directors, appointed by
Court with the approval of HM Treasury, to form (with the CEO of the FCA) a
majority. Its principal role is to authorise, regulate and supervise banks (and
other deposit takers), insurers and investment firms designated under
Financial Services and Markets Act 2000 (FSMA), with a view to promoting
their safety and soundness.
The FMI Board is an executive committee constituted by the Governor to
exercise the Bank’s powers in relation to the three main types of financial
market infrastructure (FMI) overseen by the Bank (namely recognised payment
systems, securities settlement systems and central counterparties). It is
chaired by the Deputy Governor for Financial Stability and includes as
members the Deputy Governor for Prudential Regulation, the Director of FMI,
and the Executive Directors for Markets, Prudential Policy and Resolution.
(See Annex C).
Court Procedures
Chair of Court
The Chancellor of the Exchequer appoints the Chair of Court and one or more
Non-executive Directors as Deputy Chairs.
In the absence of any member so appointed, Court may elect a Director to
chair its meetings.
Quorum
Court has determined that its quorum is five members provided that at least
three Non-executive Directors are present.
Removal from office
The 1998 Act provides that a member of Court must resign on becoming a
Minister of the Crown, or a civil servant, and a Non-executive Director must
resign on becoming an officer or employee of the Bank. (A person who serves
on the FPC is not to be regarded as an officer or employee of the Bank for this
purpose.) Court may, with the consent of the Chancellor, remove a person
from office as a director if s/he has been absent from meetings of Court for
more than 3 months without consent, becomes bankrupt, or is “unable or unfit
to discharge his functions as a member” of Court.
Indemnities for Members of Court
6
Members of Court have been indemnified by the Bank against personal civil
liability arising out of the carrying out or purported carrying out of their
functions, provided they have acted honestly and in good faith and have not
acted recklessly. These indemnities were granted in 2000 by way of two
resolutions, one passed by Court (for the Governors) and the other by the
Governors’ Committee on Non-executive Directors’ Remuneration (for the Nonexecutive Directors), and approved by HM Treasury in accordance with the
practice of the Government in relation to board members of Non-Departmental
Public Bodies.
Court Code on Business Ethics and Conflicts
Directors of the Bank are appointed by the Crown. As members of the Court
Oversight Committee, Non-executive Directors have privileged access to the
papers and meetings of the Monetary Policy Committee and the Financial
Stability Committee, and are briefed about the decisions of the Prudential
Regulation Authority and the risks taken on the Bank’s own balance sheet. It
is essential that members conduct themselves appropriately and have no
conflicts that might call into question their suitability for the roles they occupy.
The Bank is not a Companies Act company, but the Court expects to follow to
the extent practicable the Corporate Governance Code, and as a public
organisation the principles set out by the Committee on Standards in Public
Life.
Impartiality
On taking up the appointment, and in accordance with a provision of the
Bank’s Charter, Directors are required to make a declaration that they will be
“indifferent and equal to all manner of persons…will give my best advice and
assistance for the support and good Government of the said Corporation; and in
the execution of the said office I will faithfully and honestly demean myself
according to the best of my skill and understanding”.
Confidentiality
Directors additionally sign an undertaking to “keep secret during my service
with the Bank of England, and after the termination thereof, all matters with
which I may become acquainted relating to the affairs and concerns of the
Bank, of Her Majesty’s Government, of other customers, or of other persons
with which the Bank has dealings or may be concerned; ..I will not seek to
profit myself, my family or any other person financially or otherwise by making
use, either directly or indirectly, of information acquired by me in the course of
my duties”.
Financial Dealings
Non-executive Directors are subject to the Bank’s rules on personal financial
transactions. This entails annual disclosure of all assets and obtaining the
Bank’s consent before undertaking any transaction.
7
Statutory Disqualifications
A person is disqualified for appointment if a Minister of the Crown, a member
of the Bank’s staff, or if serving in a government department in respect of
which remuneration is payable from funds voted by Parliament.
External Appointments
Appointment to the Court presupposes that the member has no financial or
other interests that could substantially restrict his/her ability to discharge the
functions required of a member of the Court. These include financial interests
significant enough to conflict with the member’s duty to the Bank, and
conflicts of duty arising from employment or other relationships that could
prevent the individual concerned from being wholly independent, disinterested
and impartial.
A Director should not accept or retain any directorship, trusteeship, advisory
post or other interest, whether or not remunerated, that is in conflict with
membership of the Court.
A Director of the Bank should not normally be associated with a PRA-or Bankregulated firm as director, employee or adviser
A Director should not normally be involved in the management of investments
in capital or money markets or their derivatives, or in the provision of market
infrastructure through regulated firms.
A Director should have no involvement with the management of funds, any
part of whose business is investing in PRA-regulated institutions or trading in
such investments.
To the extent that conflicts arising from external appointments do exist, a
Director will be unable to participate fully in the work of Court and the
Oversight Committee. In particular, specific conflicts may preclude a Director
from observing meetings of the MPC, FPC or PRA Board, or receiving papers
prepared for such meetings.
Procedure in meetings
If a member of Court has any direct or indirect interest in any dealing or
business with the Bank he shall disclose the interest to Court at the time of
the dealing or business being negotiated or transacted, and he shall have no
vote in relation to the dealing or business, unless Court has resolved that the
interest does not give rise to a conflict of interest.
A member of Court shall have no vote in relation to any question arising which
touches or concerns him but shall withdraw and be absent during the debate
on any matter in which he is concerned.
A reference to Court in this section shall be taken to include any of the
Committees of Court.
8
Annual List, and new Appointments
On appointment, and subsequently at the end of May each year, Non-executive
Directors must provide to the Secretary details of all their relevant
Directorships and Appointments, and must consult the Chair of Court and
notify the Secretary at least fourteen days before committing to become a
member of the Board of any company or to undertake any duty or assume any
post or engagement which may affect their position as a Member of Court.
This enables the Chair to consult with the Governor on any questions he may
have and, if necessary, to consult the Nominations Committee.
Effectiveness of Court
The Chair of Court will from time to time undertake a review of Court’s
effectiveness, and with the approval of Court will commission external advice.
Matters Reserved for Court
1
General Delegation
Subject to such matters:

as are conferred by statute on sub-committees of Court;

as may now or hereafter be reserved by a resolution of Court to itself;
and

as Court may now or hereafter decide by resolution to delegate to a subcommittee of Court,
the affairs of the Bank shall be managed by the Governor.
The “affairs of the Bank” here include the discharge of any statutory functions
given to the Bank other than the formulation of monetary policy, which is
outside the remit of Court.
Strategy and Management
2
The following matters are reserved to Court (with advice from Court
committees where appropriate):
approval of the Bank’s objectives (including its objectives for financial
management) and strategy, as reflected in the annual update of the
Bank’s Core Purposes and the annual review of Strategic Priorities;
9

approval of the Bank’s financial framework2 as updated from time to
time;

approval of the Bank’s annual operating and capital expenditure budgets
and any material changes to them;

approval of the Bank’s high-level succession plan including any
recommendations in relation to Crown appointments.
3
Monetary Stability
The 1998 Act creates the MPC. The Bank’s monetary stability objective is set
by the Chancellor and communicated to the Bank under the provisions of the
1998 Act.
Although Court is not involved in the formulation of monetary policy, the
Governor informs Court about the broad conduct of monetary policy (but Court
is not informed of the monetary policy decisions in advance).
Financial Stability
4
Under the 1998 Act the Bank has as an objective to protect and enhance the
stability of the financial system of the United Kingdom. Court, consulting HM
Treasury, and with advice from the FPC (see below), is required to determine
and review at least every 3 years the Bank’s strategy in relation to the
Financial Stability Objective. Accordingly –

Determining the Bank’s strategy in relation to the Financial Stability
Objective is reserved to Court.
The strategy and any revisions to the strategy must be published by the Bank.
The Financial Policy Committee has a statutory mandate to exercise its
functions with a view to contributing to the achievement by the Bank of the
Financial Stability Objective and, subject to this, supporting the Government’s
economic policy, including its objectives for growth and employment. The
FPC’s full terms of reference are at Annex A.
5
Market Operations
Court approves the objectives of the Sterling Monetary Framework (SMF) and
also any amendment to that framework that increases the risk exposure of the
Bank. Court receives an annual report on the operation of the SMF.
The financial framework describes how the Bank’s sources of income support the Bank’s
activities, and forms the basis for the statutory cash ratio deposits.
2
10
The Prudential Regulation Authority
6
The PRA is a subsidiary of the Bank, responsible for exercising powers
contained in FSMA to authorise, regulate and supervise certain types of
financial institution.
FSMA provides that the Bank must approve the PRA’s budget and the PRA
must consult the Bank about its strategy.
The PRA’s objectives are set out in FSMA but it is accountable to Court for
administrative matters, including its budget and remuneration policy, value for
money and performance against financial objectives.
Accordingly, the following matters are reserved to Court3:

approval of the PRA’s budget, including PRA’s annual operating and
capital expenditure budgets and any material changes to them;

approval of any material spending in excess of the PRA’s budget or which
has not been budgeted for;

appointments and Remuneration of executive and non–executive
directors of the PRA.

keeping under review the PRA’s performance in relation to its objectives
and strategy
7
Capital, Financial Reporting, Controls and Litigation
The Governor consults Court about the Bank’s relations with HM Treasury as
sole beneficial shareholder, including financial arrangements.
The following matters are reserved to Court:

any recommendation to HM Treasury about the level of Cash Ratio
Deposits (CRDs);

the payment in accordance with s1 of the Bank of England Act 1946 of
an amount in lieu of dividend (having regard to the provision in the Act
contemplating any other amount which might be agreed);

the appointment of external Auditors;

approval of the Bank’s statement of accounts and Letter of
Representation to its Auditors;
These matters are reserved to the Bank, as the PRA’s sole shareholder in the PRA’s Articles
of Association, and delegated to the Oversight Committee by a resolution of Court dated 13
March 2013
3
11

the adoption of accounting principles; and any proposed exercise of the
power contained in s7(4) of the 1998 Act to disregard Companies Act
requirements;

approval of the Annual Report;

the risk management policies adopted by the Bank.
The Governor consults Court about any major litigation affecting the Bank.
8
Structure and Organisation
The following decisions are reserved to Court:

approval of capital or revenue projects in excess of £5mn;

significant changes in the Bank’s operations and organisation, including
the opening and closing of Agencies, and the contracting out of
significant business functions;

the formation or disposal of a subsidiary company or its business or
assets and the appointment of directors of any such company, except
where the matter falls within the terms of reference of the Transactions
Committee (see Annex D);

Changes in the rules on financial dealings, staff, members of the MPC,
FPC and PRA Board and Non-Executive Directors;

Changes to any Codes of Conduct for PRA Board, MPC and FPC
members.
The Governor informs Court about changes in management structure and
accountabilities.
9
Appointments
The Governors are appointed by the Crown and external MPC and FPC
members are appointed by the Chancellor.
The appointment of Non-executive Directors is a matter for the Crown. The
designation of the Chair of Court and of one or more members of Court as
deputies to chair Court in the absence of the Chair of Court is a matter for the
Chancellor.
Court appoints the “appointed members” of the PRA Board, with the approval
of HM Treasury.
The following matters are reserved to Court:

appointment of the Chief Operating Officer, Executive Directors, the
Secretary and the Internal Auditor;
12

appointment of any Deputy Chief Executive of the PRA;

the removal from office of a member of Court in the circumstances
specified in the 1998 Act4 (which requires the consent of the Chancellor);

the appointment of the Chairman of the Trustees of the HoublonNorman Fund;

the appointment by the Bank of the chair of the board of the corporate
trustees of the Staff Pension Fund;

appointments to Court Committees, and approval of their terms of
reference.
Appointment of Advisers to the Governor and of Directors and Heads of
Division are reported to Court by the Governor.
Remuneration
10
RemCo advises Court and the Oversight Committee on the remuneration of the
Bank’s most senior executives, including the Governors, the COO, Executive
Directors, the Advisers to the Governors, the external members of the MPC and
the FPC, and the Appointed Directors of the PRA .
Terms of Reference of RemCo are at Annex G.
 the remuneration, pension arrangements and any service contracts of
the Governors, the external MPC and FPC members and the appointed
members of the PRA Board are subject to the approval of Oversight
Committee;
 the remuneration, pension arrangements and any service contracts of
the COO, Executive Directors and Advisers to the Governor are subject
to the approval of Court.
The remuneration of the Non-executive Directors is subject to the approval of
Court, having first obtained the approval of the Chancellor of the Exchequer.
Additionally, the following matters are subject to Court’s approval:
4

significant changes in the management structure of the Bank or the
PRA, the adoption of salary schemes for staff, and significant changes to
personnel policy;

significant changes in the Bank’s pension schemes and other staff
benefits;

the agreement to contributions to the Bank’s Pension Fund.
1998 Act, Schedule 1, para 8.
13
Transactions outside the normal course of business
11

Subject to the exception below, Court is responsible for approving any
loan, commitment or other transaction which is not in the ordinary
course of the Bank’s business.
The exception is where the Governor determines that it is not practical (for
example, for reasons of short notice) to seek approval from Court in relation to
the transaction in question. In such circumstances the Governor will consult
the Transactions Committee and report any decision made to Court at its next
meeting. Terms of Reference of the Transactions Committee are at Annex D.
12
Memoranda of Understanding and Service Level Agreements
The Bank enters into a number of operational agreements with public and
private sector bodies. Routinely, these are reported to ARCo. Memoranda of
Understanding (MOUs) or Service Level Agreements (SLAs) require approval by
Court before signature where:

They involve the Bank in significant potential risk or expenditure £5mn+; or

They represent a major element or change in the Bank’s relations with
Government or constitutional position.
Additionally Court should be informed of MOUs or SLAs that define an
operational relationship of the Bank that is key to delivering a Core Purpose.
13
Secretarial
The Seal
The Bank’s Seal may be applied only in accordance with the 1998 Act and
subject to the approval of Court. The power to authorise the sealing of
documents has been delegated to the Sealing Committee, which makes reports
to Court twice a year.
Terms of Reference of the Sealing Committee are at Annex H.
Annual Review, and Circulation

14
This document is subject to annual review and the approval of Court and
must be circulated to senior management and the Auditor.
Policies
The following policies and rules are reviewed annually and are subject to
the approval of Court:
14

Health and Safety Policy;

Internal rules or orders on business practice, including policies on
relationships, gifts and entertainment;

Purdah arrangements;

Diversity and Equality;

Financial Dealing Rules; and

Community Involvement Policy.
Approved by Court 10 December 2014
15
Annex A
FINANCIAL POLICY COMMITTEE
The Financial Policy Committee (FPC) is created by the Bank of England Act
1998 (as amended by the Financial Services Act 2012).
The Chair of the FPC is the Governor and the other members are the three
Deputy Governors, the Chief Executive of the FCA, the Executive Director of
the Bank with responsibility for financial stability, four external members
nominated by the Chancellor, and a (non-voting) representative of
HM Treasury.
The FPC has the objective of contributing to the achievement of the Bank’s
Financial Stability Objective (to protect and enhance the stability of the UK
financial system) and, subject to that, to support the Government’s economic
policy, including its objectives for growth and employment.
The FPC contributes to the Bank’s Financial Stability Objective by identifying,
monitoring and taking action to reduce risks to the stability of the financial
system.
It does this by:
(a) responding to consultation from Court in connection with Court
determining or revising the Bank’s financial stability strategy;
(b) making recommendations to Court as to the provisions of the Bank’s
financial stability strategy;
(c) making recommendations within the Bank, to the FCA, the PRA and to
other persons;
(d) making recommendations to HM Treasury, in particular relating to the
exercise by HM Treasury of its power to make Orders to:
 prescribe macro-prudential measures;
 specify activities as regulated activities subject to FSMA regulation;
 designate regulated activities as activities subject to PRA
prudential regulation;
 specify the purposes for which the FCA may make product
intervention rules;
 specify categories of unregulated persons who may be required to
provide information to the PRA.
(e) giving directions to the FCA and the PRA in relation to the
implementation of a macroprudential measure specified in The Bank of
England Act 1998 (Macro-prudential Measures) Order 2013.
16
The FPC meets at least 4 times each year and prepares and publishes a
Financial Stability Report twice a year.
The quorum at its meetings is six (excluding HM Treasury’s representative). Of
the six:
(a) one must be the Governor or the Deputy Governor for Financial Stability;
(b) (unless both the Governor and the Deputy Governor for Financial
Stability are present) one must be either of the other Deputy Governors;
(c) one must be one of the four appointed members.
17
Annex B
OVERSIGHT COMMITTEE
The Oversight Committee is created by the Bank of England Act 1998 (as
amended by the Financial Services Act 2012).
Membership
All Non-Executive Directors are members of the Oversight Committee.
Functions
The functions of the Oversight Committee are keeping under review the Bank’s
performance in relation to its objectives; and the exercise of the Bank’s
statutory functions. Under statute it determines the remuneration of the
Governors, the terms and conditions of external FPC and MPC members and
the terms of service and remuneration of external PRA Board members, and is
responsible for taking decisions to remove FPC and MPC members from office
(with the consent of the Chancellor) in circumstances where that power
becomes exercisable under the 1998 Act.
Reviews
The Oversight Committee may appoint a person to conduct a performance
review in relation to the Bank’s performance in relation to any of the matters
specified above (including policy decisions).
When commissioning a review of policy decisions, the Oversight Committee
must have regard to the desirability of ensuring that sufficient time has
elapsed for the review to be effective and to avoid the review having a material
adverse effect on the exercise by the Bank (or the PRA) of its functions.
The Bank must give HM Treasury a copy of any review. The Bank must
publish the review unless to do so would, in the Bank’s opinion, be against the
public interest. The Bank must keep this decision under review and publish
the report at such time when publication would no longer be against the public
interest.
Meetings and Procedures - statutory provisions
(a) the Chair of Court is to chair meetings of the Oversight Committee (when
present);
(b) if any Oversight Committee member has any direct or indirect interest
(including any reasonably likely future interest) in any business of the
Committee, the member must disclose that interest to the Committee,
and the Committee must decide whether the member is to be permitted
to participate in any proceedings in Committee regarding the matter, and
if so to what extent and subject to what conditions;
18
(c) the Oversight Committee may invite other persons to attend and/or
speak at any of its meetings; and
(d) the Oversight Committee may delegate any of its functions to two or
more of its members.
Procedures agreed by the Committee
1
Quorum
The quorum shall be 3 members present. A member who is not present at, but
is in communication with, a meeting is to be treated as present.
2
Meetings
The Chair of Court, or, if he is not present, the Deputy Chair of Court may
summon a meeting at any time on giving such notice as in his judgement the
circumstances may require. Meetings of the Oversight Committee may be
convened and held at the same time as meetings of Court. Where concurrent
meetings of Court and the Oversight Committee are held, the chairman of the
meeting shall invite the Governors to remain in attendance and the agenda and
minutes shall indicate the matters which are to be considered by Court and
the Oversight Committee respectively, except that at least two meetings shall
be held in each year without the Governors in attendance.
3
Chairmanship
If the Chair of Court is not present at a meeting of the Oversight Committee,
the Deputy Chair of Court, or in his absence another Non-executive Director
selected from among those present, shall chair the meeting.
4
Voting
Each member present, or regarded as being present, at the meeting shall have
one vote and all matters shall be decided on a simple majority vote. In the
event of a tie, the chairman of the meeting shall have a second or casting vote.
6
Minutes
The Secretary or his Deputy shall be present and take minutes of each meeting
of the Committee which shall be recorded in a book to be kept for that
purpose.
19
Annex C
THE FMI BOARD
1.
Constitution
In accordance with the powers delegated to him by Court5, the Governor has
constituted an executive committee (the “FMI Board”) chaired by the Deputy
Governor Financial Stability (“DGFS”).
2.
Role and Purpose
The aim of the FMI Board is to promote the safety and soundness of financial
market infrastructure (“FMI”)6. In pursuing this aim the FMI Board will act
pursuant to, and have regard to, the legislation governing the Bank’s functions
in respect of FMI, as set out in the Annex to these Terms of Reference.
The FMI Board shall be responsible for the following functions:
(a)
taking or ratifying regulatory decisions (including statutory decisions) in
relation to Financial Market Infrastructure;
(b)
taking policy and risk decisions relating to FMIs;
(c)
overseeing the Bank’s functions in respect of FMI;
(d)
oversight of the Bank’s participation in FMI colleges;
(e)
reviewing policy and risk issues relating to FMI on a forward looking
basis.
3.
Court and its Oversight Committee
The Court keeps under review the FMI Board’s performance in meeting the
Bank’s objectives and strategy.
Minutes of the FMI Board are provided to the Court.
In the event that a matter falls within the scope of “matters reserved to Court” as set out in
Court’s publication “Governance of the Bank including Matters Reserved to Court” that matter
would be for Court to decide. In particular, approval of Memoranda of Understanding (MoUs)
or Service Level Agreements (SLAs) require the approval of Court where “they represent a major
element or change in the Bank’s relations with Government of constitutional position”.
Additionally Court should be informed of MoUs or SLAs that define an operational relationship
of the Bank that is key to delivering a Core Purpose.
5
“FMI” for these purposes means all financial market infrastructure, including those for which
the Bank has statutory responsibility under the legislation specified in the Annex (and any
other legislation affecting FMIs from time to time).
6
20
4.
Membership
The membership of the FMI Board is:
 DGFS
 Deputy Governor Prudential Regulation (“DGPR”)
 Director of FMI (“DFMI”)
 Executive Director – Resolution
 Executive Director – Prudential Policy
 Executive Director – Markets
 Executive Director – Deposit Takers Supervision
 Executive Director – International Banks
 Executive Director – Financial Stability Strategy and Risk
The Secretary to the Bank is secretary to the FMI Board.
The Chief Legal Adviser and the Director of Markets at the FCA (or their
alternates) will also attend meetings as observers. Others may attend as
observers at the invitation of the Chair.
5.
Chair
DGFS will chair FMI Board. In the absence of DGFS, DGPR will chair. If both
DGFS and DGPR are not present, DFMI will chair.
6.
Risk management
The management of operational risk as it relates to the Bank’s responsibilities
for FMIs shall fall within the Bank’s existing operational risk framework
reporting to the Audit and Risk Committee. Reports on operational risk as it
relates to the Bank’s responsibilities for FMIs shall be copied to the FMI Board.
7.
Decisions reserved to the Governors
The following decisions are reserved to the Governors:
7
(a)
Decisions that the conditions for exercising stabilisation powers
under the Banking Act 2009 in respect of central counterparties are
satisfied;
(b)
Decisions to apply for an FMI Administration Order under Part 6 of
the Financial Services (Banking Reform) Act 20137, or applications to
appoint other insolvency officials in respect of FMI;
(c)
Decisions to extend emergency liquidity assistance to an FMI;
(d)
Decisions to withdraw authorisation or recognition from an FMI
(without the FMI’s consent);
(e)
Decisions to issue orders under section 199 Banking Act 2009 to
close a payment system.
Once this part is brought into force.
21
8.
Consultation of Governors
If a decision would, in DGFS’s view:
(a) Set a significant precedent for policy (as opposed to the implementation
of policies for which Governors had already agreed a line);
(b)
Have a material impact on the Bank’s ability to meet its statutory
objectives;
(c)
Have a material impact on the Bank’s domestic or international
reputation;
(d)
Have material financial, legal or operational implications for the
Bank; or
(e)
Entail a significant risk or change to the Bank’s Strategy,
DGFS will ensure that the Governors are consulted. As a result of such
consultation, the Governors may decide either to take the decision, or refer the
matter back to the FMI Board (or other relevant decision-taker under these
Terms of Reference) for that decision-taker, acting independently, to take the
decision.
9.
Allocation of Decision-making Responsibilities
Whether decisions are: (i) reserved to the Governors; (ii) reserved to FMI Board;
(iii) delegated to the FMI Executive Committee, an executive committee
established by the FMI Board (“FMI EC”); (iv) delegated to DFMI; or (v)
delegated the FMI Directorate line management depends upon:
(a) the type of decision being taken; and
(b) (for supervisory decisions) the category of firm to which the decision
relates.
The following table sets out the allocation of responsibilities between the
Governors, FMI Board, FMI EC, DFMI and FMI Directorate line management:
22
Category 1
system
…. have the
capacity to
cause very
significant
disruption
Category 2
system
…have the
capacity to
cause some
disruption
Category 3
system
….have the
capacity to
cause minor
disruption
Policy and
risk issues
Decisions reserved
to the Governors (as
per para 7) or that
meet escalation
criteria for
Governors’
consultation (as per
para 8)
Supervisory
Type A
decisions
(statutory and
non-statutory)
Supervisory
Type B
decisions
(statutory and
non-statutory)
Supervisory
Type C
decisions
(statutory and
non-statutory)
Governors
FMI Board
FMI Executive
Committee
FMI Director
Governors
FMI Executive
Committee
FMI Director
Line
Management
Governors
FMI Director
Line
Management
Line
Management
Decisions reserved
to the Governors (as
per para 7) or that
meet escalation
criteria for
Governors’
consultation (as per
para 8)
Policy Type A
Decisions
Policy Type B
Decisions
Policy Type C
Decisions
Governors
FMI Board
FMI Executive
Committee
FMI Director
The definitions used for system categories and decision types are set out in
Annex 2.
The system categories and decision types assigned to the FMI Board and FMI
Executive Committee (the “Committees”) and to DFMI and FMI Directorate line
management are indicative, and the Bank retains the flexibility and judgement
such that decisions can be escalated and delegated between these Committees
and individuals to ensure regulatory decisions are taken at the appropriate
level.
10. Decision-Making Procedures
A.
Frequency of Meetings
The FMI Board will meet (in person or by telephone) monthly or otherwise at
the initiative of the DGFS. DFMI shall be responsible for advising the DGFS
whether other meetings should be called.
23
B.
Quorum
The quorum for the FMI Board shall be two including at least one member that
is neither DGFS nor DFMI.
If the FMI Board decides that a member should not participate in a decision by
reason of public law concerns arising out of prior involvement in the matter
concerned or any conflict of interest (or the member concerned so decides), the
member concerned shall not count in the quorum for that item of business.
C.
Urgent Decision Making Procedure
Where DGFS determines that the consequences of not making a decision could
be significant and that it is not practicable to convene a meeting within the
necessary time period to avoid those consequences, the DGFS shall be entitled
to make that decision provided that:
(a)
(b)
(c)
D.
The decision is made with at least one other member of the FMI
Board;
FMI Board members are promptly informed of the decision and the
reasons for not convening a Board meeting; and
The Governors are informed.
Representations
The FMI Board will be responsible for considering any representations which
persons who are, or may be, affected by its decisions or proposed decisions are
entitled to make.
E.
Decision Making at a Meeting
Where consensus cannot be achieved, the FMI Board shall reach decisions by
vote with the Chair holding the casting vote.
F.
Decision Making by Written Procedure
As an alternative to taking decisions at a meeting, the FMI Board may also take
decisions by written procedure. For a decision to be taken by written
procedure, a note shall be sent to each FMI Board member setting out the
proposal being put to the FMI Board, and any supporting information. The
note shall specify that it is proposed that the decision by taken by written
procedure, a deadline for responses, and to whom the responses should be
sent. If any FMI Board member asks for the proposal to be discussed at an
FMI Board meeting, the proposal shall not be approved by written procedure,
but shall be tabled at the FMI Board for consideration.
A proposal shall be approved as a decision of the FMI Board by written
procedure if, by the specified deadline:
(a) no member of the FMI Board has asked for the matter to be referred to an
FMI Board meeting;
(b) any two of DGFS, DGPR and DFMI have responded (whether to approve or
reject); and
24
(c)
a majority of FMI Board members who have responded approve the
proposal (if the number of members approving and rejecting the proposal
are equal, DGFS shall have the casting vote).
G.
Information to the Board
The Board shall receive minutes of meetings of the FMI EC, and each Board
meeting shall include a report for noting on any significant issues that have
been decided under powers delegated to DFMI, including any exercise of
regulatory forbearance, and a summary of current or upcoming significant
issues. FMI Board papers must include a schedule of decisions taken by FMI
EC, and a note on any material use of statutory powers whether at FMI EC or
elsewhere.
October 2014
25
ANNEX 1
LEGISLATION GOVERNING THE BANK’S FMI FUNCTIONS
Legislation which governs the Bank’s FMI functions includes the following
(as amended from time to time):
8

Companies Act 1989

Bank of England Act 1998

Financial Services and Markets Act 2000

Banking Act 2009

Financial Services Act 2012

Financial Services (Banking Reform) Act 2013

Regulation (EU) No 648/2012 of the European Parliament and of the
Council of 4 July 2012 on OTC Derivatives, Central Counterparties and
Trade Repositories (“EMIR”)8

Financial Markets and Insolvency (Settlement Finality) Regulations 1999
(SI 1999/2979)

Financial Services and Markets Act 2000 (Recognition Requirements for
Investment Exchanges and Clearing Houses) Regulations 2001 (SI
2001/995)

Financial Services and Markets Act 2000 (Disclosure of Confidential
Information) Regulations 2001 (SI 2001/2188)

The Uncertificated Securities Regulations 2001 (SI 2001/3755)

Banking Act 2009 (Inter-Bank Payment Systems) (Disclosure and
Publication of Specified Information) Regulations 2010 (SI 2010/828)
Including “Level 2” delegated regulations made under EMIR
26
ANNEX 2
DEFINITIONS FOR FMI SYSTEM CATEGORIES AND DECISION TYPES
System Categories
Category 1 – the most significant systems which have the capacity to cause
very significant disruption to the UK financial system by failing or by the
manner in which they carry out their business.
Category 2 - significant systems which have the capacity to cause some
disruption to the UK financial system by failing or by the manner in which
they carry out their business.
Category 3 – systems which have the capacity to cause at most minor
disruption to the UK financial system by failing or by the manner in which
they carry out their business.
Decision Types
(N.B. If a decision would, in DGFS’s view, satisfy the criteria in paragraph 8
of the Terms of Reference, DGFS will ensure the Governors are consulted.)
Supervisory Decisions
Supervisory Type A – Decisions which DFMI expects to have a significant
impact on the firm’s ability to carry out its business effectively or the Bank’s
objectives.
Types of decisions which would typically be Type A decisions include:
 Warning and Decision notices in relation to imposing a fine/censure 9
 setting of annual priorities for an FMI
 approval of authorisation of a new UK FMI
 objection or non-objection to a Chair/CEO
 approval of a significant change in control
 approval of contentious or non-standard MoUs
Supervisory Type B - Decisions which DFMI expects to have a moderate
impact on the firm’s ability to carry out its business effectively or the Bank’s
objectives and/or may set a precedent.
Types of decisions which would typically be Type B decisions include:
 approval of material new products
 approval of material changes to a firm’s risk methodologies, including
margin models, stress testing and liquidity/treasury
 approval of designation of a new FMI for the purposes of the Financial
Markets and Insolvency (Settlement Finality) Regulations 1999
Other statutory decisions e.g. to issue a direction would be categorised according to their
impact.
9
27

approval of a recognition order in respect of the default rules of an EEA
central counterparty or third country central counterparty under s170B
Companies Act 1989
Supervisory Type C – Decisions which DFMI expects to have a low impact on
the firm’s ability to carry out its business effectively or the Bank’s objectives
and/or decisions in relation to which a precedent has already been set.
Types of decisions which would typically be Type C decisions include:
 non-objection to roles other than Chair/CEO
 approval of standard MoUs
Director FMI to delegate to line management – Use of statutory information
gathering powers is delegated to DFMI to either approve himself or to subdelegate to FMI Directorate line management as appropriate. Other day-today supervisory or policy decisions that are do not fall with decision Types
A, B or C, and therefore not reserved to FMI Board, FMI Executive
Committee or Director FMI (as appropriate) would fall within the authority of
line management.
Policy decisions
Policy Type A – High impact initiatives considering the profile, nature of the
underlying risk and potential impact on Bank’s objectives.
Types of decisions which would typically be Type A policy decisions
include:
 Decisions to not comply with ESMA Guidelines.
 Decision to vote against a final and important policy
standard/recommendation at CPMI10-IOSCO where the UK’s position is
in the minority.
 FMID proposal to adopt a policy position that differs materially from
other significant jurisdictions and the UK specificities will impose
significant change or cost on industry.
Policy Type B - Moderate impact initiatives considering the profile, nature of
the underlying risk and potential impact on Bank’s objectives.
Types of decisions which would typically be Type B policy decisions
include:
 Decisions to add to/elaborate on ESMA Guidelines.
 FMID proposal to adopt a policy position that differs materially from
other significant jurisdictions and the UK specificities will impose
moderate new requirements/costs on industry but are unlikely to be
controversial.
 Decision to support or oppose final versions of international or EU
standards where the new standard/recommendation will impose
moderate change or cost on industry.
10
The new name for CPSS.
28
Policy Type C – Low significance initiatives considering the profile, nature of
the underlying risk and potential impact on Bank’s objectives.
Types of decisions which would typically be Type C decisions include:
 Confirming compliance with ESMA Guidelines.
 FMID proposal to adopt a policy position that differs materially from
other significant jurisdictions and the UK specificities will impose minor
new requirements/costs on industry and are not controversial.
 Decision to support final versions of non-controversial international or
EU standards.
29
ANNEX D
TRANSACTIONS COMMITTEE
Court resolved on 10 December 2014 to delegate powers and responsibilities
to the Transactions Committee and to specify other terms of reference in the
terms set out below in substitution for all former powers, responsibilities
and terms of reference of the Committee.
1
Constitution
A sub-committee of Court (to be known as the “Transactions Committee”) be
created and constituted for the purpose set out below.
2
Responsibilities
To advise the Governor, where the Governor determines that it is not
practical to consult Court or seek Court’s approval, about any loan,
commitment or other transaction which is not in the ordinary course of the
Bank’s business.
As part of these responsibilities, the Transaction Committee is to advise the
Governor about the formation, acquisition or disposal of a subsidiary of the
Bank and the appointment of directors or officers to any such subsidiary
either in connection with the exercise of the Bank’s powers and functions
under Part 1 of the Banking Act 2009 or in connection with compliance by
the Bank with any direction given to the Bank by HM Treasury under Part 4
of the Financial Services Act 2012.
3
Membership
The sub-committee shall comprise any three Non-executive Directors, one of
whom must be the Chair of Court or a Non-executive Director designated by
the Chair of Court.
4
Procedure
The Governors shall be entitled to attend all meetings of the Transactions
Committee.
The quorum shall consist of not less than two members; a member who is
not present at a meeting but is in communication with a meeting is to be
treated as present at it.
Subject to the foregoing, the sub-committee shall determine its own
procedure.
5
Reporting Procedures
The proceedings of the Committee must be reported to Court no later than
the next scheduled meeting
30
Annex E
NOMINATIONS COMMITTEE
Court resolved on 13 March 2013 to delegate powers to a Nominations
Committee, the constitution, membership, and responsibilities of which are
as set out below.
1.
Constitution
A sub-committee of Court (to be known as the “Nominations Committee”)
shall be created and constituted for the purposes set out below.
2. Responsibilities
The responsibilities of the Committee shall be to consider and as
appropriate make recommendations to Court on:
(a) the appointment of the Chief Operating Officer, the Secretary, and the
Internal Auditor, the latter after taking due account of the
recommendations of the Chair of the Audit and Risk Committee;
(b) the removal from office of a member of Court (which requires the
consent of the Chancellor of the Exchequer);
(c) whether likely conflicts of interest are sufficiently severe to prevent a
Member of Court continuing to serve as such;
(d) nominations to HM Treasury of suitable candidates for appointment
or re-appointment as Members of Court;
(e) appointment of individuals to represent the Bank on the Board of the
Corporate Trustees of the Staff Pension Fund and the appointment of
the Chair of that Board;
(f) any recommendations to be made to the Chancellor of the Exchequer
as to who should chair meetings of Court in the absence of the Chair;
(g) appointment to Court Committees other than the FPC;
(h) appointment and re-appointment of the four appointed Directors of
the PRA (which are subject to the approval of the Chancellor of the
Exchequer); and
(i) succession plans prepared by the Bank with particular regard to
those appointments for which Court approval is required (see above).
3.
Membership
The Committee shall comprise the Chairman of Court, the Governor, and
not less than two other Non-executive Directors. No Member of Court shall
attend the Committee when matters for discussion relate to themselves.
31
4.
Meetings
Meetings shall be held as required but at least once a year. The Committee
may invite other parties to attend when appropriate. .
5.
Quorum
The quorum shall be three members present of whom two shall be Nonexecutive Directors of the Bank. A member who is not present at, but is in
communication with a meeting is to be treated as present at it.
6.
Chairmanship
The Chairman of the Committee shall be the Chair of Court or in his
absence a Non-executive Director selected from any of those present.
7.
Voting
Each member present or treated as being present at the meeting shall have
one vote and all matters shall be decided on a simple majority vote. In the
event of a tie, the chairman of the meeting shall have a second casting vote.
8.
Conflicts of interest
If any member of the committee has any direct or indirect interest (including
any reasonably likely future interest) in any dealing or business which falls
to be considered by the committee he or she may be required to withdraw
and be absent during the debate on any such dealing or business if the
chairman of the meeting decides that in the circumstances this is necessary
or desirable.
9.
Minutes
The Secretary of the Committee (or his Deputy) shall be present and take
minutes of each meeting of the committee which shall be recorded in such
manner as the Secretary may decide.
10. Reporting Procedures
The Committee’s recommendations shall be reported to Court by the
Chairman or in his absence by another Committee Member.
32
Annex F
REMUNERATION COMMITTEE
Court resolved on 25 September 2013 to delegate powers and
responsibilities to the Remuneration Committee and to specify other terms
of reference in the terms set out below in substitution for all former powers,
responsibilities and terms of reference of the Committee.
1.
Constitution
A sub-committee of Court (to be known as the “Remuneration Committee”)
shall be created and constituted for the purposes set out below.
2.
Responsibilities
The responsibilities of the Committee shall be to consider, and – as
appropriate – to report its conclusions and recommendations to Court or
Oversight Committee as appropriate on:
(a) all matters relating to the remuneration, including pension benefits
and costs, of the Governors, the COO, Executive Directors and
Advisers to the Governor.
(b) all matters relating to the remuneration of external members of the
MPC appointed under section 13(2)(c) of the Bank of England Act
1998;
(c) all matters relating to the remuneration of external members of the
FPC appointed under section 9B of the Bank of England Act 1998;
(d) all matters relating to the remuneration of the Appointed Directors
of the PRA;
(e) major changes in remuneration structures within the Bank,
including pension benefits, and other remuneration matters
specifically referred to it by the Governor or by Court.
The Committee shall also approve in draft the remuneration report
submitted to Court for inclusion in the Bank’s Annual Report.
3.
Membership
The Committee shall comprise not less than four Non-executive Directors of
Court.
4.
Quorum
Two or more members of the Committee shall constitute a quorum.
33
5.
Meetings
Meetings shall be held as required, but at least once a year. The Chairman
of Court (if not a member) shall be invited to attend all meetings.
Independent nominated members of the PRA Board may be invited to any
meeting where PRA matters are to be discussed. The Committee may invite
other parties to attend meetings when appropriate.
The Secretary of the Bank shall be secretary to the Committee and shall
attend its meetings, be responsible (in consultation with the Chairman) for
preparing and circulating agendas and meeting papers, and take minutes of
each meeting of the committee.
6.
Chairmanship
Court shall appoint one of the four members as Chairman. If he is not
present at any meeting for any reason the members present shall elect one
of their number to chair the meeting.
7.
Voting
Each member present or treated as being present at the meeting shall have
one vote and all matters shall be decided on a simple majority vote. In the
event of a tie, the chairman of the meeting shall have a second casting vote.
8.
Reporting Procedures
The Committee’s recommendations shall be reported to Court or to the
Oversight Committee, as appropriate, by the Chairman or, in his/her
absence, by another Committee member at relevant meetings.
34
Annex G
SEALING COMMITTEE
Court resolved on 12 November 2009 to delegate powers and responsibilities
to the Sealing Committee and to specify other terms of reference in the
terms set out below in substitution for all former powers, responsibilities
and terms of reference of the Committee.
1.
Constitution and Membership
A sub-committee of Court (to be known as the Sealing Committee) be
created and constituted for the purposes set out below.
2.
Responsibilities
The committee shall be empowered to make Orders for the affixing of the
Seal of the Corporation of the Governor and Company of the Bank of
England to any instrument requiring to be executed under seal which the
committee is satisfied should be so executed:
(a) the affixing of the Seal shall be attested by the signature of:
 any two Members of Court;
 any Member of Court and any one of the Secretary of the Bank,
the Finance Director, the Chief Legal Adviser, the Deputy
Secretary, or the Manager of the Court Administration Section; or
 any two of the Secretary, the Finance Director, the Chief Legal
Adviser, the Deputy Secretary and the Manager of the Court
Administration Section
(b) a record of all Orders of the committee shall be kept in a book which
shall be produced to Court at least twice yearly for inspection;
(c) responsibility for the safe custody of the Bank’s Seal is delegated to
the Secretary of the Bank, who shall keep it in a secure place under
lock and key.
3.
Membership
Membership of the Sealing Committee shall comprise one or more Members
of Court and any one of the Secretary of the Bank, the Deputy Secretary,
the Finance Director or the Chief Legal Adviser.
35
Annex H
AUDIT AND RISK COMMITTEE
Court resolved on 10 December 2014 to delegate powers and responsibilities
to the Audit and Risk Committee (ARCO) and to specify other terms of
reference in the terms set out below in substitution for all former powers,
responsibilities and terms of reference of the Committee.
1.
Constitution
A sub-committee of Court (to be known as the “Audit and Risk Committee”)
is created and constituted for the purposes set out below.
2.
Membership
The Committee shall comprise not less than four Non-Executive Directors of
Court, one of whom shall be appointed by Court as Chairman of the
Committee. Court shall satisfy itself that at least one member of the Audit
and Risk Committee has recent and relevant financial experience.
3.
Quorum
A quorum shall be three members.
4.
Responsibilities
The responsibilities of the Committee shall be to consider, and – as
appropriate – to report its conclusions and recommendations to Court or
Oversight Committee as appropriate11.
The duties of the Committee shall be:
In relation to the Annual Financial Report
To monitor the integrity of the financial statements by:
a) reviewing the accounting policies and practices adopted in the
preparation of the annual financial statements, including any
proposed exercise of the power contained in s7(4) of the Bank of
England Act 1998 to disregard relevant Companies Act requirements,
and to satisfy itself that, where applicable, the appropriate policy has
been adopted;
b) reviewing the annual financial statements before submission to Court,
with particular attention to: the major judgmental areas and
estimates; findings of the external auditors, including significant
The Directors of the PRA are responsible for monitoring any risks to meeting the PRA’s
statutory objectives. Operational risks will be shared with the Bank and will be
incorporated within the Bank’s risk reporting.
11
36
adjustments resulting from the audit; and the adequacy of the
disclosures made.
In relation to risk and control processes
a) To review and report on the effectiveness of the Bank's risk
framework, risk standards, risk management policies and systems of
internal control and to receive associated executive management
attestations prior to their submission to Court;
b) To review regular reports on the risk profile of the Bank, covering
strategic and policy, operational and financial risks, and to evaluate
the actions being taken by management to bring these risks within
tolerance;
c) To assess reports from external and internal auditors in order to
ensure that necessary standards of risk management are being
applied and that appropriate action is being taken in relation to
significant incidents.
In relation to the external auditor
a) To oversee the selection process for new external auditors; to consider
and approve the letter of appointment of the external auditor;
b) To consider and make recommendations to Court on the appointment,
reappointment, removal, terms of engagement and audit fee of the
external auditor;
c) To keep under review the relationship with the external auditors,
ensuring that key partners are rotated at appropriate intervals and
taking into account relevant UK professional and regulatory
requirements and ethical guidance;
d) To agree with Court and monitor the Bank’s policy for the employment
of former employees of the external auditor;
e) To resolve disagreements between management and the external
auditors regarding financial reporting;
f) To review and approve the Bank’s proposed Letter of Representation
to the auditors before final approval by and signature on behalf of
Court;
g) To discuss with the external auditor, before the audit commences, the
nature and scope of the audit and confirm that the scope reflects the
terms of the engagement letter;
37
h) To consider the external auditor’s quality control procedures and
steps taken by the auditor to respond to changes in regulatory and
other requirements;
i) To review the findings of the audit with the external auditor, in the
absence of management where necessary.
j) To review the external auditor’s management letter and any other
findings together with management’s response;
k) To assess the extent to which non-audit services are provided by the
external auditor to the Bank and the associated fees and to judge
whether there is an appropriate balance;
l) To pre-approve any non-audit services to be delivered by the external
auditor (subject to any delegation to the Finance Director) and the
related remuneration;
m) To consider any appointments which the external audit partner may
be invited to take up to ensure that there is no conflict with the Bank;
n) To investigate the issues and to recommend to Court appropriate
actions in the event that the external auditor resigns;
o) To discuss with external auditors the scope and inter-relationships
and results of external and internal audit arrangements.
In relation to the internal auditor
a) To consider and approve the remit and resources of the internal audit
function and disclose in the Annual Report whether the Audit & Risk
Committee is satisfied that the internal audit function has
appropriate resources;
b) To ensure that the internal audit function has adequate standing and
access to information to enable it to perform its function effectively
and in accordance with the relevant standards;
c) To ensure that the Head of Internal Audit has direct access to the
Committee;
d) To review and approve the annual internal audit plan and any
material change or delay in the plan;
e) To consider any major findings arising from internal audit’s work and
to review and monitor management’s responsiveness to the internal
auditor’s findings and recommendations;
f) To monitor and review the effectiveness of the internal audit function;
g) To approve the appointment or dismissal of the Head of Internal
Audit;
38
h) The Chair of the Committee will be accountable for setting the
objectives and appraising the performance of the Head of Internal
Audit taking account of the views of Executive Management;
i) The Chair of the Committee will be responsible for recommending the
remuneration of the Head of Internal Audit to the Remuneration
Committee.
In connection with fraud detection and reporting by staff of
irregularities:
To review the Bank’s arrangements for detecting and deterring fraud; andto
review and approve the Bank’s arrangements for its employees to raise
concerns, in confidence, about possible fraud, danger, malpractice or
misconduct in financial reporting or other matters (“speaking up”) and to
ensure that these arrangements allow proportionate and independent
investigation and appropriate follow up action.
Other responsibilities
The Committee shall scrutinise a summary of the annual expenses of the
members of Court.
5.
Meetings
Meetings shall be held at least four times a year. External or internal
auditors or any member of the Committee may request a meeting if they
consider it necessary.
The Chairman of Court (if not a member) shall be invited to attend all
meetings. The Deputy Governors and the COO should attend meetings as
required by the Chairman of the Committee. The Finance Director, the
Executive Director Markets, the external auditors and the Internal Auditor
shall have access to the Committee at any time and shall normally attend
the meetings. Independent nominated members of the PRA Board may
attend any meeting where PRA matters are to be discussed. The Committee
may invite other persons to attend or be present for particular agenda items
as and when required.
Once a year the Committee shall meet the Governor for a bilateral
discussion and separately, if required by the Chairman of the Committee,
with the Deputy Governors. At least once a year the Committee shall also
meet separately with the external auditors and, separately, with the Internal
Auditor without any executive management present. One meeting each year
will be arranged to tie in with the publication of the Annual Financial
Report, allowing a reasonable period prior to a Court Meeting where
accounts or financial statements are to be approved.
Chairmanship
39
Court shall appoint one of the four members as Chairman. If he / she is not
present at any meeting for any reason, the members present shall elect one
of their number to chair the meeting.
The Secretary of the Bank or a Deputy Secretary shall be the Secretary of
the Committee.
6.
Reporting procedures
The Committee’s recommendations shall be reported to Court or to the
Oversight Committee as appropriate by the Chairman or in his / her
absence by another Committee member at relevant meetings.
With the exception of private12 meetings with the Governor, Deputy
Governors, the external auditors or the Internal Auditor, all meetings of the
Committee shall be minuted. The Committee shall produce an annual
report for Court and shall report on its activities in the Audit and Risk
Committee section of the Bank’s Annual Report and Accounts.
7.
Conflicts of interest
If any Committee member has any direct or indirect interest (including any
reasonably likely future interest) in any business of the Committee, the
member must disclose that interest to the Committee, and the Committee
must decide whether the member is to be permitted to participate in any
proceedings in Committee regarding the matter, and if so to what extent and
subject to what conditions
8.
Reviews of the Committee’s terms of reference and effectiveness
The Committee shall, on at least an annual basis, review its terms of
reference and its own effectiveness, recommending any changes it considers
necessary to Court for approval.
12
In exceptional circumstances the members of the Audit and Risk Committee may agree
to a record being made, provided such a proposal has the unanimous support of all
attendees.

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