SCHRODERS PLC (THE ‘COMPANY’)
AUDIT AND RISK COMMITTEE (THE ‘COMMITTEE’)
TERMS OF REFERENCE
(APPROVED BY THE BOARD ON 1 MARCH 2016)
The Audit and Risk Committee is a committee of the Board of the Company (the ‘Board’) from
which it derives its authority.
1.
PURPOSE AND DELEGATED AUTHORITY
1.1.
The Committee has the delegated authority of the Board as set out in these terms of
reference including responsibility for overseeing, on behalf of the Board, the financial
reporting, risk management and internal controls of the Company, its subsidiaries and
their businesses (the “Group”), and for maintaining an appropriate relationship with
the Company’s auditors.
The boards of the Group’s UK regulated entities (the “regulated entities”) have agreed
with the Committee that the Committee will have responsibility for overseeing at the
Group level, on behalf of those boards (with which boards ultimate responsibility
remains), the financial reporting, risk management and internal control of the
regulated entities in respect of which the members of the Committee are registered as
Approved Persons (currently in the CF2 role).
1.2
The Committee may sub-delegate any or all of its powers and authority as it thinks fit,
including without limitation the establishment of sub-committees. The membership of
any sub-committee established under this authority will be comprised of a minimum of
two members of the Committee.
2.
ROLE AND RESPONSIBILITIES OF THE COMMITTEE
2.1
Overview
2.1.1
The role of the Committee is to encourage and safeguard the highest standards of
integrity in financial reporting, risk management and internal control for the Group,
having regard to laws and regulations applicable to the Group and the provisions of
the UK Corporate Governance Code (“UK Code”). The Committee will report to the
Board and through the executive management of the Company where relevant to the
boards of the regulated entities on areas of business risk or exposure which are
highlighted by its review and monitoring process with recommendations, if
appropriate, of actions that management should take.
2.1.2
The specific responsibilities of the Committee are set out below.
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2.2
Financial Reporting and Audit
2.2.1
Financial Reporting
a) to keep under review the form, content and process for the preparation of the
Company’s statutory accounts and other published financial information of the
Company and the Group, including reviewing the appropriateness of its accounting
policies on a continuing basis, monitoring the financial reporting process, the provision
of information to the external auditors and the statutory audit of the Group’s Annual
Report and Accounts;
b) to monitor the integrity of the financial statements of the Company and the Group and
any formal announcements relating to the Company’s and the Group’s financial
performance (excluding the Group’s Interim Management Statements which will be
reviewed by a duly appointed committee of the Board) and to review significant
financial reporting issues and judgements contained in them [(including but not limited
to liquidity, access to capital, cash management, fair value and asset impairment,
exposure to counterparties, hedging policies and borrowing facilities)];
c) to challenge, where necessary, the information in the financial statements, for
instance on matters requiring a major element of judgement, the extent to which
financial statements are affected by any unusual transactions, the adequacy and
completeness of disclosures, any significant adjustments resulting from the audit, the
assumptions made regarding management’s assessment of going concern,
compliance with accounting standards and compliance with relevant legal and
regulatory requirements;
d) to review and, if appropriate, recommend to the Board for approval the Group’s fullyear and half-year results announcements;
e) to receive regular reports from the Chief Financial Officer and Group Financial
Controller.
2.2.2
Internal Audit
a)
to approve the appointment and removal of the Group Head of Internal Audit and for
him to report directly to the Committee Chairman and be accountable to the
Committee. The Committee shall also approve the terms of reference of the Group’s
Internal Audit function (“function”) and the engagement relating to the provision of
internal audit services by a third party;
b)
to monitor and review the effectiveness of the function and confirm it is satisfied that
the, quality, resources, expertise and independence of the function is appropriate for
the business; and
c)
review and assess the planned programme of internal audit work at least annually and
the reasons for any significant change or delay to this programme and review and
monitor the responsiveness of management to the findings of the internal audit
reports and recommendations contained in such reports.
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2.2.3
External Audit
a) to make recommendations to the Board, regarding the appointment, re-appointment
and removal of the external auditors. In respect of audit tenders to oversee the
selection process and confirm that all tendering firms have appropriate access to
information and individuals for the duration of the tendering process;
b) to approve the remuneration and terms of engagement of the external auditors and
agree that key individuals within the appointed audit firm are changed from time to
time.
c) to review and monitor the external auditors’ expertise, resources, performance,
independence and objectivity and the effectiveness of the audit process, taking into
consideration relevant professional and regulatory requirements;
d) to review and approve the policy on the engagement of the external auditors to supply
non-audit services, taking into account relevant ethical guidance and to report on such
supply to the Board, identifying any matters in respect of which it considers that action
is needed and making recommendation as to the steps to be taken;
e) to approve a policy on the employment of former employees of the external auditor
and to monitor implementation of this policy;
f)
to review the annual audit plan for appropriateness and consistency with the scope of
the audit engagement, and consider the audit findings and management’s responses
to those findings and review the management Representation Letters for
recommendation to the Board; and
g)
to meet with the external auditors as appropriate (which shall normally be through
attendance of the external auditors at regular meetings of the Committee) and private
sessions with the auditors.
2.3
Risk and Controls
2.3.1
Risk and Internal Controls
a) to review and monitor the effectiveness of the Group’s overall risk management and
internal control framework including the identification, assessment, mitigation,
monitoring and management of all risks faced by the Group (including, but not limited
to, liquidity, market, regulatory, credit, legal, operational and reputational risks);
b) to review, on behalf of the Board, the Group’s overall risk tolerance and monitor the
Group’s risk profile against this tolerance, noting that the Board will determine the
Group’s risk tolerance limits;
c) to review and recommend to the Board for approval, the Group’s Internal Capital
Adequacy Assessment Process (‘ICAAP’) to fulfil its regulatory obligations under the
Capital Requirements Directive and assess whether the Pillar 2 assessments and
Pillar 3 disclosures remain appropriate;
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d) to review the Internal Controls Report produced annually in respect of a number of
Group subsidiaries;
e) to review the Group’s arrangements for the deterrence, detection, prevention and
investigation of financial crime including fraud, bribery and corruption and to receive
and consider special investigation reports relating to material breakdowns in internal
controls or major risk events including remedial action by management;
f)
to review the adequacy of the Group’s insurance arrangements and the terms and
levels of cover of such insurance from time to time;
g) to review and consider periodically the Group’s tax strategy and the associated
internal controls;
h) to review, on behalf of the Board, risks associated with acquisitions where such risks
are not considered directly by the Board as part of the acquisition approval process;
and
i)
to receive regular reports from the Chairman of the Group Risk Committee.
Unless specifically delegated to the Committee, consideration of risks to the Group’s strategy
will be considered by the Board.
2.3.2
Compliance
a) to review regular reports from the Global Head of Compliance, including details of the
Group’s relations with the regulators; the Compliance monitoring programme; material
breaches, errors and complaints; retail conduct risk, anti-money laundering controls
and sanctions compliance;
b) to approve the annual Compliance Monitoring Plan; and
c) to review periodically and monitor the Group’s procedures for ensuring compliance
with regulatory and financial reporting requirements and its relationship with the
relevant regulatory authorities.
2.3.3
Legal
To review on a regular basis a report from the General Counsel on material current,
pending and threatened litigation affecting the Company or any of its subsidiaries and
to review the material legal risks faced by the Group;
2.3.4
Emerging and Thematic Risks
The Committee shall regularly consider emerging and thematic risks which, in the
view of management or the Committee, may have a material impact on the Group’s
business model and/or operations and performance in the future.
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2.4
Other
2.4.1
Concerns Raised By Staff
a) to review arrangements by which staff of the Group may, in confidence, raise
concerns about possible improprieties in matters of financial reporting or any other
matter relating to the Group’s operations and to consider whether such arrangements
remain appropriate;
b) to oversee arrangements for the proportionate and independent investigation of such
matters and for appropriate follow-up action.
2.4.2
Effectiveness
a) to review periodically the Committee’s terms of reference to confirm it is operating
effectively and to recommend any changes to the Board;
b) to undertake an annual review of the effectiveness of the Committee. At least every
third year the evaluation process will be externally facilitated by an independent body.
3.
MATERIALITY AND LIMITATION ON SCOPE
3.1
The Committee shall undertake its tasks in the context of its judgement as to the
materiality and significance to the Group of the matters within its terms of reference.
3.2
For the avoidance of doubt the following matters fall outside the scope of the duties of
the members of the Committee in the context of the Committee’s responsibility for
overseeing at the Group level, on behalf of the boards of the regulated entities, the
financial reporting and internal control of those entities:
a) Being a director of any regulated entity or taking any action or carrying out any duty
which would result in being a shadow director of a regulated entity;
b) Receiving any board papers or board minutes of a regulated entity;
c) Attending any meetings (whether of the board or other committees) of a regulated
entity;
d) Receiving routinely any information or reports in relation to a regulated entity, other
than such information or reports (if any) as non-executive Directors would receive in
the context of carrying out their duties as a non-executive Director of the Company
and as a member of any other Committee of the Board of the Company;
e) Having any form of executive or management responsibility for or over any part of the
business of the regulated entities or their employees;
f) Having a reporting line from any employee within the regulated entities to any of the
members of the Committee or the delegation by the Committee of matters to or
having authority over any such employees;
g) Having any responsibility for reporting matters to the FCA in relation to regulated
entities;
h) Having any responsibility for the implementation of systems of control to comply with
regulatory requirements, monitoring compliance with regulatory requirements or
investigating any system failures or regulatory breaches within the regulated entities,
other than reviewing and monitoring the effectiveness of the Group’s systems and
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controls as a member of the Committee in the capacity of a non-executive Director;
and
i)
Putting in place systems of control in respect of any regulated entity’s business and
ensuring the employees of any regulated entity are aware of the need for regulatory
compliance.
4.
ACCESS TO INFORMATION AND SERVICES
4.1
The Committee shall have the right to seek any information necessary to fulfil its
duties, the hiring of such advisers as it may deem necessary to obtain advice about
discharging its responsibilities, with due regard to cost, without the need to obtain the
prior approval of any officer of the Company, and appropriate and timely training
where considered necessary. Such advice would usually be coordinated by the
Company Secretary.
4.2
Management shall provide the Committee with all reasonable assistance, including
access to any members of staff or contractors, which it needs to fulfil its
responsibilities.
4.3
The Group Head of Internal Audit, the Group Head of Risk and the Global Head of
Compliance shall be able to discuss matters relating to the work of the Committee
directly with the Chairman of the Committee.
5.
ANNUAL REPORT AND ACCOUNTS
5.1.1
To review and, if appropriate, recommend to the Board the Group’s and, as needed,
the Company’s Annual Report and Accounts and to provide advice to the Board as to
whether the Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess
the Company’s position and performance, business model and strategy. In doing so,
the Committee will review and recommend to the Board the statements concerning
internal controls, risk management, business model reporting and the viability
statement.
5.2
The Committee shall include a description of its work in the Annual Report which
complies with any relevant legal, regulatory and best practice requirements.
6.
FORMALITIES
6.1
Membership
6.1.1
The Committee shall consist of at least three members. All members shall be
independent non-executive Directors, at least one of whom shall have competence in
accounting and/or auditing. The Committee as a whole shall have competence in the
Asset Management and Wealth Management sector.
6.1.2
The Nominations Committee should appoint a member of the Committee to serve on
the Remuneration Committee and report to the Remuneration Committee any matters
drawn to the Committee’s attention that might need to be taken into account in
respect of the control of risks when setting remuneration; and report back to the
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Committee any remuneration proposals or circumstances that could materially
increase the exposures to risk faced by the Group.
6.2
Chairman
6.2.1
The Chairman of the Committee shall be appointed by the Board on the
recommendation of the Nominations Committee.
6.2.2
In the absence of the Chairman of the Committee, the remaining members present
shall elect one of the other members to chair the meeting.
6.3
Secretary
6.3.1
The Company Secretary or their nominee shall act as Secretary of the Committee.
6.3.2
The Secretary shall produce minutes of all meetings which shall be circulated to the
Board, subject to any actual or potential conflicts of interest restricting their circulation.
6.4
Meetings
6.4.1
The Committee will meet sufficiently regularly to discharge its duties effectively.
Additional meetings may be requested by any member or the Secretary of the
Committee or by the Group Head of Internal Audit or the external auditor.
6.4.2
The quorum for Committee meetings shall be two.
6.4.3
An agenda and papers for the meeting will be forwarded to those attending not less
than five working days before the date of the meeting.
6.4.4
At least once each year the Committee shall meet with the external auditors, and the
Group Head of Internal Audit, without any executive Director or member of the
Company’s Management present. The Committee may also have separate meetings
with other functions as deemed appropriate.
6.4.5
Only members of the Committee have the right to attend Committee meetings. Other
people may attend by invitation from the Committee Chairman.
6.5
Reporting to the Board
The Chairman of the Committee shall report on the issues raised at each Committee meeting
at the following meeting of the Board.
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