1551. (1) Subject to the other provisions of this section, the directors of each public-interest entity shall establish an audit committee for the entity.

(2) The majority of the members of the audit committee shall be non-executive directors of the public-interest entity, that is to say, directors—

(a) the terms of appointment of whom indicate or state that they are being appointed in a non-executive capacity, and

(b) who otherwise possess the requisite degree of independence (particularly with regard to each of them satisfying the condition in subsection (3)) so as to be able to contribute effectively to the committee’s functions.

(3) The condition referred to in subsection (2)(b) is that the director does not have, and at no time during the period of 3 years preceding his or her appointment to the committee did have—

(a) a material business relationship with the public-interest entity, either directly, or as a partner, shareholder, director (other than as a non-executive director) or senior employee of a body that has such a relationship with the entity, or

(b) a position of employment in the public-interest entity.

(4) At least one of the directors referred to in subsection (2) shall be a person who has competence in accounting or auditing.

(5) For the purposes of subsections (2) and (3)(a), a non-executive director is a director who is not engaged in the daily management of the public-interest entity or body concerned, as the case may be.

(6) The members of the audit committee as a whole shall have competence relevant to the sector in which the audited entity is operating.

(7) The chairman of the audit committee shall be appointed by its members and shall be independent of the audited entity.

(8) Any proposal of the directors of a public-interest entity with respect to the appointment of a statutory auditor or audit firm to the entity shall be based on a recommendation made to the directors by the audit committee.

(9) The statutory auditor or audit firm shall report to the audit committee of the public-interest entity on key matters arising from the statutory audit of the entity, and, in particular, on material weaknesses in internal control in relation to the financial reporting process.

(10) (a) Subject to paragraph (b), subsection (1) shall not apply to public-interest entities which meet the criteria set out in points (f) and (t) of Article 2(1) of the 2003 Prospectus Directive provided that the functions assigned to an audit committee are performed by the board of directors as a whole.

(b) The chairman of the board of directors, being an executive member, shall not act as chairman while the board is performing the functions of the audit committee.

(11) Subsection (1) shall not apply to a public-interest entity if it is—

(a) a public-interest entity which is a subsidiary undertaking within the meaning of point 10 of Article 2 of the Accounting Directive if that entity fulfils the requirements set out in subsections (1) and (2) and Articles 11(1) and (2) and 16(5) of Regulation (EU) No 537/2014 at group level,

(b) any public-interest entity which is a UCITS (within the meaning of the UCITS Regulations as defined in section 1385), or an alternative investment fund (within the meaning of the European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. No. 257 of 2013)),

(c) subject to subsection (12), any public-interest entity the sole business of which is to act as an issuer of asset backed securities as defined in point 5 of Article 2 of F977[Commission Regulation (EC) No. 809/2004 of 29 April 2004⁴, or

(d) any credit institution within the meaning of point 1 of Article 3(1) of Directive 2013/36/EU of 26 June 2013¹⁰ on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC whose shares are not admitted to trading on a regulated market of any Member State and which has, in a continuous or repeated manner, issued only debt securities admitted to trading on a regulated market, provided that the total nominal amount of all such debt securities remains below €100,000,000 and that it has not published a prospectus under the 2003 Prospectus Directive.

(12) A public-interest entity that avails itself of the exemption under subsection (11)(c) shall, by means of a statement to that effect included in a published document, such as—

(a) in any annual report published by it, or

(b) in an annual return or other periodic statement delivered by it to the Registrar or Central Bank,

set forth the reasons for why it considers the establishment of an audit committee by it is not appropriate and, accordingly, why it has availed itself of that exemption.

(13) (a) Subject to paragraph (b), subsection (1) shall not apply to a captive insurance undertaking or captive reinsurance undertaking (in each case within the meaning of Regulation 3 of the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485 of 2015)) provided that it has a body or bodies performing equivalent functions to an audit committee, established and functioning in accordance with provisions in place in the State in which the public-interest entity to be audited is registered (in such case the entity shall disclose on its website which body carries out those functions and how that body is composed).

(b) A captive insurance undertaking or captive reinsurance undertaking which falls within paragraph (a) shall satisfy the following conditions:

(i) it shall not be owned by a credit institution;

(ii) it shall not issue transferable securities admitted to trading on a regulated market.

(14) Without prejudice to the responsibility of the directors of the public-interest entity, the responsibilities of the audit committee shall include—

(a) informing directors of the entity of the outcome of the statutory audit and explaining how the statutory audit contributed to the integrity of financial reporting and what the role of the audit committee was in that process,

(b) monitoring the financial reporting process and submitting recommendations or proposals to the directors of the entity to ensure its integrity,

(c) monitoring the effectiveness of the entity’s internal quality control and risk management systems and, where applicable, its internal audit, regarding the financial reporting of the entity, without breaching its independence,

(d) monitoring the statutory audit of the entity and group financial statements, in particular, its performance, taking into account any findings and conclusions by the Supervisory Authority pursuant to Article 26(6) of Regulation (EU) No 537/2014,

(e) reviewing and monitoring the independence of the statutory auditors or the audit firms in accordance with sections 1535 to 1541 and Article 6 of Regulation (EU) No 537/2014, and, in particular, the appropriateness of the provision of non-audit services to the audited entity in accordance with Article 5 of that Regulation, and

(f) being responsible for the procedure for the selection of a statutory auditor or audit firm and recommending the statutory auditor or audit firm to be appointed in accordance with Article 16 of Regulation (EU) No 537/2014 except when Article 16(8) of that Regulation is applied.

(15) Subsection (8) applies to a proposal of the directors (with respect to the appointment of a statutory auditor or audit firm to a public-interest entity) made at any time after the establishment of the audit committee in respect of the entity.

(16) The other provisions of the relevant provisions with regard to the performance of a function by the audit committee apply with respect to financial statements of the public-interest entity for financial years beginning on or after the establishment of the audit committee in respect of the entity.

(17) A person who, without reasonable excuse, contravenes subsection (12) shall be guilty of a category 3 offence.

(18) Section 167 shall not apply to a public-interest entity which is both a UCITS referred to in subsection (11)(b) and a company.

(19) In this section, "2003 Prospectus Directive" has the meaning assigned to it by section 1348.]