Audit Committee Terms of Reference

Reference to "the Committee" shall mean the Audit Committee.
Reference to "the Board" shall mean the Board of Directors.

Audit Committee Responsibilities

1. Duties

The Committee shall carry out the duties below for the Group, as appropriate.

1.1. Financial Reporting

The Committee shall:

1.1.1. monitor the integrity of the financial statements of the Group, including annual and interim reports, preliminary results announcements and any other formal announcement relating to financial performance, reviewing significant financial reporting issues and judgements which they contain. The Committee shall also review summary financial statements and any financial information contained in other public documents.

1.1.2. review and challenge where necessary:

1.1.2.1 the appropriateness, consistency of and any changes to accounting policies both on a year on year basis and across the Group;

1.1.2.2 the methods used to account for significant or unusual transactions where different approaches are possible;

1.1.2.3 whether the Group has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;

1.1.2.4 the clarity of disclosure in the financial reports and the context in which statements are made; and

1.1.2.5 all material information presented with the financial statements, such as the operating and financial review and the corporate governance statement.

1.2. Internal Controls and Risk Management Systems

The Committee shall:

1.2.1. keep under review the adequacy and effectiveness of internal controls and risk management systems including systems for ensuring compliance with the regulatory environment within which the Group operates; and

1.2.2. review and approve the statements to be included in the Annual Report concerning internal controls and risk management.

1.3. Compliance

The Committee shall:

1.3.1. monitor and review the effectiveness of the Compliance function in the context of the Group's overall risk management system;

1.3.2. review and assess the annual Compliance plan; and

1.3.3. review promptly all reports to the Audit Committee from the Compliance function;

1.4. Whistleblowing

The Committee shall:

1.4.1. review the adequacy and security of arrangements for employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action; and

1.4.2. review the adequacy of the Group's procedures for detecting fraud.

1.5. Internal Audit

The Committee shall:

1.5.1. monitor and review the effectiveness of the internal audit function in the context of the Group's overall risk management system;

1.5.2. approve the appointment and removal of the Chief Internal Auditor;

1.5.3. consider and approve the remit of the internal audit function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards. The Committee shall also ensure the function has adequate standing and is free from management or other restrictions;

1.5.4. review and approve the annual internal audit plan;

1.5.5. review promptly all reports to the Audit Committee from the internal auditors;

1.5.6. review and monitor management's responsiveness to the findings and recommendations of the internal auditor; and

1.5.7. meet the Chief Internal Auditor at least once a year, without management being present, to discuss their remit and any issues arising from the internal audits carried out. In addition, the Head of Internal Audit shall be given the right of direct access to the Chairman of the Board and to the Committee.

1.6. External Audit

The Committee shall oversee the relationship with the external auditor including, but not limited to:

1.6.1 Engagement Terms and Fees

1.6.1.1. considering and making recommendations to the Board, to be put to members for approval at the AGM, in relation to the appointment, re-appointment and removal of the Group's external auditors. The Committee shall oversee the selection process for new auditors and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;

1.6.1.2. approval of the auditor's remuneration, whether fees for audit or non audit services, and ensuring that the level of fees is appropriate to enable an adequate audit to be conducted;

1.6.1.3. approval and sign-off of the auditor's engagement letter and the scope of the audit;

1.6.2 Independence and Quality Control

1.6.2.1. assessing annually the auditor's independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non audit services;

1.6.2.2. satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and the Group (other than in the ordinary course of business);

1.6.2.3. agreeing with the Board a policy on the employment of former employees of the Group's auditor, and monitoring the implementation of this policy;

1.6.2.4. developing and implementing a policy on the supply of non audit services by the external auditor, taking into account any relevant ethical guidance on the matter;

1.6.2.5. assessing annually the external auditor's qualifications, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures;

1.6.2.6. undertaking an annual review of the effectiveness of external audit;

1.6.2.7. monitoring the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Group compared to the overall fee income of the firm, office and partner and other related requirements;

1.6.2.8. meeting regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage. The Committee shall meet the external auditor at least once a year, without management being present, to discuss their remit and any issues arising from the audit;

1.6.3 Conduct and Results of Audit

1.6.3.1. reviewing and approving the annual audit plan and ensuring that it is consistent with the scope of the audit engagement;

1.6.3.2. reviewing the findings of the audit with the external auditor. This shall include but not be limited to:

• a discussion of any major issues which arose during the audit,
• any accounting and audit judgements, and
• levels of errors identified during the audit;

1.6.3.3. reviewing any representation letter(s) requested by the external auditor before they are signed by management; and

1.6.3.4. reviewing the management letter and management's response to the auditor's findings and recommendations.

1.7. Reporting Responsibilities

1.7.1. The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities, including financial reporting.

1.7.2. The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

1.7.3. A report to members on the Committee's activities is to be included within [the Corporate Governance Report section of] the Group's Annual Report.

1.8. Other Matters

The Committee shall:

1.8.1. have access to sufficient resources in order to carry out its duties, including access to the Group's Secretariat for assistance as required.

1.8.2. The Committee shall receive appropriate and timely training relevant to its activities, both in the form of induction training for new members and on an ongoing basis for all members.

1.8.3. be responsible for the co-ordination of the internal audit function and the external auditors;

1.8.4. give due consideration to applicable laws and regulations and to the provisions of the UK Corporate Governance Code, as appropriate;

1.8.5. oversee any investigation of activities which are within its terms of reference; and

1.8.6. at least once a year, review its own performance, constitution and terms of reference to ensure it is operating effectively and report the results of this review to the Board for approval.

1.9 Authority

The Committee is authorised by the Board to:

1.9.1. seek any information it requires from any employee of the Group in order to perform its duties;

1.9.1.1 obtain, at the Group's expense, external legal or other professional advice on any matter within its terms of reference; and

1.9.1.2. call any employee to be questioned at a meeting of the Committee as and when required.

Audit Committee Composition

1. Membership

1.1. Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Audit Committee. The Committee shall be made up of at least 3 members.

1.2. All members of the Committee shall be independent non-executive directors at least one of whom shall have recent and relevant financial experience. The Chairman of the Board shall not be a member of the Committee.

1.3. Audit Committee members shall ensure they are not also members of both the Nomination Committee and the Remuneration Committee.

1.4. Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman of the Board, Chief Executive, Group Finance Director, Divisional Directors Risk and Business Protection, the Chief Internal Auditor and representatives from the finance function may be invited to attend all or part of any meeting as and when appropriate.

1.5. The external auditors shall be invited to attend meetings of the Committee on a regular basis.

1.6. Appointments to the Committee shall be for a period of up to three years, which may be extended by no more than two additional three year periods, provided the director remains independent.

1.7. The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.

Audit Committee Quorum and Meetings

1. Secretary

1.1. The Group Secretary or their nominee shall act as the Secretary of the Committee.

2. Quorum

2.1. The quorum necessary for the transaction of business shall be 2 members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

3. Frequency of Meetings

3.1. The Committee shall meet at least four times a year at appropriate times in the reporting and audit cycle, and otherwise as required.

4. Notice of Meetings

4.1. Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of any of its members or at the request of external or internal auditors if they consider it necessary.

4.2. Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee and any other person required to attend, no later than 5 working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time.

5. Minutes of Meetings

5.1. The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance.

5.2. The Secretary shall record any conflicts of interest divulged at the meeting.

5.3. Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board.

6. Annual General Meeting

6.1. The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any member questions on the Committee's activities.

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