Protect Association Meeting
FCA s166 Skilled Person Reviews
4 March 2016
Mark Davies
Associate Director
Financial Services Group
T: 020 7865 2134
E: [email protected]
Agenda
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02
03
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s166 Skilled Person Reviews – overview and statistics
Reviews in practice
What happens after the Review?
Q&A
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What is a Skilled Person Review?
• one of the regulatory tools the FCA can employ under the Financial Services and Markets
Act (FSMA) as amended by the 2012 Act
• allows the FCA and the firm to obtain an independent view of aspects of the firm's
activities that cause concern or require further analysis
• Section 166 of FSMA gives the FCA the power to commission two types of reviews by
Skilled Persons as required:
– s166 Reports by Skilled Persons; and/or
– s166A Appointment of Skilled Person to collect and update information
• since 2012 the FCA has powers to contract directly with the Skilled Person, but the firm
pays the cost of the review
• the FCA operates a panel of Skilled Persons.
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What is the purpose of a Skilled Person Review?
1. diagnostic - identify, assess and measure risks
2. monitoring - track the development of identified risks, wherever these
arise
3. preventative action to limit or reduce identified risks and so prevent them
from crystallising or increasing
4. remedial action to respond to risks when they have crystallised
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s166 Skilled Person reviews – numbers*
Reduction in
numbers Q3
2015/16 – what
does this tell us?
Source: http://www.fca.org.uk/about/what/regulating/how-we-supervise-firms/reports-by-skilled-persons
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*
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s166 Skilled Person reviews - topics
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s166 Skilled Person reviews by firm classification
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How could I get one?
Regulated firms have three supervisory touch-points:
• proactive supervisory risk assessment
• reactive supervision – visit provoked by intelligence
• thematic work.
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Warning signs - examples of where the FCA may
consider the Skilled Person tool
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poor management, governance and culture
ineffective three lines of defence (individually
and collectively)
failure to protect client money and assets
poor sales practices (mis-selling, objection
handling etc)
remuneration structures where incentives drive
behaviour that is not in customers' interests
ineffective/inconsistent training and
competence regime
barriers to claim/complain
ineffective (or no) approach to identify
potential customer vulnerability
poor record keeping, systems and controls
oversight and control of Appointed
Representatives
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•
•
•
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ineffective product design
oversight, management and control of
outsourced arrangements (DUA and claims)
conflicts of interest identified but not managed
transparency, disclosure and conflicts of
interest (inc profit commission, volume
overriders, profit share etc)
to oversee and report on remedial action plan
financial crime – fraud, AML, anti-bribery and
corruption, third party payments
limited customer utility, customer
understanding and poor 'value measures'
performance (declined claims, loss ratio)
a change of circumstances e.g. proposed entry
into new business area, new control structure,
merger etc
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s166 Skilled Person Review – basic process
Requirement
notice sent in
writing – requiring
firm to provide
report by Skilled
Person or notifying
of appointment
Includes: purpose of
report or
collecting/updating of
information, scope,
timetable for
completion, report
format and other
relevant matters
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Discussion of
regulator's
requirements and
reasons before
finalising decision
to require report (or
updating/collection
of information)
Appointment of
Skilled Person –
FCA seeks to agree
in advance and
uses tender
process where
appropriate to
identify the most
suitable skilled
person
Review and
reporting by
Skilled Person with
updates to the FCA
where appropriate.
Firm is given
opportunity to
provide written
comments on the
report before
submission to the
FCA
Includes: an
assessment of
technical capabilities,
resources available,
and potential conflicts
of interest
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Effectiveness of s166 Skilled Person Review
The FCA considers Reviews are most effective where:
• they include regular communication with FCA
• the Skilled Person provider demonstrates independent, robust
challenge
• Reports clearly identify issues and explicitly reference the
Requirement Notice
• Skilled Person demonstrates expertise and value add from the
outset
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Potential post-review activities
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•
•
•
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implement Skilled Person recommendations
customer contact/remediation
Internal Audit or third party assurance review
attestation
lessons learned – root causes not symptoms
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Enforcement
• repeat behaviour - firm and individual (Approved Persons) reaction and
failure to cooperate
• behaviour and standards in broader financial market - relevant to
FCA strategic priority, widespread behaviour, related to poor conduct or
governance
• very serious breaches - undermines public confidence, (potential) harm to
customers, market integrity or competition
• need to remove wrong-doers from the industry or impose other
restrictions – not 'fit and proper'
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