Posted: 13th May 2014
How much do you know about skilled person reports?
To those of you unfamiliar with this supervisory tool, it is something that requires a firm to appoint a third party to carry out a Financial Conduct Authority (FCA) requested piece of work. This is generally to investigate and evaluate any issues the regulator has identified within a firm, following a visit.
At the beginning of May, the FCA published its update on skilled person reports for Q4 of 2013 /14. The updates are published on a quarterly basis and detail how often these reviews have been commissioned. You’re given key insight into how the regulator is invoking the powers afforded to it under section 166 of the Financial Services and Markets Act (FSMA) – as such, these are also known as ‘section 166 reports’.
How many and who?
Of the ten reports commissioned in this quarter, banks were assigned half. The rest encompassed two investment management firms, a personal investment firm, a securities and futures firm and an insurance company. We can see that the focus on banks is a continuing trend, having had the majority of reviews assigned to them throughout the entire year’s quarters (17) with insurance companies just behind them (11).
What stood out for many commentators was the 54% drop in the number of skilled reports commissioned for 2013 / 14 in comparison to 2012 /13. Firms may be rejoicing in the lessened use of these reports. However, it is important to take a step back and consider the possibilities. Is it something to do with the change in regulatory landscape? The 2012 / 13 data which listed 113 reports, covered prudential as well as conduct issues. With the shift in power from the Financial Services Authority (FSA) to the FCA and the Prudential Regulation Authority (PRA), the 52 FCA reports covered only conduct issues.
Nevertheless, when added to the PRA data, the number is still comparatively low overall at 85 reports, with conjecture that the lower figure could be due to the regulator’s increasing use of attestations. With the FCA declining to comment on the possible reasons behind this numerical plunge, any suggestions are but speculation.
What do I need to worry about then?
Out of all of this, one variable remains; whatever the number, the regulator is still utilising section 166 to supervise. To firms that are already involved with these reports or see them in their regulatory horizon – how prepared are you? Question whether you have looked at credible third party firms suitable for the area of your business being looked at (the FCA provides a list of these firms, with Huntswood allocated to ‘Lot 5 – Conduct of Business’). And once the review has begun, show your willingness to engage and co-operate with the FCA and the skilled person firm to render the process as pain free as possible.