Surviving a Section 166 Skilled Person Report

A Section 166 skilled persons report is one of the regulatory tools available to the PRA/FCA, this provides the regulator with an independent view of a firms operation and may be prompted by the regulator having a specific requirement for information from an authorised business.

Skilled person reports are clustered into ‘lots’ and listed into the following theme areas:

• Lot 3 – Client Assets.
• Lot 4 – Governance, controls and risk management.
• Lot 5 – Conduct of business.
• Lot 6 – Data and IT infrastructure.
• Lot 7 – Financial Crime.
• Lot 8 – Prudential – deposit takers and recognised clearing houses.
• Lot 9 – Prudential – Insurance.
• Lot 10 – Prudential – Investment firms, Intermediaries and recognised investment exchanges.

A panel of pre-selected firms have been approved to undertake skilled persons reports for each ‘lot’, these include lawyers, accountants, compliance consultants and other appropriate industry experts, the development of the panel of providers is to ensure that a consistent approach is taken to complete each report.

If the regulator believes that an authorised firms has contravened a requirement in the rules, the regulator can either:

Require the authorised firm to appoint a skilled person report, or
Appoint a skilled person report itself from the appropriate panel.

The target firm of the report may be the authorised firm or its Appointed Representatives and the scope of review can include activities which are not regulated. The Supervision manual (SUP5) explains the appointment and reporting process, also the duties and responsibilities of the authorised firm subject to review.

What can trigger a skilled person report?

• Where the regulator needs to gather certain information to form an opinion.
• Concerns identified following a supervisory visit.
• Concerns triggered following a thematic review.
• As a result of a development or incident at the firm.
• From information provided by the firm.
• Regulatory reporting.

A few good reasons to avoid a skilled person report:

• They are very expensive.
• They can caused severe business disruption.
• Can create closer attention from the regulator.
• May trigger enforcement action.
• Can cause reputational damage.

How to avoid a skilled person report:

• Ensure a robust compliance framework is in place and operating effectively.
• Provide staff with an appropriate program of training.
• Enhance monitoring processes to identify issues early.
• Ensure regulatory reporting is concise, timely and accurate.
• Keep thorough records that evidence conformance with the regulatory rules.
• Ensure your conduct management information evidences that you are ‘treating your customers fairly’.

Further information can be found in the Financial Services and Markets At 2000 amended by the FSMA 2012 sections 165 to section 177 covers all the requirements applicable to the skilled persons report.