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Aifa concern over growing use of section 166 reports

Aifa has raised concerns that the FSA is increasingly forcing IFA firms to undertake skilled persons reports ahead of the retail distribution review.

A section 166 report, which can cost larger firms hundreds of thousands of pounds, checks for weaknesses or failings in a firm’s practices and covers areas such as compliance, fraud, products and capital adequacy.

An FSA spokeswoman says the regulator issued 95 section 166 notices in 2009/10, which cost firms £32.2m.

She says this is the most recent data the regulator has on the notices.

Aifa policy director Chris Hannant (pictured) says: “There is anecdotal evidence that the use of section 166 notices is on the increase. That is a concern because it is basically forcing firms to pay for the bullets in the gun.

“The worrying thing is that this could be used as a low-risk defence mechanism if the regulator is going into cautious mode. The section 166 mechanism lacks responsibility and accountability.”

Last month, Conservative MP Mark Field tabled an amendment to the Financial Services Bill that would force the FSA to pay for section 166 reports and only levy firms if the findings lead to enforcement action.

Compliance consultant Adam Samuel says: “The regulator is issuing more 166 notices because there are a lot of investigations to be done and it is concerned about burning up its own resources in the process.”

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Comments

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  1. Surely, rather than it be about making institutions “pay for the bullets in the gun”, the correct way o look at this is to say that the FSA is making institutions pay the cost of supervising them. An institution that is ‘untidy’ but otherwise identical to another, much tidier, institution, causes the FSA (and those agencies it uses) more work and should in my view pay for that larger amount of work. That is what use of s166 enables the FSA to achieve. What is wrong with that?

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