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Lawyers raise concerns over FCA supervisory toolkit

Regulatory experts have questioned the FCA’s supervisory direction after concerns were raised over two of its major tools.

Last month, Treasury select committee chair Andrew Tyrie wrote to the FCA warning about the cost of skilled person reports.

Skilled person reports, also known as section 166 reports, check for weaknesses or failings in a firm’s practices. The regulator orders these reports to be carried out where it has concerns, and firms have to meet the cost.

Figures released by the FCA show there were 50 reports carried out in 2013/14 at a total cost of £145.7m compared with 113 reports at a cost of £176.4m in 2012/13.

Norton Rose Fulbright partner Jonathan Herbst says: “The whole S166 process is a concern, particularly around cost and frequency of use. One of the problems is that a whole consultancy industry has sprung up around S166 reports, whereas what the FCA really wants to do is improve internal processes.”

Pinsent Masons senior associate Michael Ruck says: “The average cost per S166 report rose to £2.9m in 2013/14 and although that may have been skewed by several high-cost cases, firms should be aware this could cost them a lot of money. My advice to firms would be, the moment any problems are identified, involve your internal compliance team to try and minimise costs.”

Apfa director general Chris Hannant says the costs must be monitored more closely as skilled person reports “are a way of adding to the regulatory cost burden on the industry by the back door”.

Also last month, the FCA said it would issue revised internal guidance to supervisors on attestations and publish quarterly data on the tool following repeated concerns over its use.

An attestation is a written confirmation that a firm is meeting certain regulatory requirements and is required by the chief executive or other individuals holding a significant influence function.

But lawyers say firms should not expect a radically different approach.

Ruck says: “The industry has been pushing for this because it thought it would lead to fewer attestations but the number of attestations may actually increase as the FCA is saying they will become a standard part of supervisors’ toolkits.”

King & Wood Mallesons SJ Berwin partner Tim Dolan says: “The concerns around the amount of responsibility attestations put on one individual remain.”

An FCA spokesman says: “Skilled person reviews are an important supervisory tool for the FCA. We always take account of the costs of the review to the firm and have a process in place to ensure that it is used only where it is appropriate and that the costs are proportionate.”

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  1. The FCA has a budget of £500m. These reports are part of the cost of regulating and should not be the responsibility of the firm. If the firm is at fault, the cost of the report can be built into the fine. If they are not, they should not be charged to prove their innocence. Again we have a situation where well paid, salaried individuals are imposing costs on firms but have no responsibility or sanction if they get it wrong.

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