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RPC: Just 2% of FCA S166 reviews led to enforcement in 2013/14

Only 2 per cent of FCA-ordered reviews into financial services firms led to any enforcement action in the year to September 2014, according to figures from law firm Reynolds Porter Chamberlain.

Just one of the 44 skilled persons reviews ordered in 2013/14 resulted in regulatory enforcement, RPC says. By contrast, the regulator took further action in 4 per cent of cases in 2012/13.

Firms are almost always required to cover the cost of recruiting an independent third party to probe their practices and reviews can cost hundreds of thousands.

RPC partner Richard Burger says the figures raise concerns over whether the costs are justified.

He says: “Many are beginning to question how fair it is to burden a well-run firm with the costs of a skilled persons review. Many firms which are not, and have never been, in breach of FCA Principles and/or Regulations are currently being forced to undergo what is a disruptive review process- and then cover the costs.

“Perhaps if the costs of these reviews were shared by the FCA then that might lead to more selective usage of this tool.”

Of the 44 reviews in 2013/14, 17 looked into banks, while five investigated insurance companies.

Burger adds: “The direct and indirect costs of compliance and regulation needs to be kept under constant review to ensure that it does not put the financial services sector under any unnecessary burden.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Marvin the paranoid android 17th March 2015 at 9:18 am

    “Many are beginning to question how fair it is to burden a well-run firm with the costs of a skilled persons review. Many firms which are not, and have never been, in breach of FCA Principles and/or Regulations are currently being forced to undergo what is a disruptive review process- and then cover the costs”

    So how exactly do they find themselves in need of a S166 review then? cannot be all rosy in the garden can it?

  2. Section 166 reports should be illegal. The FCA should pay for the report regardless so that there is no incentive to take regulatory action.

    The police don’t charge criminals for the cost of their investigation but it seems that the FCA is doing this to large numbers of innocent firms.

    It’s another example of the lack of normal justice that is dished out in financial services, where the innocent pay and the guilty get promoted.

  3. @Marvin – The F-pack staff can be bullies at times. They have their view and you are not allowed to view things differently from them. I argued with them over our client agreements reference to the longstop in them which explained the circumstances where it applied even though it is not in the FCA rulebook (unlike common law) they argued at the supervision level and it was only because I stood my ground and insisted on a meeting which ended up including someone from their general councils division that they accepted that it is in fact appropriate to explain where the longstop DOES apply as it would be unfair, unclear and misleading to imply that it does apply with regard all advice (if the FSCS become involved, the longstop applies for instance and the same with claims in excess of £150k or claims which do NOT go to the Ombudsman and are instead taken to court).

    There doesn’t have to be anything wrong for a S166, they just have to disagree with you or not like your attitude i.e. when you know you are right and they are wrong, they just threaten and bluster unless challenged.

  4. The FCA have a range of administrative processes to use to make life difficult, it not impossible, for anyone or any company that they take a dislike to. This shouldn’t be possible, but it is and it does say a lot about those who run the FCA, especially when they are always looking the wrong way when there are serious problems. A competent regulator should be a basic requirement for a well run financial services industry. The UK financial services cannot be seen as well run with greed a fundamental characteristic, and corruption far too prevalent for comfort. For all their apparent intelligence the FCA display a lack of connection with the industry they regulate that leads to a significant lack of confidence in their ability to function in a real world environment. Without that confidence there will be a corresponding lack of respect for the institution and by default for the rules they impose. It becomes a vicious circle, with the only true function of the FCA being a well paid home for university graduates.

  5. Having had to go through a skilled persons report or if you like a S166, I can tell you first hand the use of these is, basic ignorance on behalf of the FCA (in my case the then FSA), if they don’t understand or agree, with you or your systems then they are only to pull this out of their back pocket !!

    Putting aside the cost to me (I would put in the region of tens of thousands) as a small firm
    of 3, you have to consider the massive disruption to my business for the best part of a year (maybe more) the mental pressure and stress of the prospect of loosing your business and livelihood (my wife actually went on medication for depression and is still on it now)

    The end result, a few minor process changes (and I do Mean minor), the 10 files that were checked were passed suitable (all were pension switches or drawdown)
    The initial comment from the FSA inspector, was if you don’t do this (skilled persons report) we will do it for you, and you will still have to pay but we wont check 10 files we will go back and check everything for the past 10 years !!

    And no Phillip I didn’t record this visit, I wish I did and wish I had my lawyers with me !! not something I will forget to do if this ever happens again !!

    I can tell you, this was the most horrible, and stressful period in my life, as it was so personal, it still astonishes me now than one can be guilty of nothing more of not ticking the right boxes or having the right piece of paper, then be ordered and have to pay to go through this hell only to be innocent at the end !

    So Marvin, no, all things may not be rosy in the garden ! but just a thought ! they very rarely are ?

  6. Marvin the paranoid android 17th March 2015 at 1:11 pm

    Genuinely interested to know if this is FSA or FCA ? The FCA are out and about promoting themselves as a “new deal” and not as authoritarian as the FSA.. although they seem to have the same staff .. odd that… is it bluff and bluster or are these legacy FSA issues and attitudes?

  7. @DH & Marvin – I recorded everything….. these are not legacy issues.
    My disagreement began under the FSA and was pursued by the FCA and most people seem to just back down when the FCA say do this, when the rules say something different. If they cannot explain their logic/position and match it to the rules and it is just one of their staff’s opinion, then they should be held accountable for their excessive zeal.
    They are bullies and act like buillies when challenged too.

  8. @ Marvin

    The phrase I would use to describe the FCA is “Institutionally Prejudiced”

    If things don’t change they stay the same, same meat different gravy, which ever way you cut it, their making the same old mistakes in the newest of ways !

    The FCA remind me of the old British colonial days, the natives (IFA’s) come baring gifts and fruit the good ole Brits (FCA), accept them with open arms and smiles, then plot to knick their country and enslave them behind their backs !!

    At least with the FSA they hated us and we knew it and they let us know it, the FCA are a bit more sneaky and manipulative ! but still the same at the end of the day !

  9. Successful governance is more about management than control. Control has been tried through Gulags and concentration camps but not with any lasting success. People hate being controlled but are very amenable to suggestion and intelligent management, especially when the perceived outcome is desirable. The comments above suggest that the Gulag approach is the preferred governance method of the FCA, as it certainly was for the FSA. People tend to react against control, sometimes resorting to methods that are as detrimental as the techniques they oppose. Remember that finance is an incredibly complex subject with rarely a correct answer in any given situation. That alone gives tremendous opportunity for “unsuitable answers”. In essence Financial Services needs a high amount of self regulation, with guidance from an overseeing body. I’ve never considered putting the boot up one’s backside as the most subtle of management techniques, especially when the recipient of the boot is brighter than the kicker and can get their come back in so many other ways, as the Libor, PPI etc scandals demonstrate. These went on so long because the general financial services population was anti the Regulator, because the Regulator was a blatantly anti the financial services community. DH is probably correct when he says that there is little difference between the FSA & the FCA once the make-up is removed, This means that the industry is unlikely to be co-operative with the Regulator, which means the Regulator is starved of meaningful and current intelligence, which means that regulation is forever out of date, and that means there will be a continuing level of “scandals” at a rate that is far higher than is necessary.

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