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Tory MP presses for FSA section 166 fair deal

Conservative MP Mark Field has 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.

Currently, the regulator can order firms to commission a third party to carry out s166 reports, which can cost hundreds of thousands of pounds. Companies cannot recoup the cost if no evidence of wrongdoing is found.

Aifa and advisers have expressed concern that the regulator’s use of s166 reports is increasing and that the FSA is using them as a regulatory tool rather than reserving them for instances when it strongly suspects wrong-doing.

The amendment would see the regulator appoint a third party and pay for the report. It would then claw back the cost from the firm in the event that it leads to enforcement action. The proposal is set to be debated in the bill’s third reading on April 23.

Field, MP for the Cities of London and Westminster, says: “The cost of these section 166 reports, especially for smaller companies, is another burden on firms often already feeling the pinch. Requiring the regulator to appoint an investigator and fund the reports means they will be robust and if nothing is found, the cost will not be left to the firm.

“It will focus the regulator on issuing section 166 reports only when it is seriously concerned something is amiss and not just as a regulatory tool.”

Derbyshire Booth Financial Management managing director Greg Heath says: “There is a view that the FSA uses these reports as a regulatory tool and this amendment would make that far less likely, so it is a step in the right direction.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Im probably going to be unpopular in my opinion but a Sec 166 is a tool in the FSA’s supervision arsenal. Its a deterent. A S166 is not neccesarily about proving a firms guilt/innocence. In many circumstances its used with the firm to improve systems or processess where a problem has been identified. The cost will be proportionate to the size and nature of any business – so im not neccessarily in agreement with the regulator footing the bill – a cost which may only be passed on anyway, meaning those firms who havent been subject to a skilled persons requirement end up indirectly funding a levy.

  2. To little to late Mark

    And also, it should be extended to having to have a skilled persons report. I had to have one done and it cost me just over 17k and all came back suitable.

    When I argued this at the time I was told in no uncertain terms “you either do it or will will issue you with a 166 either way you have to pay”

    GUILTY till you prove your innocent.

  3. Im sure Im being overfrivolous today but does anyone else find the terminology ironic – ie that the FSA doesnt have anyone inhouse who can conduct a SKILLED persons report….
    Less frivolously, I do think this is yet another sign of a flawed, hugely overburdensome and clumsy system – ie the regulator thinks a specific problem might exist yet cant quite pin it down and then doesnt have the expertise to identify it. And if the work required is not to identify a SPECIFIC problem then why are we all having to waste time and resources on it at all. There either IS a specific real and potentially damaging problem, in which case THEY should be able to identify it, quickly and succinctly; and if there isnt then move on to the problems that DO exist. Everything else is jsut creating work tfor the sake of it.

  4. At last someone appears to have realised that being required to pay for your own prosecution whether guilty or innocent is against all the laws of natural justice.

    An S166 bill of the size mentioned by DH would pretty much close a small firm like ours.

  5. Pressing for an amendment such as this won’t change the fact that the FSA has free rein to spend however much it wants on whatever it wants or to force others to do so under threat of confiscation of their livelihood if they don’t.

    The real problem isn’t confined to isolated issues, it’s much broader, namely the FSA’s total lack of accountability for anything it does or how it does it.

    As already seen, the TSC has no power to direct the FSA to do or to stop doing or to moderate the way in which it’s doing anything at all. Mark Garnier has admitted as much. With impunity, Hector Sants was able last March effectively to thumb his nose at the Committee, on the basis that the FSMA 2000 affords the FSA free rein to do whatever it wants and the government has endorsed this by having declared that the FCA, like the FSA before it, will be accountable only to its own board which, of course, means accountable to nobody.

    Mr Field’s proposed amendment may be well meaning, but just how much notice is anybody likely to take of it? None at all would be my bet.

    And, as others have commented, even if the FSA were forced to pay for investigations of this type, it would merely factor the costs into its budget for the following year. No system of checks or balances exists to control how the FSA spends its budget or just how it sets that budget.

    The NAO certainly doesn’t perform this function ~ all it does is cast an eye over how the FSA records the disposal of its budget, which is very different from and wholly inadequate by comparison with policing how it does so.

    Who is able to challenge the FSA’s allocation of £20m+ to its bonus pot? Nobody. Who is able to challenge the FSA’s allocation of £567,000 to ‘hospitality’? Nobody. Who is able to challenge the FSA’s £1m stationery bill? Or the vast sums of money it spends on objets d’art to adorn its walls? Or how it sets its remuneration packages? Or expenses? Or the justification for housing all 4,000 of its staff in one of the most expensive office blocks in the entire country? Or the vast sums it spends on commissioning outside research projects? Or the manipulated shams of its Cost:Benefit Analyses (when it even bothers to undertake them)? Who is able to challenge the endless (upward) revisions to the FSA’s estimated costs of implementing initiatives such as its RDR (originally £600m and now past £2Bn)?Nobody.

    Should your MP write on your behalf asking the FSA to explain what system of controls exist over how it spends its budget, the reply ~ guaranteed ~ will be that the NAO oversees this aspect of how the FSA operates which, at best, is a half truth. Such is the nature of the Regulatory Monster ensconced at Canary Wharf. When Hector Sants warned the industry to “be afraid, be very afraid” of the regulator, it wasn’t just a mere soundbite. The FSA can do whatever it wants. Such is the nature of the Regulatory Monster ensconced at Canary Wharf.

  6. We end up paying in one way or another no matter what.

  7. “The amendment would see the regulator appoint a third party and pay for the report. It would then claw back the cost from the firm in the event that it leads to enforcement action.”

    But there’s a considerable body of fining evidence to suggest that the FSA is more likely to focus on consumer redress in such cases, meaning that they’ll waive recovery. Which means that everyone else picks up the tab. An ill-considered amendment; I’m with Big Ears on this one.

  8. The purpose of this amendment is to stop firms picking up the bill for section 166 reports which do not result in enforcement action. Its other objective is to sort out the conflict of interest that exists currently whereby the FSA orders a firm to appoint someone to find things wrong about itself.

    Firms complain about the over-use of section 166 reports and the costs implications involved and when a proposal comes along designed to solve the problem and only charge the guilty, one might hope for a more positive response.

  9. @Adam. People are war-weary. Against the backdrop of the litany of impositions of the FSA over the years, the reaction seen to this proposal is pretty much to be expected. What people expect is leadership and common sense. But what they’ve been handed is socialist dogma and impositions contrary to natural justice. And the FSA has the cheek to talk about treating customers fairly! They don’t know the meaning of the word.

  10. Perhaps I am misunderstanding what the MP has suggested and many of the comments left by others, but….

    1 If the FSA cannot charge the institution itself directly for a s166 piece of work, it will simply recover the cost through fees levied on all those it supervises.

    2 That might be sensible if s166s were used just when the FSA thinks there is wrong doing and is thinking of referring the institution to its enforcement unit – in other words, if it is right to view a s166 that does not result in enforcement action as just part of the general supervision of firms. But that is a misreading of how s166s are used at present (as far as I can tell). There are, I understand, lots of occasions where s166 is used to sort out something very institution-specific that would not normally be passed to enforcement – why should all other institutions bear the burden of such work?

    3 Some might argue that the FSA should not be intervening if there is no expectation of the matter being passed to enforcement. However, I hope that those are not the same people who argue that the FSA was not up to the job at the time of the crisis. Unless their argument is that the FSA is still not focusing on the right things. And, if that is the case, it will be interesting to watch a sober, informed debate on that take place.

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