FSMA S166 Skilled Persons Report

8/12/2019 FSMA S166 Skilled Persons Report

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A Guide for Senior Management to Stay On-Track



“… is like a car crash in slow motion, the righcompliance consultant is your ABS brakes.You don’t know where you will end up but aleast you can steer through it!”

Tony Woodward

Chartered Fellow of the CISI



S166 Reports are often required by the

regulator on a single or sometimes multiple

subjects where they feel that the regulated

firm may have shortcomings or failings.



Tony Woodward, a former CEO of a city firm explains;

“Between November 2007 and June 2008 the City stock broking firm that I

presided over as CEO was visited by the FSA. What followed was a strongattack by the regulator using a section 166, which cost in excess of£500,000 to defend and an immeasurable cost in lost management time,staff time and productivity. During this period the venom of the attack wasat times unfathomable, we engaged experts who in turn had ex-FSA staffwho seemed to be as stumped as we were about the regulator’s concernsand objectives.”



Tony goes on to say, “Senior Management in regulated firms typic

believe they are doing the right thing and that they can explain to

FSA why they do certain things and they will understand, they are

highly mistaken. I do not work as a compliance consultant, I work

senior managers on a peer-to-peer basis, sharing real life experien

underline the genuinely valuable and rare advice I impart. I fully

understand and communicate to senior management how the FSA

want to see financial firms run and, in a macro view, the organisat

structures required to run effective compliance without creating

enormous compliance departments which drag on profitability.”



A key part of the process is a Section 165 which is a written notice for

specified documentation to be provided to the FCA for their assessment

and review. This will sometimes provide you with an idea of what they

are looking for.

Tip 1 You should get your files reviewed, preferably independently by

Compliance Consultant at the same time, so as to prepare your firm for

whatever may follow; which on occasions is nothing.



Reality Check – There is no smoke without fire

The Section 166 also has to be in writing and may, or maynot carry with it a Draft Requirement Notice. This noticesets out the skilled person requirements; scope of thereport, considerations regarding calculating recompenseand redress if required and provide an inkling as to thepurpose, if you read between the lines.



Tip 2 Compliance Consultant should be engaged to help you rbetween the lines. FCA code needs to be deciphered by a consultant experienthe workings of the FCA.

Reality Check - You may not know what FCA are driving at: it may not be whthink.

Tip 3 Too often, advisers see this demand by the regulator as a personal slightagainst them or their firm, the advice or the way their customer’s have

been treated.



If the discussions with the FCA have been focussed on the removal of yo

permissions, then there will likely be advice issues. If threats have been

forthcoming regarding your continued trading as a whole, then there are

to be advice issues. However, if they have reviewed some files and have afor a sample to be reviewed by the “Skilled Person” as the subject of the

report, it is more than likely that there are systems and controls worries,

processes and procedures are not being followed either at all or consisten

one or more of your staff.



You would also have been expected to have picked this up for yourself wiongoing monitoring plan. Areas that need reinforcement are not always oto firm’s management and often needs independent views on systems ancontrols.

Tip 4 Money spent on ensuring you are compliant, asking ComplianceConsultant to conduct a Compliance Health-Check now is a small fraof the costs of a S166.

Reality Check - During a S166, the FCA can summon your S166 consultanand/or your auditor to attend their offices at your cost, whenever they w



In 2008/2009 there were 56 Section 166 Reports completed costing a

total of £12,800,000. In 2010 -2011 the FSA ordered 95 FSMA S166

Skilled Person Reports for over £32.2M.

In 2012/13 year there were 113 S166 requests made and, costs rangedfrom £6,475 to £40m, up by 465%, with the average cost in excess of

£1.56M each. Compare this to 2005/2006 when 18 reports were

completed and you will see the average number of cases and the costs

have escalated, mainly due to the big consultancies charging into the

area with their large teams of analysts and managers and partners.



Does the FSA have the right to appoint the big accountancy firms? The sim

answer is yes. Under S166 of FSMA 2000, the FSA can then nominate a pe

make a report who, in the authority’s view, has the skills necessary to ma

on the matter concerned. Since April 2013 they now have a panel of firm

carry out this work.

This will mean that the costs are likely to be higher than before, but this c

reduced considerably if you engage Compliance Consultant to carry out p

Preparation Planning with your firm. By having the right material ready

For the S166 Auditor, you can save tens of thousands of pounds.



Tip 5 The first thing that you need to do is issue a companywide

document preservation order, this ensures that everyone knows

not to conceal, delete, destroy, shred or in any way dispose of

any document as these may help you in your new circumstances.

Reality check - Under FSMA Section 177 it can be a criminal

offence if a person destroys any documents suspecting an

investigation.



There are several points to consider here, when preparing your list of Skilled Perso

• Does the Consultancy have the right experience and skill set available? There isa consultancy that has exclusively dealt with mortgage brokers or stockbrokers,firm.

•

Is the Consultancy staffed by adequately qualified people with broad professioexperience to provide a balanced view point?

• Is the Consultancy familiar with the FSA and their ways of working?

• Do they have the capacity to ramp up quickly if the FSA change the scope to rebased S166 for larger samples of cases or a more detailed analysis of your systecontrols?

• Are they committed to professionalism, quality and accurate representation?



You only get a one chance with this. Do not treat the

bidding process like a car insurance quote. The cheapest is

just that, cheap and with no frills. Quite often single

consultant deals can be dangerous if their views are

jaundiced for some reasons or focussed in one particulararea. Without a sanity check of an external person they

could be inadvertently wandering off scope or not have

the support to reinforce their conclusions.



Tip 6 The FCA have appointed a panel of

respected and competent firms to act on

their behalf. These are the larger

consultancies that normally perform audit

and past business review work. This is a

more expensive but less time consuming

exercise than pre FCA.



Compliance Consultant are experienced, skille

flexible. They always have a Quality Assurance and Pr

Oversight who provides this sounding board and indeviewpoint.



What happens when you get your allocated audit firm? Nobody lik

strangers poking about in their affairs for too long. You need to be

for some uncomfortable news, but do not see it as a fight or justif

exercise, the auditors are there to obtain facts and evidence.To do this work correctly, the files, systems and controls, policies a

governance, TCF or whatever aspect of review has been instructed

be done properly for your own sake.

Good preparation by Compliance Consultant can save you £££’s



Sit down and consider what would happen if you were new to your firm;

• How long would you want to understand the actual role you are going

to perform, with all the parameters, guidelines and limitations?

•

How long would you want to read the company policies and compliancemanual?

• How long would it take you to write a report on ten or twenty files,

meticulously reviewed and appraised, ensuring all the evidence is noted

and identified?



• How long would it take to review that number of files properly, in deta

objectively and commercially?

• Would you consider it fair to prevent the firm from adding in their resp

the report?• How long would you like to spend on your report making sure that it f

represents the evidence you have seen and taken into account the ho

of each case?



Any external consultant who proposes to review more

differing and varied cases per day (or 2 pension cases) f

cold start, is misleading you or selling you short and ma

uninformed decisions and conclusions that are sent to

FCA on your behalf. What value is your business worth

over the next 12 months, five or even ten years?



Tip 7 It is worth getting a thorough and professional job done while you h

chance, the cost of FCA scrutiny, defending your firm with appointed aud

lawyers the cost of fines or loss of livelihood is exponentially greater.

Reality check - After all, we are aware that if you choose well or choose

may only have one chance at this.



Price should be viewed in the round. If FSA decide you are guilty they

will ask for your costs in conducting the s166 and keep this in mind

when assessing the necessity for fines or the severity of fines. Therefore

often a high cost of the s166 can mean a reduction in ultimate fine; the

true cost of each purchasing decision will show itself over time. Cost

issues continue to present themselves over the useful life of the product

or service purchased, long after the purchase was actually made. If a

report becomes long standing company history, the cost is minimal: if

the company does not last the course, the cost far exceeds the price.



We do not keep staff around in case of suitable work and deploy them whthe need arises, we only use experienced and qualified compliance staff tspecific to the project needs.

There will only be the required people working on the report that needs t

at any one time this focused approach keeps the cost to your firm at the lrequired and nothing else.

Quality Assurance is always carried out independently and we will assist ythe details when you are invited to provide management responses to th

findings.



Once you appoint us, we will discuss with you and the FCA the scope of thyou face and iron out any anomalies and wrinkles. It has been known for tto get mixed up. We will identify the initial documents required as best weany preparations for the additional resource we may need to allocate so twork immediately on day 1 to conduct their part of the work efficiently anpreparation for the S166 auditors.

Reality check - Compliance Consultant Consultants will always conduct asystems and controls before accepting you as a client (obviously an excepexercise) and will provide you with recommendations for improvements



“ Had I had the guidance of an expert, with the experience I now have to

company and our board would have saved hundreds of thousands in cos

similar amount in lost productivity and we would have reduced our pers

corporate risk.”



We have published EBooks to help UK Authorised firms in Compliance

and Risk areas. Our Compliance Managers Guidebook and Reference

Manual suits any small or medium sized enterprise.

Our Analysis & Risk Management System (ARMS™)Book is also targeted at small and medium sizedenterprises helping them identify and evaluate, testand report their risks in accordance with FSAHandbook SYSC 4.1.1R



Compliance Co

Call (UK) 07801

(Int) +44 7092

www.complianceconsultant.org

FSMA S166 Skilled Persons Report

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