Under Section 166 of the Financial Services and Markets Act 2000, the Financial Conduct Authority (FCA) has the power to obtain a report from a selected third party (a ‘skilled person’) about parts of a regulated firm's activities, if they have any concerns or perhaps require further analysis.
The FCA maintains a list of ‘approved’ skilled person firms and there are two possible methods to appointing the appropriate one to do the review. For each review, the FCA will decide which approach they believe is the most appropriate, either:
1. The firm to be reviewed may be asked to put forward their preferred choice of skilled person firm to the FCA for approval.
2. The FCA themselves will appoint the skilled person firm directly. In doing so, they will liaise with the regulated firm in respect of the appointment and will generally look at areas such as technical capabilities, resources available, conflicts of interest and commercial aspects of the skilled person firm.
The skilled person will then conduct an independent review of the regulated firm, paying particular attention to the aspects of the business that the FCA has concerns about or wishes to understand better. The skilled person will prepare a report in respect of the issues to be addressed and set out any remedial action that may be required. The FCA will receive a copy of the report and may use it to determine the ongoing supervisory relationship it has with the firm or possibly whether any enforcement action may be required.
The FCA will also generally require the regulated firm to pay the costs of the skilled person review by way of a fee, which may be substantial.
What should you do if you receive a S.166 Notice?
You will normally be aware that a Notice is being served, as generally the FCA will contact the firm that it has any concerns about to discuss them before deciding to proceed with a skilled person review. This is of course an important stage in the process and you should consider how best to respond to such contact from the FCA to hopefully avoid matters escalating. It may be that there has been a misunderstanding, which may be easily rectified or perhaps the firm itself could investigate any issues of concern and report back to the FCA. This may often include taking some remedial action to avoid matters happening again. Normally, you would look to avoid a full review, if possible.
If the review can’t be avoided, you should consider whether to nominate the skilled person directly or whether to leave it to the FCA. One of the key advantages to making the appointment directly with the skilled person is that they will provide you with a copy of their report prior to serving it on the FCA. This is of course an opportunity to make any comments upon the report before it reaches the FCA. However, if the FCA appoints the firm, then this opportunity is lost, as they receive the report directly from them.
It is of course sensible to consider engaging someone with knowledge and experience of FCA processes, so that you may be guided through the S.166 Notice procedure to hopefully reach the best result. They may also advise on the best ways to rectify any issues of concern and how to prepare for the actual review. Similarly, they may be involved in discussions with the FCA and assist with any comments upon the final report.
Solicitor Andrew Swan commented: “A S.166 Notice is an intimidating intervention by the FCA and not to be taken lightly, it can have a profound effect on any business. I would always recommend that any company which receives a notice should take proper legal advice as early as possible in the process”.
For more information, please contact Andrew at andrew@andrewswanlaw.co.uk or on tel: 07907 308773.