The Financial Conduct Authority has released an update on the Skilled Person Reviews under Section 166 of the Financial Services and Market Act 2000 conducted in Q1 of 2022. The S166s are one of the FCA’s regulatory powers to perform their oversight over regulated firms. Firms should be aware that the FCA increased the use of this tool in the last 24 months, in particular within the banking and payments sector.
What are the Skilled Person Reviews?
The Skilled Person Reviews come under the Financial Services and Markets Act and allow the FCA to “obtain a view from a third party”, aka a skilled person to review aspects of a financial firm’s activities as it pertains to FCA regulation. This skilled person will flag up issues that might cause the FCA concern and put them forward for further analysis.
The FCA appoints these skilled persons in two ways. The first is by approval of a skilled person put forward by the financial firm, and the second is that the FCA will appoint a skilled person from a skilled person firm. The second approach will involve dialogue with the regulated firm in question and review and processes to identify the most suitable skilled person for the role. The review of the skilled persons will take into account technical capabilities, available resources, conflicts of interest and commercial aspects.
However, where financial firms are bound to feel disgruntled is that in either case, the FCA will require the firm in question to pay the costs of the skilled person and, more importantly, it will require full cooperation from the firm in question, “including providing all reasonable assistance to any skilled person appointed to provide a report”, according to the FCA.
The Skilled Person Panel
The FCA has developed a Skilled Person Panel, which can be found on the FCA website. The collection of panel members is split into 12 “lots”, which cover different issues in financial compliance. The 12 lots are made up of Client Assets; Governance, Accountability, Strategy and Culture; Controls and Risk Management Frameworks; Conduct of Business; Financial Crime; Prudential – Deposit takers, recognised clearing houses, Central Securities Depositories and PRA-designated Investment Firms; Prudential – Insurance; Prudential l – Adequate Financial Resources for FCA solo-regulated firms; Technology and Information Management; CBEST Threat Intelligence; CBEST Penetration Testing; and Credit Rating Agencies.
The purpose of a skilled person review comes in four ways: to identify, assess and measure risks, for monitoring purposes, like tracking the development of identified risks, for the purpose of preventative action, and to respond when developing risks have solidified.
What are the updates?
Lately, the number of commissions for skilled person reviews of financial firms has gone down, which is indicated in the FCA’s quarterly reviews. However, what the FCA is focussing on most has been consistently reflected in their annual reviews. For example, there were only 38 commissioned skilled person-reviewed cases in the 2021/22 financial year, but eight of them were retail banking and payments. In the 2020/21 financial year, there were 68 cases and retail banking and payments were the most reported problem with 17 cases. And the trend appears to keep going into the 2022/23 financial year as the first quarterly report outlines 9 cases so far, with, again, the most being around retail banking and payments.
Retail banking and payments are clearly on the FCA’s radar when it comes to using their supervisory powers via skilled person reviews, so it’s important that any financial firm should pay special attention to their retail banking and payments operations to ensure compliance.
It’s also worth noting that a lot of firms that were initially processed with a Skilled Person Report in 2020 are still going through the review, demonstrating the effect the reviews have on financial businesses and the disgruntlement of financial firm operators.
What should firms do?
It is imperative that financial firms should make sure that their compliance and regulatory operations are up to scratch. Neopay can help with this by performing regular audits to highlight any gaps and provide recommendations.
Firms might also want to turn their compliance consultants onto any retail banking and payment options they have in their firm to ensure that everything is as it should be according to regulators like the FCA and avoid any negative consequences of failing a skilled person review.