Skilled Persons Reports
(Section 166 Reports)

Introduction

Skilled Persons Reports (SPRs) are also known as Section 166 Reports. The name comes from that part of the Financial Services and Markets Act, 2000 which gives the FSA the authority to request firms to seek specialist assistance.

Accord Consultancy Ltd is one of the very few bespoke Compliance Consultancies to have been previously appointed by The Financial Services Authority to carry out Section 166 Skilled Persons Reports.

Skilled Persons Reports are most often required as the result of an FSA visit to a firm. They are
used to find out what further regulatory action may be needed and to see if there has been a
breach of a rule or any failure of the firm's systems and controls; particularly where customer
detriment is suspected.

The FSA may appoint a Skilled Person to produce a Report on a regulated firm
To identify, assess and measure the risks it has identified itself
To report and monitor the identified risks
To suggest preventative action
To propose any remedial action including any customer redress

The Reports may be part of a FSA disciplinary process or enforcement action. A firm will have
had a FSA visit to review its conduct in matters such as quality of advice and treating customers fairly. This is followed by a Risk Assessment Letter from the FSA setting out any concerns. One outcome is that the firm may be required to carry out an independent review requiring the appointment of a Skilled Person.

As part of the FSA process it is important that the firm is seen
To have a co-operative approach
To have systems and records which provide the required information
To be willing to provide the Skilled Persons Report
To have the knowledge or expertise to work with the Skilled Person to provide the report

How we can help
The FSA will want to outsource this work to consultants who are employed by the regulated firm, to act on behalf of the FSA during the investigation. Accord Consultancy are specialist consultants for IFA Sector, mortgage and general insurance brokers and uniquely consists of professionals who have occupied senior management, advisory and regulatory positions within these sectors.

Our Compliance service is able to provide the reassurance that any Report is carried out
not only by a person who understands IFA business, mortgages and general insurance but by someone who has spent years working in those sectors. This is critically important where a detailed understanding of pension/investment/mortgage and general insurance products is needed to assess any customer detriment and redress.

FSA policy for Skilled Persons Reports
The detailed rules are set out in the FSA Handbook and SUP 5.5.1 describe the required
contractual arrangements between the firm and the Skilled Person. The firm will be asked to
nominate a Skilled Person subject to the conditions in the FSA's enforcement letter.

These are some of the contractual requirements of the Skilled Person
To be qualified and experienced
To be insured
To co-operate and communicate
To notify any rule contraventions
To supply materially significant information
To notify any risk of the firm ceasing to be a going concern
To agree an exchange of confidential information
To have a co-operative approach

At all times the firm must provide reasonable assistance to the Skilled Person.
During the process the FSA has other powers it could seek to impose under FSMA, sections
165,167 and 168. These allow the FSA to seek information or to carry out further general or
specific investigations. This is likely to happen where problems are identified which were not part of the original FSA risk concerns. Such work may be outsourced by the FSA to the Skilled Person.

The nominated Skilled Person has to be approved by the FSA and is further required to provide
Interim reports
Copies of source data, documents and working papers
Copies of draft reports given to the firm
Detailed planning and progress reports
And where a problem has been identified the Skilled Person will be asked to propose the
amount of customer redress.

Cost
The cost of a Section 166 Report is paid by the firm to the Skilled Person as the FSA will have
decided that a firm will benefit from this Report having explored other courses of action. The FSA will have agreed with the firm the scope of the Report, its likely cost and the identity of the Skilled Person. Other FSMA reports are paid for by the FSA.

Outcomes of the Report
These are likely to fall into two categories. Firstly there is likely to be remedial action to be
carried out by the firm to its systems and controls which will reduce its exposure to risk. Secondly there may be a requirement for the Skilled Person to consider customer detriment, to agree redress and to communicate with the firm's customers.

For further information contact

Bob McKie
Accord Consultancy Ltd
4th Floor, Pera Innovation Park
Melton Mowbray
Leics
LE13 0PB

Tel: 01664 503780.         Fax: 01664 565806.     email: bob@accordconsultancy.co.uk.