Data published by the FCA on Friday shows that 46% of skilled persons reports were commissioned in respect of banks and building societies in the year 2012/2013, with insurance companies, securities and futures firms, and personal investment firms respectively accounting for 15%, 12% and 10% of the reports commissioned. Because the business type is based on the FSA’s Firm Primary Category type, those firms described as “banks” and “insurance companies” are likely to be undertaking a broader range of activities than the majority of other business types represented in the table.
The table below provides an annual aggregation of the data published for Q1, Q2, Q3 and Q4 of 2012/2103:
Click here to view table.
This represents a very small increase over the 2011/2012 total of 111. The data does not reveal the total cost, which in 2011/2012 came to £31.2m for 111 reports, nor the costs per report, which ranged from £2,975 to £3m in the 2011/2012 year. This information is likely to be made available with the publication of the Annual Report. Despite the small increase in the last year, the numbers of skilled persons reports commissioned are very likely to rise under the new regulatory regime.
The Financial Services Act 2012 gives the new regulators additional powers to:
- directly appoint and contract with the skilled person (rather than simply requiring the firm to appoint) – on notice to the firm, which “will be provided with an indication of the costs expected to be incurred before the work begins”
- in case of a suspected breach of a requirement in FCA/PRA rules to maintain information, to require the appointment of, or directly appoint and contract with, the skilled person to collect and update the information.
The PRA expects to continue to make increased use of section 166 reports as a supervisory tool, particularly to cover verifications of regulatory returns or, with the SRU where appropriate, the forensic analysis required to verify resolution plans. The FCA also plans to make greater use of section 166 powers for follow-up work under the Firm Systematic Framework (new ARROW) and to support “more intrusive supervision”, but is also expected to continue to use them to support or establish findings of breach and as mitigation and remediation in response to enforcement action.
The regulators will appoint skilled persons from a two-tier (driven by EU procurement requirements) Panel which has been developed with the aim of ensuring a consistent, high quality and transparent approach to the conduct of Skilled Person Reviews. The regulatory expectation is that “the Panel will also be used where the regulated entity contracts with the Skilled Person Firm, where appropriate”, and the FCA stressed that it remains the regulated entity’s responsibility to assess the individual appropriateness of the Skilled Person Firm for their particular requirements. Members of the Panel have been assessed as competent to undertake skilled person reports in respect of one (or more) of the following areas:
- Client assets
- Governance, controls and risk management frameworks
- Conduct of business
- Data and IT infrastructure
- Financial crime
- Prudential – deposit-takers and recognised clearing houses
- Prudential – insurance
- Prudential – investment firms and recognised investment exchanges
The Panel will be effective from 1 April 2013 until 31 March 2017 and will be monitored on a regular basis. For further details from the FCA’s website, click here. The policy on the use of Skilled Persons is in SUP 5 of the combined Handbook.