Most banks operating in the UK will be aware of the regulators’ box of supervisory tools, especially the one described under section 166 (S166) of the Financial Services and Markets Act (FSMA 2000) that gives the FCA and PRA the power to commission reports by “Skilled Persons” in order to obtain an independent view of any aspect of a firm’s activities.
This investigation, commonly referred to as a S166, is carried out at the expense of the firm, but on behalf of the regulator and almost always results in a comprehensive list of findings and requirements, which will undoubtedly result in some remediation action.
Regulatory supervision can quickly become intrusive oversight and then intervention. This will clearly have an impact on a firm’s ability to carry out its business as usual, as senior management and key staff are removed from their daily jobs to respond to the demands of the regulator.
The FCA recently reported that the number of S166 reviews it commissioned had increased by 68% from year 2018/19 to 2019/2020; with 24 being commissioned within the first 4 month of 2020. This clearly shows an increased appetite of oversight and potential enforcement by the regulator. The area (or “lot”) which has had the most skilled person reviews commissioned is financial crime.
With the costs of a S166 spiralling (the average cost of a review is reported to be c.£3m), firms will want to do all they can to avoid losing control when the supervisor calls.