Section 166 of the UK Financial Service & Markets Act 2000 gives the Financial Conduct Authority (FCA) the power to make a regulated financial institution commission an independent report by a Skilled Person into an area of concern or perceived risk. The skilled person may be appointed under s.166 of the Act to report on the adequacy of a firms AML systems and controls.
Anyone who’s been subject to a skilled person review will tell you it is not to be taken lightly. From receiving the draft requirements notice to completion of the remediation actions and demonstrating sustainability, the process has to be carefully managed.
Understanding the challenges presented within each stage of a section 166 engagement will enable you to stay in control. The outcome of the review will have a lasting effect. Taking positive steps to not leave anything to chance will pay off in the long run.
Before informing the firm that it intends to use section 166, the regulator would have been through approximately 6 internal process steps. The firm will usually be notified with a call to the CEO, stating the intention to use the powers under s166. This will shortly be followed by the draft requirements notice.
The requirements notice won’t be finalised until after the skilled person has been selected. Once the skilled person has been selected however, there will be an opportunity to discuss the scope. This usually happens through a tripartite meeting between the firm, skilled person and the regulator.
The investigation may start with a request for information that will be reviewed off site.
Once the skilled person has begun their fieldwork, do not assume it is out of your hands. Working closely and proactively with the Skilled Person is extremely important.
Once the review is complete, the skilled person’s report will be shared with the firm and the regulator simultaneously.
There is a two-week period for firms to review and challenge any factual inaccuracies in the report and you can advise on further progress you have made since the evidence was gathered. You cannot challenge the recommendations.
The regulator will take some time to consider the findings.
Many Skilled Person reviews now include a Stage 2 review that takes place six months after the Stage 1 review. This is for the regulator to obtain assurance that the firm has addressed the points sufficiently and has actually done what they say they’ve done.
The Skilled Person will look not only for evidence of completion, but that the solutions implemented are embedded and sustainable.
Section 166 and Enforcement actions are continuing to increase; there are new powers to harness parent companies who fetter the autonomy of their UK regulated subsidiaries. Judgement based supervision has taken shape and firms are under more pressure.
Lysis Financial can help our customers by doing a pre-S166 review, supporting the firm through the review itself or by helping to design, manage and execute a S166 remediation programme.
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