The Financial Conduct Authority has rejected criticism of its use of controversial ‘skilled person’ reports which require firms to pay for a review into their own practices, after receiving a number of complaints from the industry in response to a transparency paper published in March.
Feedback revealed that the industry wanted to know more about the FCA’s use of so-called ‘section 166’ reviews, in particular how the FCA decides to commission a review and the evidence used in making this decision, as well as the outcomes of investigations.
Skilled person reports become a bone of contention last year after conservative MP Mark Field raised a parliamentary question on their use as data showed that 95 reviews requested in the 2010/2011 financial year had cost the industry £32m.
The Financial Services Authority ramped up their use again in its last year, requesting 113 such reviews.
Fears were heightened that their use would explode after the FCA confirmed new powers to contract skilled persons on behalf of a firm under its ‘own initiative’ in an expansion of the scheme. However, data for the first three months of its operation show the run-rate of reviews has actually slowed.
The FCA said in a transparency paper published today (6 August) that it cannot publish more information on section 166 reviews as they are firm specific and therefore any information would be too sensitive and, in any case, too “general” to be useful.
The FCA said: “We also believe this information, even in aggregate, would be of little value given the specific nature of each review and each firm’s circumstances.
“In a similar way, the outcomes of reviews vary in each case and we cannot publish the outcomes of individual cases due to confidentiality restrictions. We think publishing a report on aggregate outcomes would provide very little insight.”
The FCA defended the use of the reviews, stating that it believes it is a more efficient use of its “limited supervisory resource” to require firms to commission and pay for the S166 review of areas of concern.
The regulator said if it were to use its own staff to carry out these reviews the cost would be borne across the whole industry, “which we do not believe is a fair and equitable use of our limited resources”.
The FCA said: “We cannot predict on an annual basis, how many reviews will be required as they are driven by practices and behaviours we find in firms. We identify the need to commission a review through our ongoing work with firms and we will only use this tool where we have been given cause to do so.”
