Protect Association Meeting FCA s 166 Skilled Person

Protect Association Meeting FCA s 166 Skilled Person Reviews 4 March 2016 Mark Davies Associate Director Financial Services Group T: 020 7865 2134 E: mark. j. davies@uk. gt. com

Agenda s 166 Skilled Person Reviews – overview and 01 statistics 02 Reviews in practice 03 What happens after the Review? 04 Q&A © 2016 Grant Thornton UK LLP. All rights reserved. 2

What is a Skilled Person Review? • one of the regulatory tools the FCA can employ under the Financial Services and Markets Act (FSMA) as amended by the 2012 Act • allows the FCA and the firm to obtain an independent view of aspects of the firm's activities that cause concern or require further analysis • Section 166 of FSMA gives the FCA the power to commission two types of reviews by Skilled Persons as required: – s 166 Reports by Skilled Persons; and/or – s 166 A Appointment of Skilled Person to collect and update information • since 2012 the FCA has powers to contract directly with the Skilled Person, but the firm pays the cost of the review • the FCA operates a panel of Skilled Persons. © 2016 Grant Thornton UK LLP. All rights reserved. 3

What is the purpose of a Skilled Person Review? 1. diagnostic - identify, assess and measure risks 2. monitoring - track the development of identified risks, wherever these arise 3. preventative action to limit or reduce identified risks and so prevent them from crystallising or increasing 4. remedial action to respond to risks when they have crystallised © 2016 Grant Thornton UK LLP. All rights reserved. 4

s 166 Skilled Person reviews – numbers* Reduction in numbers Q 3 2015/16 – what does this tell us? Source: http: //www. fca. org. uk/about/what/regulating/how-we-supervise-firms/reports-by-skilled-persons © 2016 Grant Thornton UK LLP. All rights reserved. * 5

s 166 Skilled Person reviews - topics © 2016 Grant Thornton UK LLP. All rights reserved. 6

s 166 Skilled Person reviews by firm classification © 2016 Grant Thornton UK LLP. All rights reserved. 7

How could I get one? Regulated firms have three supervisory touch-points: • proactive supervisory risk assessment • reactive supervision – visit provoked by intelligence • thematic work. © 2016 Grant Thornton UK LLP. All rights reserved. 8

Warning signs - examples of where the FCA may consider the Skilled Person tool • • • poor management, governance and culture ineffective three lines of defence (individually and collectively) failure to protect client money and assets poor sales practices (mis-selling, objection handling etc) remuneration structures where incentives drive behaviour that is not in customers' interests ineffective/inconsistent training and competence regime barriers to claim/complain ineffective (or no) approach to identify potential customer vulnerability poor record keeping, systems and controls oversight and control of Appointed Representatives © 2016 Grant Thornton UK LLP. All rights reserved. • • ineffective product design oversight, management and control of outsourced arrangements (DUA and claims) conflicts of interest identified but not managed transparency, disclosure and conflicts of interest (inc profit commission, volume overriders, profit share etc) to oversee and report on remedial action plan financial crime – fraud, AML, anti-bribery and corruption, third party payments limited customer utility, customer understanding and poor 'value measures' performance (declined claims, loss ratio) a change of circumstances e. g. proposed entry into new business area, new control structure, merger etc 9

s 166 Skilled Person Review – basic process Requirement notice sent in writing – requiring firm to provide report by Skilled Person or notifying of appointment Includes: purpose of report or collecting/updating of information, scope, timetable for completion, report format and other relevant matters © 2016 Grant Thornton UK LLP. All rights reserved. Discussion of regulator's requirements and reasons before finalising decision to require report (or updating/collection of information) Appointment of Skilled Person – FCA seeks to agree in advance and uses tender process where appropriate to identify the most suitable skilled person Review and reporting by Skilled Person with updates to the FCA where appropriate. Firm is given opportunity to provide written comments on the report before submission to the FCA Includes: an assessment of technical capabilities, resources available, and potential conflicts of interest 10

Effectiveness of s 166 Skilled Person Review The FCA considers Reviews are most effective where: • they include regular communication with FCA • the Skilled Person provider demonstrates independent, robust challenge • Reports clearly identify issues and explicitly reference the Requirement Notice • Skilled Person demonstrates expertise and value add from the outset © 2016 Grant Thornton UK LLP. All rights reserved. 11

Potential post-review activities • • • implement Skilled Person recommendations customer contact/remediation Internal Audit or third party assurance review attestation lessons learned – root causes not symptoms © 2016 Grant Thornton UK LLP. All rights reserved. 12

Enforcement • repeat behaviour - firm and individual (Approved Persons) reaction and failure to cooperate • behaviour and standards in broader financial market relevant to FCA strategic priority, widespread behaviour, related to poor conduct or governance • very serious breaches - undermines public confidence, (potential) harm to customers, market integrity or competition • need to remove wrong-doers from the industry or impose other restrictions – not 'fit and proper' © 2016 Grant Thornton UK LLP. All rights reserved. 13