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SUP 5.3 Policy on the use of skilled persons

SUP 5.3.1G

The appointment of a skilled person to produce a report under section 166 of the Act (Reports by skilled persons) is one of the FCA's5 regulatory tools. The tool may be used:

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  1. (1)

    for diagnostic purposes, to identify, assess and measure risks;

  2. (2)

    for monitoring purposes, to track the development of identified risks, wherever these arise;

  3. (3)

    in the context of preventative action, to limit or reduce identified risks and so prevent them from crystallising or increasing; and

  4. (4)

    for remedial action, to respond to risks when they have crystallised.

SUP 5.3.1AG

6SUP 5 Annex 1 gives examples of circumstances in which the FCA may use the skilled persons tool.

SUP 5.3.2G

The decision by the FCA5 to require a report by a skilled person under section 166 of the Act5 (Reports by skilled persons) 6will normally be prompted by a specific requirement for information, analysis of information, assessment of a situation,4 expert advice or recommendations or by a decision to seek assurance in relation to a regulatory return4. It may4 be part of the risk mitigation programme applicable to a firm, or the result of an event or development relating or relevant to a firm, prompted by a need for verification of information provided to the FCA5 or part of the FCA's5 regular monitoring of a firm4.

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SUP 5.3.2AG

6The decision by the FCA5 to require the collection or updating of information by a skilled person under section 166A of the Act (Appointment of skilled person to collect and update information) will be prompted where the FCA5 considers there has been a breach of a requirement by a firm to collect, and keep up to date, information of a description specified in the FCA's5 rules.

SUP 5.3.3G

When making the decision to require a report by a skilled person under section 166 (Reports by skilled persons) or the collection or updating of information by a skilled person under section 166A (Appointment of skilled person to collect and update information) of the Act, the FCA5 will have regard, on a case-by-case basis, to all relevant factors. Those are likely to include:

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  1. (1)

    circumstances relating to the firm;

  2. (2)

    alternative tools available, including other statutory powers;

  3. (3)

    legal and procedural considerations;

  4. (4)

    the objectives of the FCA's5 enquiries;

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  5. (5)

    cost considerations; and

  6. (6)

    considerations relating to the FCA’s5 resources.

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SUP 5.3.4 G to SUP 5.3.10 G give further guidance on these listed factors.

Circumstances relating to the firm

SUP 5.3.4G

The FCA5 will have regard to circumstances relating to the firm, for example:

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  1. (1)

    attitude of the firm: whether the firm is being cooperative;

  2. (2)

    history of similar issues: whether similar issues have arisen in the past and, if so, whether timely corrective action was taken;

  3. (3)

    quality of a firm's systems and records: whether the FCA5 has confidence that the firm has the ability to provide the required information;

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  4. (4)

    objectivity: whether the FCA5 has confidence in the firm's willingness and ability to deliver an objective report;

  5. (5)

    conflicts of interest: whether the subject matter of the enquiries or the report involves actual or potential misconduct and it would be inappropriate for the FCA5 to rely on the firm itself to enquire into the matter; and

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  6. (6)

    knowledge or expertise available to the firm: whether it would be appropriate to involve a third party with the required technical expertise.

Alternative tools available, including other statutory powers

SUP 5.3.5G

The FCA5 will have regard to alternative tools that may be available, including for example:

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  1. (1)

    obtaining what is required without using specific statutory powers (for example, by a visit by staff5 of the FCA5 or a request for information on an informal basis);

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  2. (2)

    requiring information from firms and others, including authorising an agent to require information, under section 165 of the Act (Power6 to require information);

    6
  3. (3)

    appointing investigators to carry out general investigations under section 167 of the Act (Appointment of investigator in general cases)6 (see EG 32 for the FCA5 policy on the use of this power); and

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  4. (4)

    appointing investigators to carry out investigations in particular cases under section 168 of the Act (Appointment of investigator in specific cases) (see EG 32 for the FCA's5 policy on the use of this power).

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Legal and procedural considerations

SUP 5.3.6G

The FCA5 will have regard to legal and procedural considerations including:

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  1. (1)

    statutory powers: whether one of the other available statutory powers is more appropriate for the purpose than the power in section 166 (Reports by skilled persons) or section 166A (Appointment of skilled person to collect and update information) of the Act;6

    6
  2. (2)

    subsequent proceedings: whether it is desirable to obtain an authoritative and independent report for use in any subsequent proceedings; and

  3. (3)

    application of the Handbook rules5: whether it is important that the relevant rules in the Handbook should apply, for example SUP 5.5.1 R which obliges the firm to require and permit the skilled person6 to report specified matters to the FCA5.

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The objectives of the FCA’s enquiries66

SUP 5.3.7G

The FCA5 will have regard to the objectives of its enquiries, and the relative effectiveness of its available powers to achieve those objectives. For example:

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  1. (1)

    historic information or evidence: if the objectives are limited to gathering historic information, or evidence for determining whether enforcement action may be appropriate, the FCA's5 information gathering and investigation powers under sections 165 (Power to require information), 167 (Appointment of investigator in general cases) and 168 (Appointment of investigator in specific cases) of the Act are likely to be more appropriate than the power in section 166 (Reports by skilled persons) or section 166A (Appointment of skilled person to collect and update information) of the Act; and6

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  2. (2)

    expert analysis or recommendations: if the objectives include obtaining expert analysis or recommendations (or both) for diagnostic, monitoring, preventative or remedial purposes, the section 166 power (Reports by skilled persons) may be an appropriate power to use, instead of, or in conjunction with, the FCA's5 other available powers.

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Cost considerations

SUP 5.3.8G

In accordance with its general policy the FCA5 will have regard to the question of cost, which is particularly pertinent in relation to skilled persons because:

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  1. (1)

    if the FCA5 uses the section 166 power (Reports by skilled persons) or the section 166A power (Appointment of skilled person to collect and update information), either 6the firm will appoint, and will have to pay for the services of, the skilled person, or the FCA5 will appoint, and will require under FEES 3.2.7 R (zp) or FEES 3.2.7 R (zq) that the relevant firm pays for the services of, the skilled person6;

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  2. (2)

    if the FCA5 uses its other information gathering and investigation powers, it will either authorise or appoint its own staff to undertake the information gathering or investigation (or both), or it will pay for the services of external competent persons to do so; in either case the costs will be recovered under the FCA's5 general fee scheme.

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SUP 5.3.9G

In having regard to the cost implications of using the section 166 power (Reports by skilled persons) or the section 166A power (Appointment of skilled person to collect and update information) 6alternative options (such as visits) or other powers, the FCA5 will take into account relevant factors, including:

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  1. (1)

    whether the firm may derive some benefit from the work carried out and recommendations made by the skilled person, for instance a better understanding of its business and its risk profile, or the operation of its information systems, or improvements to its systems and controls;

  2. (2)

    whether the work to be carried out by the skilled person is work that should reasonably have been carried out by the firm, or by persons instructed by the firm on its own initiative; for instance a compliance review or the development of new systems;

  3. (3)

    whether the firm's record-keeping and management information systems are poor and:

    1. (a)

      the required information and documents are not readily available; or

    2. (b)

      an analysis of the required information cannot readily be performed without expert assistance;

  4. (4)

    whether the firm appears to have breached requirements or standards under the regulatory system or otherwise put the interests of consumers at risk, and it is unable or unwilling to review and remedy the matters of concern, or the FCA5 considers that it cannot rely on the firm to do so; and

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  5. (5)

    the perceived probability and seriousness of possible breaches of regulatory requirements and the possible need for further action.

SUP 5.3.9AG

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Considerations relating to FCA resources66

SUP 5.3.10G

The FCA5 will have regard to FCA5-related considerations including:

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  1. (1)

    FCA5 expertise: whether the FCA5 has the necessary expertise; and

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  2. (2)

    FCA5 resources: whether the resources required to produce a report or to make enquiries or to appoint a skilled person itself6 are available within the FCA5, or whether the exercise will be the best use of the FCA's5 resources at the time.

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