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Status: You are viewing the version of the handbook as on 2009-03-31.

SUP 5.3 Policy on the use of skilled persons

SUP 5.3.1GRP

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

  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 Annex 1 gives examples of circumstances in which the FSA may use the skilled persons tool.

SUP 5.3.2GRP

The decision to require a report by a skilled person will 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 FSA or part of the FSA's regular monitoring of a firm4.

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SUP 5.3.3GRP

When making the decision to require a report by a skilled person, the FSA will have regard, on a case-by-case basis, to all relevant factors. Those are likely to include:

  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 FSA's enquiries;

  5. (5)

    cost considerations; and

  6. (6)

    considerations relating to FSA resources.

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

Circumstances relating to the firm

SUP 5.3.4GRP

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

  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 FSA has confidence that the firm has the ability to provide the required information;

  4. (4)

    objectivity: whether the FSA 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 FSA to rely on the firm itself to enquire into the matter; and

  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 5.3.5GRP

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

  1. (1)

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

  2. (2)

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

  3. (3)

    appointing investigators to carry out general investigations under section 167 of the Act (Appointment of persons to carry out general investigations) (see EG 32 for the FSA's 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 persons to carry out investigations in particular cases) (see EG 32 for the FSA's policy on the use of this power).

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Legal and procedural considerations

SUP 5.3.6GRP

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

  1. (1)

    statutory powers: whether one of the other available statutory powers is more appropriate for the purpose than the power in section 166 of the Act (Reports by skilled persons);

  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 Handbookrules: 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 person to report specified matters to the FSA.

The objectives of the FSA's enquiries

SUP 5.3.7GRP

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

  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 FSA's information gathering and investigation powers under sections 165 (Authority's power to require information), 167 (Appointment of persons to carry out general investigations) and 168 (Appointment of persons to carry out investigations in particular cases) of the Act are likely to be more appropriate than the section 166 power (Reports by skilled persons); and

  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 FSA's other available powers.

Cost considerations

SUP 5.3.8GRP

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

  1. (1)

    if the FSA uses the section 166 power (Reports by skilled persons) the firm will appoint, and will have to pay for the services of, the skilled person;

  2. (2)

    if the FSA 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 FSA's general fee scheme.

SUP 5.3.9GRP

In having regard to the cost implications of using the section 166 power (Reports by skilled persons) alternative options (such as visits) or other powers, the FSA will take into account relevant factors, including:

  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 FSA considers that it cannot rely on the firm to do so; and

  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 FSA resources

SUP 5.3.10GRP

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

  1. (1)

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

  2. (2)

    FSA resources: whether the resources required to produce a report or to make enquiries are available within the FSA, or whether the exercise will be the best use of the FSA's resources at the time.