Regulatory Skilled Person Reports
Introduction
Skilled Person Reports is one tool available to financial services regulators to fulfill their regulatory objectives, which include protecting customers and maintaining market integrity. These reports are used to investigate specific risks or concerns within regulated firms by engaging independent experts to provide an objective assessment of the circumstances.
In the UK, the Financial Conduct Authority (“FCA”) made 47 S.166 Skilled Persons Requests through the year end March 2023 (up from thirty-eight the previous year). During the same period, FCA authorised firms under S.166 reviews incurred combined costs of GBP 35.1 million (FCA Annual Report and Accounts 22/23). This reflects the increasing reliance on Skilled Person reports by the regulator to address potential risks in financial services firms.
The team at Reg Wise have experience being approved and appointed as a Skilled Person. This article summarises what Skilled Person reports are, and the process involved.
What are Skilled Person Reports
Regulators reserve the power within legislation to mandate a Person to provide information or documents or appoint a Skilled Person to provide the regulator with a Report. Within the Abu Dhabi Global Market’s Financial Services Markets Regulations (2015), this requirement is detailed in section 203.
The Dubai Financial Services Authority (“DFSA”) has similar powers under Article 74 of the Regulatory Law 2004 and DFSA General Rule 11.12 (referred to as an Independent Expert).
In the UK, the FCA have this power at their disposal under Section 166 of the Financial Services and Markets Act 2000, (commonly referred to as “Section 166” reviews).
When are Skilled Person Reports requested
The power to appoint a Skilled Person Reports is typically utilised by a Regulator where it seeks to understand more about activities conducted by an entity within its regulatory remit. It is important to note that the receipt of a notice under the applicable regulatory regime does not necessarily mean that the regulator believes any contravention has occurred.
A Skilled Person provides an independent assessment of the area of focus determined by the regulator, such as but not limited to governance, systems & controls, or risk management framework.
Skilled Persons can be appointed in two ways:
- The regulated entity selects and contractually engages with a Skilled Person, subject to the approval of the Regulator.
- The Regulator appoints a Skilled Person directly.
In either scenario, the costs of the Skilled Person are borne by the regulated entity.
Skilled Person Notices
A Regulator will issue a notice to a regulated entity notifying them of the intention to appoint a Skilled Person. The notice will detail the scope of work and specify the timeline within which the Regulator requires the Skilled Person to undertake the matter. Regulators provide the entity with the opportunity to review the notice and request clarifications on the proposed scope of work, after which a final notice will be issued.
Selecting and Appointment of Skilled Person
The regulated firm may be able to identify and propose the Skilled Person. This does not give carte blanche to select whoever they wish. The notice will ensure the following:
-The regulated firm must provide the Regulator several potential Skilled Person proposals.
-The regulated firm remains responsible for assessing the competency, skills, and experience of the proposed Skilled Person to deliver the scope of work.
-There should be no conflicts of interest that would impair the Skilled Person’s ability to prepare the Skilled Persons report.
-The terms of the engagement between the regulated firm and the Skilled Person must include certain provisions (for example a requirement to fully cooperate with the Regulator and to provide the Regulator with any information regarding contraventions or other matters of importance identified). The engagement will also be subject to the review of the Regulator.
A regulated firm should ensure it has appropriate legal support throughout the whole process.
Skilled Person Report Process
The work to be carried out as per the notice will be required to be completed within a specified timeframe.
Early in the process, a regulated firm could assess whether they can address any regulator’s concerns immediately. This may include initial remediation, preparing documents likely to be requested, and planning meetings with the Skilled Person.
The regulated firm must not underestimate the resources they will need to dedicate to the process. This may involve providing access to relevant data, systems and personnel as well as attending regular meetings and interviews. The firm should also provide the Skilled Person with documents promptly and be able to respond to any requests in a timely and cooperative manner. The powers of the Regulator will require the regulated firm to be cooperative and responsive to the requests of the Skilled Person. The regulated firm should not impede the Skilled Persons ability to complete the scope of work as detailed within the notice.
The Skilled Person must be thorough in their work, maintaining a record of information relied upon. The Skilled Person will be required to report to the regulator throughout the course of the project on matters such as: (i) progress made, (ii) whether the Skilled Person has identified any other regulatory matters, (iii) amendments to costs, (iv) and the regulated firm’s cooperation throughout the process.
Being appointed a Skilled Person carries significant responsibilities, expectations, and the potential for reputational risk if the Skilled Person does not discharge their duties effectively. A Skilled Person must ensure diligence in their assessments and recommendations and must have adequate expertise to deliver the mandate of the regulator.
About Reg Wise Partners
Reg Wise is an owner-operated ADGM incorporated business. We place our clients at the forefront of everything we do. Our commitment lies in delivering tailored solutions to meet our clients’ needs and fostering a sense of value and appreciation in every engagement.
At Reg Wise, we offer comprehensive support in:
- Regulatory authorization applications
- Outsourcing of mandatory functions
- Regulatory advice and guidance
- Regulatory remediation support as an appointed Skilled Person
- Accountancy and bookkeeping
- Company incorporations
- Visa applications
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