Regulators increase focus on compliance with rise in independent reviews

Out-Law News | 17 Dec 2019 | 12:41 pm | 1 min. read

The UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have increased pressure on firms with a 16% increase in the number of independent reviews ordered last year.

The number of ‘skilled person’ reviews launched by the regulators in the 2018/19 financial year hit 51, up from 44 in 2017/18, in the first rise in four years.

Skilled person, or section 166 reviews, can be commissioned by the regulators if they are concerned about an area of a firm’s business or its compliance with regulation. During a skilled person review an independent third party – usually a law firm, accountancy firm or other consultancy – to visit a firm and carry out further analysis into its activities.

The FCA ordered the bulk of the reports. According to its annual report, published in July (161 page / 5.4MB PDF), it commissioned 34 skilled person reviews, examining a number of issues, up from 29 the previous year. Almost half of these (14) related to financial crime.

Last year the FCA published new statistics showing the scale of financial crime among the firms it regulates. The data showed that firms handled 923,000 reports from staff related to suspected money laundering in 2017, and turned away over one million potential customers for financial-crime related reasons.

The rise in the number of skilled person reports follows a recent trend for the number of skilled person reviews to fall. In 2014/15 the regulators launched 95 reviews between them, but this number fell to 62 in 2015/16 and 60 the following year.

Contentious regulatory expert Colin Read of Pinsent Masons, the law firm behind Out-Law, said: "The FCA and PRA continue to come under pressure from legislators about their role in effective regulation of financial services firms. In discharging their duties as regulators, these statistics suggest a preferred and well worn course in using Skilled Persons powers. The professional firms who provide these services have built up extensive expertise and the ability to respond quickly - which suits regulators with finite resources. "

Accountancy firm BDO, which pulled the data together, said it expected the number of reviews to rise. The FCA and PRA have both written to firms to warn them they are planning to use skilled person reviews to investigate concerns over poor corporate culture, inadequate whistleblowing channels and inaccuracy of information provided to regulators.

BDO financial services economic crime partner Fiona Raistrik said the authorities were increasingly using skilled person reviews to investigate money laundering risks, particularly at online trading firms.