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Skilled Persons Reviews: What is the FCA looking at under conduct of business?

By Don Scott 08/08/19

Q1 2019/2020 data for the number of skilled persons reviews commissioned has been published by the FCA.

The 2018/2019 figures showed a concentration of investigations in the area of financial crime, particularly in wholesale financial markets. This new 2019/2020 data once again displays the growing trend for investigations into financial crime, this time within the retail lending space.

According to the latest Q1 2019/2020 data, two of the nine skilled persons reviews commissioned fell into Lot D – conduct of business, which looks at concerns in quality of advice, sales practices and the fair treatment of customers among other things. This demonstrates that there are still firms out there struggling with their culture, which underpins staff behaviours and customer outcomes.

But what is the FCA concerned about specifically in this area? Let’s take a quick look:

Culture
Culture remains at the forefront of the FCA’s supervision checklist, so being able to demonstrate and evidence that culture leads to good customer outcomes is a must for all firms. The incoming SM&CR regime serves to underpin customer-centric cultures by putting the responsibility for outcomes on individuals. Therefore, implementing this properly will not only appease the regulator, it will also strengthen culture.

The regulator is especially on the lookout for firms who either refuse to take cultural change seriously, or those who simply pay lip service to the idea.

Business model
Is the business and its activity inherently risky to consumers? Is the firm taking unnecessary risks to make money? Those are the big questions the FCA asks when looking at a firm’s business model.

Firms should also look at the business model and consider whether it is fit for the changing dynamics of the market. This includes the firm’s capabilities when it comes to technology and the operational resilience frameworks it has in place.

Smaller firms
The FCA is focusing on smaller firms. Although it’s not likely it’ll be increasing supervision, the bar on enforcement investigation will be set lower and we may see fewer S166 pre-enforcement investigations.

While this doesn’t necessarily mean jail time or fines, a skilled person review can still be disruptive and stressful, diverting resources from business as usual activities.

We are listed on the FCA’s Skilled Person Panel for Conduct of Business (Lot D).

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