There has been a spike in the number of skilled persons reports commissioned by the Financial Conduct Authority (FCA), rising by 68% in the 2019/20 financial year, compared to the previous 12 months.
Business advisory firm Duff & Phelps found that there were 57 reviews during the year, while only 34 reports were conducted in 2018/19.
This is the highest numbersince 2012/13, when 113 reviews were commissioned.
A skilled persons report is a regulatory tool, under section 166 of the Financial Services and Markets Act (FSMA), which allows the FCA to investigate firms when it is not satisfied with the business’ ability to remediate its failings.
The probe is conducted by an independent professional services firm and it looks into particular failings, shortcomings in systems and controls, or provides assurance on a company’s remediation issues, Duff & Phelps explained.
An expensive matter
But the cost of the investigation falls on the firm itself.
While there is no set figure associated with these reviews, the business in question may have to fork out a sum ranging from £100,000 ($125,197, €114,871) to millions of pounds.
The FCA has not released figures related to costs for the 2019/20 period, but the business advisory firm said that for the 34 reports carried out in 2018/19, companies had to pay a total of £51.2m.
Figures for the last financial year show that reports for retail investments and pensions were relatively low, with five reviews for the former and only one for the latter.
Retail lending led the way with 16 investigations, followed by retail banking (14), investment management (nine), wholesale financial markets (eight), and general insurance and protection (four).
Worried about crime
According to Duff & Phelps, the most common area of focus for the 2019/20 reviews was financial crimes, making up 28% of the overall number.
“This continues what has been seen in the past two years; 2018/2019, when 14 out of 34 (41%) reports concerned financial crime and 2017/18 when that topic was the subject of 11 reports out of 29 (38%),” the firm added.
Nick Bayley, managing director and head of Duff & Phelps’ UK compliance and regulatory consulting practice, said: “There was quite a significant uptick in the number of S.166 reports commissioned by the FCA in the last quarter of 2019/20, and it’s evident that the FCA is currently putting a lot of focus on the retail banking and retail lending sectors.
“In the case of retail lending, the increased number of reviews represents the FCA further ratcheting up its level of scrutiny of that sector, since taking over the regulation of consumer credit in April 2014.
“Financial crime remains a crucial area of focus for the FCA, which is something we see mirrored by almost all other major financial services regulators across the world,” he added.
The FCA’s figures, however, did not show the outcomes of the 57 reviews conducted in 2019/20.
