What we’ve learned from our work as a FCA Section 166 Skilled Person Firm
ATEB Consulting’s Steve Bailey draws conclusions on the FCA’s key areas of focus and adviser best practice from the firm’s work as a member of the FCA’s Skilled Person Panel
A Skilled Person Review is one of the regulatory tools the FCA can employ to obtain an independent view of aspects of a firm’s activities that perhaps cause concern or where further analysis is required. You can find out more about section 166 reviews here.
We have been appointed to undertake a number of S166 reviews over the past 12 months, against competition that includes most of the UK’s best-known consultancies. We believe that such work gives us significant insight into what’s important to the FCA and offers us the opportunity to share some high-level best practices with you.
Transparency and Disclosure
• With disclosure documentation, do not deviate from the regulator’s rules – certain information must be communicated to clients (e.g. firm status, client protection) and any communication must be ‘clear, fair and not misleading’.
• All charges should be transparent and disclosed clearly – this requirement applies to cost schedules at initial disclosure (generic charging structure) and client-specific charges (initial and ongoing) disclosed later in the advice process.
• The client should be placed in a fully informed position – evidence of client awareness, understanding and acceptance are key measures.
The Advice Process
• The client file should ‘tell a story’ linking the recommended solution with the client’s personalised objectives – the file content should be clear, logical and make sense.
• Robust evidencing of justifiable income and expenditure figures is a priority to ensure client affordability (current and future) is demonstrated – any unreasonable or unrealistic figures should be challenged.
• An advice process or script should be fair to the client – it should be unbiased, balance any pros and cons, include correct information and allow the client time to consider.
• Your advice process should result in a positive client outcome – therefore, it is important to understand what constitutes a positive client outcome and to be able to demonstrate how a positive client outcome is achieved.
Systems and Controls
• Your firm should be able to demonstrate a robust Systems and Control framework – increasingly the regulator is looking for evidence of a firm’s ability to identify and manage risks, particularly risks to your clients.
• Any Systems and Controls framework should make use of accurate and relevant management information – it’s very simple, the FCA expects you to know what’s going on within your business in order to manage the risks.
• The FCA expects individual roles and responsibilities to be clearly established and understood by all involved – in particular, you must be able to evidence who has oversight responsibility and who has responsibility for day-to-day management.
• Conflicts of Interest, whether actual or potential, should be identified and managed – a focus for the regulator has been incentive programmes for staff and their likely impact on client outcomes.
• Your firm needs to be able to demonstrate it is treating clients fairly – in establishing what your firm does and how it goes about its business, and be seen to take time to consider the effect on your clients.
None of these best practice lessons are new. However, there is merit in reminding yourself of what the regulator considers to be important and taking stock of where your firm sits against these considerations.
The FCA is very interested in the culture of an organisation and the behaviour of its staff, as it feels these measures are the main determinants of client outcomes.
Considering issues important to the regulator and making clear efforts to adopt best practice within a firm are clear demonstrations of trying to deliver positive client outcomes, and will stand any firm in good stead should it find itself engaged with the FCA.
Owners, principals and senior management within a firm should be aware of the issues outlined above.
Best practice considerations and eventual decisions should be evidenced (e.g. meeting notes).