The FCA has served you a section 166 notice!
On average, the FCA serves up about 50 section 166 notices per year, so you’re certainly not the only one. Sometimes, when regulation is so strict and complex it can be very easy to engage in non-compliant behaviour without even realising it.
What’s important is that you know what action you’re going to have to take if you do find yourself in this particular situation. So, throughout this page we’re going to break down section 166 as simply as possible, and then highlight what it means for both you and the FCA.
What is Section 166?
Section 166 of FSMA requires a person to provide it with a report on any matter in relation to which it could have required information under section 165. This “skilled person” is appointed by the firm, which bears the cost of the report.
Or in simpler terms, you’re going to have to fork out for an independent report to be carried out on your firm. This report will relate directly to the reason you’re being investigated and is usually split into 4 sections.
- • Identifying, assessing and measuring risks.
• Reporting and monitoring identified risks.
• Suggesting preventative action.
• Proposing remedial action including customer redress.
What does the FCA do with the report?
It’s all well and good needing this report on your firm’s activity, but what is it actually used for?
- • Diagnostic – to find out more about a particular concern, perhaps as a result of a thematic visit, risk assessment or notification and to determine whether further regulatory action is required.
• Monitoring – to review the firm’s systems and controls.
• Preventative – to gather and analyse information on an identified risk, such as concerns over the firm’s financial crime risk management, and to develop recommendations for a resolution.
• Remedial – to help develop, oversee and report on the implementation of a remedial action plan or assist in the design of a customer redress programme.
Basically, the FCA needs the report to find out whether it has been barking up the wrong tree or not. Just think of it like hearing a strange noise in the middle of the night. The FCA has heard something not quite right, now it needs someone to go and look into it and find out more. That someone is the ‘skilled person’ that you must commission to write the report.
What it means to you
First things first, it’s worth noting that it’s vital that you respond to a section 166 notice efficiently. Liaising appropriately with the FCA throughout the entire course of the process is a crucial part of the process and will instantly paint a picture of the sort of organisation you are.
If the report shows that there is indeed cause for concern, as was initially suspected, then it will proceed with the investigation into your firm. However, if the report shows that your firm has been fully compliant at all times, then the investigation can then be resolved.
The best route to take is to be as transparent as possible with the skilled person. Give too much information if possible so that once the report is submitted you don’t have to keep going back and forth. Make sure you don’t leave out any details that could make it appear as if you’re withholding information.
Nobody expects you to be able to understand the entire FCA handbook. Regulation is a tricky business and in situations like this it’s advisable that you seek professional compliance advice from a firm that has experience resolving section 166 notices.
It’s also important to remember that even if you do get the case resolved, it’s likely the FCA may keep an eye on you in the future and would certainly recognise your name if any other misconduct were identified.
Our team can assist you with your preparation prior to the FCA’s enforcement or a section 166 review visit. We can assist you with mock interviews and test your senior team where required. We can assess the robustness, effectiveness and adequacy of your policies and procedures as well as developing them to an acceptable standard, helping you create a robust governance framework.