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The FSA's 166-rule costing discretionaries millions

by Sarah Miloudi on May 22, 2012 at 07:00

The FSA's 166-rule costing discretionaries millions

The Financial Services Authority (FSA) has used its powers 114 times to order ‘skilled person’ reports over the past year alone, sparking concerns it may be outsourcing its risk assessment function and burdening wealth managers with unnecessary costs.

The average cost of commissioning a report under Section 166 of the FSMA is £292,736, but the most expensive was estimated at £2 million, according to documents obtained by Wealth Manager under the Freedom of Information Act.

The majority were submitted to wholesale investment and retail banks, wealth advisers and platforms, which accounted for 44% of the total figure. Wealth managers, stockbrokers and investment managers accounted for 15%, with the remainder comprising insurers, intermediaries and corporate finance firms.

Skilled person reports often result from an FSA visit and are used to assess if rules have been broken or what further action might be needed.

But the Association of Private Client Investment Managers and Stockbrokers (Apcims) said concerns about the orders have been raised by its members, who feel the reports are too costly and no longer reserved for the most high risk firms.

The reports are usually conducted by large accountancy and audit firms.

An Apcims spokeperson said: ‘Section 166s appear sadly to have now become a way of life across the industry as a tool used by the regulators. This not only increases costs to firms, at a time when the costs of areas like compensation (via FSCS) are very high, but it is typically a cost that has not been budgeted. With more supervisory contact at firm level perhaps there would be less need for 166s to occur.’

In addition, the Investment Management Association (IMA) said in a submission to the Treasury Select Committee (TSC) that similar analyses could be produced by firms internally in all but the most technical and serious cases.

‘The process is highly resource intensive, in one case requiring 500 hours of internal staff time,’ the IMA told the TSC.

‘There is a concern that the FSA is outsourcing (at considerable cost) risk assessment exercises that could be both better targeted in terms of their focus and better undertaken internally.’

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3 comments so far. Why not have your say?

Investment Guru

May 22, 2012 at 11:41

How can we find out which forms have been subject to a section 166 notice and why?

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May 22, 2012 at 15:05

You can't, because the FSA won't let you.

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Jon Lowson

May 25, 2012 at 17:36

Section 166s tend to be commissioned when the FSA have identified a problem at a firm and they want further investigations to quanitfy the extent of that problem.

I suppose that those firms might quite like the FSA to conduct these further investigations themselves and have it paid for through general FSA funding (spreading the cost to everyone) but, I for one, am happy for private compliance firms to be paid directly by the firm involved ("let the poluter pay").

I particularly like the IMAs response... to let the miscreant firms produce reports on themselves. You can just imagine it:

FSA: " Mr National IFA, following your review, how many pension switching sales have you identified as unsuitable"

Mr National IFA: "Absolutely none. Honest Guv. They were all fine and no-one needs redressing."

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