How to survive a section 166 review: the pitfalls explained

Chris Hamblin

19 April 2016

Allen submitted his recipe for a relatively trouble-free 'skilled persons visit' by referring to some of the 'howlers' he had witnessed at firms in his own capacity as a 'skilled person' as defined by section 166 Financial Services and Markets Act. This article follows on from Monday's discussion of s166 reviews initiated by the Financial Conduct Authority.

Seven steps to salvation

* Choose the skilled person you want, if possible. Allen said that it was quite legitimate for the company being investigated - which, after all, was paying for the s166 review - to try to find people with the right skills to do the job. He said that this stipulation sounded like a truism but it was surprising how many firms made the wrong choices. He related one instance in which a firm asked some non-lawyers to give it their views about legal matters, especially "whether legal risk had crystallised." The resultant report made no reference to case law or statute. Regarding cases where the regulators appointed someone inappropriate, he added: "YOU should do the choosing! You're the ones who are paying! It is definitely appropriate for you to push back a visit from the regulator."

Other preparations

Even before the skilled person sets foot in the building, the firm must make some crucial preparations. For one thing, it must anticipate the interview process. The skilled person is bound to talk to people who have never dealt with a regulator before and might blurt out embarrassing facts that might inspire the skilled person (or the regulators once they have received his feedback) to widen his search for information and the subject of the review. Here Allen said: "There is a risk of being overly casual with documents and interviews, as it's a formal disiciplinary process. Ensure that staff members are properly prepared for interviews and find out what records of interviews will be made."

The preparation of documents is important also, because some may carry legal privilege.

When the board of a firm prepares its riposte to the draft report, assuming that the skilled person has given it time, it is imperative for the directors to avoid using the kind of language that they might place in advertorial about their firms' compliance efforts. Allen remembered one instance in which the senior managers wrote such things as "our controls are second to none!" The audience laughed, a telltale indication that such puffery might provoke equal mirth if the regulators at Canary Wharf were to read it in a report.