What a Skilled Person Review Is

Section 166 of the Financial Services and Markets Act 2000 allows the regulators to require a report from a skilled person, usually a professional services firm with relevant expertise, on any matter they need information about in connection with their functions. The detail of how the FCA uses the power is set out in SUP 5 of the FCA Handbook.

Reviews are used for many purposes. The regulator may want an independent diagnosis of a suspected problem, an assessment of how widespread an issue is, a review of the firm’s remediation plan, or verification that remediation has worked. The skilled person may be appointed by the firm, with the regulator’s approval, or directly by the regulator. Either way, the firm pays, and the regulator sets the scope.

A skilled person review isn’t an enforcement action, and many reviews don’t lead to one. But the findings can shape the regulator’s view of the firm for years, and they often lead to substantial remediation.

Common Triggers

• concerns about financial crime controls, such as customer due diligence or transaction monitoring
• suspected poor customer outcomes, including affordability, suitability or treatment of customers in difficulty
• client money and client asset arrangements
• governance, risk management or the effectiveness of control functions
• operational resilience, technology or outsourcing failures
• regulatory reporting accuracy.

Reviews often follow a supervisory visit, a pattern of complaints, a whistleblowing report or an incident. By the time a review is commissioned, the regulator usually already has a view that something needs examining.

What It Means for Senior Managers

Their Area Is Under the Spotlight

A review almost always focuses on areas that fall within named Senior Managers’ responsibilities. The skilled person will look at what controls existed, how well they worked, what management information was available and how issues were escalated. In effect, the review assesses whether the responsible Senior Managers took reasonable steps.

Their Records Matter

Skilled persons review board minutes, committee papers, management information, policies and correspondence. A Senior Manager with a clear record of what they knew, what they did and why is in a much stronger position than one who has to reconstruct events from memory.

They’ll Be Interviewed

Senior Managers and their teams are usually interviewed. Interviews are fact-finding, but what’s said can influence the findings and may be shared with the regulator.

Accountability Can Follow

If the review finds serious failings, the regulator may consider whether the responsible Senior Managers met their obligations under the Senior Manager Conduct Rules and the Duty of Responsibility. Most reviews don’t lead to action against individuals, but Senior Managers should take the process seriously from the start. Many seek independent legal advice.

How Firms Should Respond

Engage Constructively

Firms that treat the review as an opportunity to understand and fix a problem tend to fare better than those that treat it as an adversarial process. Supervisors notice the difference.

Agree the Scope Carefully

Where the firm appoints the skilled person, it should make sure the scope is clearly understood, that the skilled person has the right expertise and independence, and that timelines are realistic.

Resource It Properly

Reviews demand significant time from Senior Managers and their teams, alongside running the business. Firms often need to bring in extra support, particularly in compliance, financial crime and finance functions.

Act on Findings Promptly

Remediation should begin as soon as problems are clear, not when the final report arrives. Clear ownership by named Senior Managers, realistic plans and regular reporting to the board and the regulator all help.

Consider the People

A review may show that a Senior Manager or function lacks the capacity or expertise to address the problems. Firms sometimes need to strengthen the team with additional appointments or interim support. Handled well, this reassures the regulator that the firm is serious.

Staffing Remediation

Remediation programmes following a skilled person review often need people quickly: experienced compliance officers, MLROs, risk leaders and project managers, as well as finance professionals to handle redress calculations, client money reconciliations or regulatory reporting. Interim and fractional appointments are common, because the need is intense but time-limited. SMF Capital’s fractional and interim SMF cover can provide Senior Managers at short notice, and FD Capital, a sister practice, places interim finance directors to lead finance workstreams.

Where a Senior Manager needs to be replaced, the firm should plan the transition carefully. The new appointment will need regulatory approval, and the regulator will be particularly interested in whether the new person has the experience to lead the remediation. Our guide to the fit and proper test explains what the regulator will assess.

For Candidates Joining a Firm Under Review

Experienced Senior Managers are sometimes asked to join firms during or after a skilled person review. These roles can be career-defining, but candidates should understand exactly what they’re taking on. Before accepting, it’s reasonable to ask:

• what the review covers and what it has found so far
• what the remediation plan involves and whether it’s realistic
• how the role is resourced
• how the firm’s relationship with its supervisor stands
• what’s in the Statement of Responsibilities, and what you’ll inherit.

New Senior Managers should record the state of their area when they arrive, so it’s clear which problems pre-date them.

The Board’s Role

The board should oversee the review and the response, not leave it to the executive. That means understanding the scope, receiving regular updates, challenging the remediation plan and making sure the Senior Managers leading it have the resources they need. Independent non-executives, particularly the chairs of the audit and risk committees, often play a central role in reassuring the regulator that the board is in control of the response.

Preventing the Need for a Review

The best way to avoid a skilled person review is to identify and fix problems before the regulator has to. Firms with good management information, strong control functions, a culture where people raise concerns and a board that acts on bad news are less likely to face reviews, and better placed when they do. Proactively commissioning an independent review of a known problem, and telling the supervisor, can sometimes remove the need for a formal section 166.

The Bottom Line

A skilled person review is a serious event, but it’s also an opportunity to fix problems with independent help. Firms that engage constructively, resource the process properly, act on findings quickly and strengthen their teams where needed usually come through it with their relationship with the regulator intact. For Senior Managers, the best protection is the one that applies every day: clear responsibilities, good information and a record of reasonable steps. SMF Capital’s analysis of FCA enforcement trends explains how the regulator assesses those steps.