Richard Farr explains why increased competition within the skilled person ecosystem works for everyone...
The Financial Conduct Authority (FCA) plays a crucial role in safeguarding consumers and promoting market integrity within the financial services sector.
One key tool in the regulator's arsenal is the requirements notice (RN). A RN instructs a regulated firm to commission an independent review of specific aspects of its operations by a skilled person. This skilled person, typically a consulting or legal firm, acts as an objective party, analysing the firm's compliance within FCA regulations and reporting back to both the firm and the FCA supervisor on the outcome.
The FCA Skilled Person Panel: A mythical list?
Currently, the FCA maintains a pre-determined panel of skilled persons which is only refreshed roughly every four years. Whilst this panel offers a pool of qualified experts, it can often present challenges for the small to medium-sized regulated firms which, let's be honest, represent most of the industry at this time. These challenges predominantly stem from the dominance of larger, corporate professional services firms within the panel, which meet public service procurement standards. Here we have a classic case of David meets Goliath.
Let's look at the challenges in more detail.
The big-name firms on the panel often come with hefty price tags and a corporate culture that may not mesh well with the smaller or mid-sized regulated firms. Not only does this mean that the smaller or mid-sized firms are limited, but the dominance of large firms often restricts the pool of potential Skilled Persons too, thereby limiting regulated firms' ability to choose a consultant who best suits their specific needs and budget.
There are also a number of misconceptions about selection too. There is a longstanding myth that crops up far too regularly amongst some regulated firms regarding the selection process.
The Financial Services and Markets Act (FSMA) and FCA guidance clearly state that firms are not obligated to choose from the published panel. They have the flexibility to nominate suitable alternative firms, provided they can demonstrate the necessary expertise.
Levelling the playing field - the additional skilled person supplier list
Here at the Association of Professional Compliance Consultants (APCC), we felt it was time to address these challenges head-on and level out the playing field. APCC members, in the main, serve small and medium-sized firms that make up the majority of the market. We want to be able to provide all sizes of regulated firms with a wider range of options, thereby fostering competition, and enhancing the overall effectiveness of the skilled person process. We thus established the Additional Skilled Person Supplier List.
The regulated firm is still responsible for assessing the individual appropriateness of a skilled person firm for its particular requirements and should consider the handbook guidance when appointing them. The guidance suggests a skilled person firm must appear to the FCA to have the skills necessary to make a report on the matter concerned or collect or update the relevant information.
For us, it was essential that we mirrored the FCA Panel as much as possible with the Additional Skilled Person Supplier List. We wanted to replicate the FCA's panel structure, encompassing the same "lots" (specific areas of expertise) as defined by the FCA. That being said, we also wanted to avoid duplication and confusion. As such, firms already listed on the FCA panel for a particular Lot are not included in the APCC list for the same 'lot'. However, they can be included for other 'lots' where they possess relevant experience. Ensuring information is up-to-date, correct and accurate is paramount, and thus our list will be refreshed annually, ensuring continued relevance and expertise.
Given the prerequisite for accuracy, a rigorous selection process is essential. And to ensure high standards, firms seeking inclusion on the APCC list will need to demonstrate their qualifications through three key tests:
Contractual compliance: Meeting the contract terms stipulated by FCA's Supervisory Statement (SUP) 5.5
Proven experience: Providing evidence of at least one completed skilled person report
Requirements notice track record: Demonstrating involvement in responding to RNs within the relevant 'lot' over the past 24 months
To ensure even greater accuracy, we also felt it important to conduct an independent review. As such, applications will be reviewed by a dedicated panel comprising at least two APCC members (with skilled person knowledge) an independent board member and a member of the executive team.
It's our hope that the APCC Additional Skilled Person Supplier List will offer a win-win-win situation that benefits client firms, APCC members and the FCA. Regulated firms will gain access to a wider pool of qualified skilled persons, allowing them to choose a consultant that best aligns with their budget, size, and cultural fit. APCC member firms which meet the selection criteria will gain an additional platform to showcase their expertise, potentially attracting new clients. And the FCA will also benefit from increased competition within the skilled person ecosystem, promoting a more efficient and effective regulatory framework too.
By establishing a well-vetted and easily accessible alternative, we should be able to empower regulated firms to navigate the RN process with greater clarity and choice. This ultimately leads to a more robust compliance environment within the financial services sector.
Richard Farr is working group chair at the Association of Professional Compliance Consultants