The document provides tips for senior management at regulated firms that have been issued a Section 166 report by the FCA, advising them to hire an independent compliance consultant to help prepare and navigate the process, as the investigation can be costly and the FCA's objectives may not be clear. It warns that the FCA-appointed auditors will conduct a thorough review and firms should not see it as a fight, and that cheaper consultants may not provide a comprehensive or value analysis. Proper preparation by an experienced compliance consultant can help firms understand the FCA's perspective and significantly reduce costs.

1. A Guide for Senior Management to Stay On-Track

2. “… is like a car crash in slow motion, the right
compliance consultant is your ABS brakes.
You don’t know where you will end up but at
least you can steer through it!”
Tony Woodward
Chartered Fellow of the CISI

3. S166 Reports are often required by the
regulator on a single or sometimes multiple
subjects where they feel that the regulated
firm may have shortcomings or failings.

4. Tony Woodward, a former CEO of a city firm explains;
“Between November 2007 and June 2008 the City stock broking firm that I
presided over as CEO was visited by the FSA. What followed was a strong
attack by the regulator using a section 166, which cost in excess of
£500,000 to defend and an immeasurable cost in lost management time,
staff time and productivity. During this period the venom of the attack was
at times unfathomable, we engaged experts who in turn had ex-FSA staff
who seemed to be as stumped as we were about the regulator’s concerns
and objectives.”

5. Tony goes on to say, “Senior Management in regulated firms typically
believe they are doing the right thing and that they can explain to the
FCA why they do certain things and they will understand, they are very
highly mistaken. I do not work as a compliance consultant, I work with
senior managers on a peer-to-peer basis, sharing real life experience to
underline the genuinely valuable and rare advice I impart. I fully
understand and communicate to senior management how the FCA
want to see financial firms run and, in a macro view, the organisational
structures required to run effective compliance without creating
enormous compliance departments which drag on profitability.”

6. A key part of the process is a Section 165 which is a written notice for
specified documentation to be provided to the FCA for their assessment
and review. This will sometimes provide you with an idea of what they
are looking for.
Tip 1 You should get your files reviewed, preferably independently by
Compliance Consultant at the same time, so as to prepare your firm for
whatever may follow; which on occasions is nothing.

7. Reality Check – There is no smoke without fire
The Section 166 also has to be in writing and may, or may
not carry with it a Draft Requirement Notice. This notice
sets out the skilled person requirements; scope of the
report, considerations regarding calculating recompense
and redress if required and provide an inkling as to the
purpose, if you read between the lines.

8. Tip 2 Compliance Consultant should be engaged to help you read
between the lines. FCA code needs to be deciphered by a consultant experienced in
the workings of the FCA.
Reality Check - You may not know what FCA are driving at: it may not be what you
think.
Tip 3 Too often, advisers see this demand by the regulator as a personal slight
against them or their firm, the advice or the way their customer’s have
been treated.

9. If the discussions with the FCA have been focussed on the removal of your
permissions, then there will likely be advice issues. If threats have been
forthcoming regarding your continued trading as a whole, then there are likely
to be advice issues. However, if they have reviewed some files and have asked
for a sample to be reviewed by the “Skilled Person” as the subject of the
report, it is more than likely that there are systems and controls worries,
processes and procedures are not being followed either at all or consistently by
one or more of your staff.

10. You would also have been expected to have picked this up for yourself with your
ongoing monitoring plan. Areas that need reinforcement are not always obvious
to firm’s management and often needs independent views on systems and
controls.
Tip 4 Money spent on ensuring you are compliant, asking Compliance
Consultant to conduct a Compliance Health-Check now is a small fraction
of the costs of a S166.
Reality Check - During a S166, the FCA can summon your S166 consultant
and/or your auditor to attend their offices at your cost, whenever they wish

11. In 2008/2009 there were 56 Section 166 Reports completed costing a
total of £12,800,000. In 2010 -2011 the FSA ordered 95 FSMA S166
Skilled Person Reports for over £32.2M.
In 2012/13 year there were 113 S166 requests made and, costs ranged
from £6,475 to £40m, up by 465%, with the average cost in excess of
£1.56M each. Compare this to 2005/2006 when 18 reports were
completed and you will see the average number of cases and the costs
have escalated, mainly due to the big consultancies charging into the
area with their large teams of analysts and managers and partners.

12. Does the FCA have the right to appoint the big accountancy firms? The simple
answer is yes. Under S166 of FSMA 2000, the FCA can then nominate a person to
make a report who, in the authority’s view, has the skills necessary to make a report
on the matter concerned. Since April 2013 they now have a panel of firms set to
carry out this work.
This will mean that the costs are likely to be higher than before, but this can be
reduced considerably if you engage Compliance Consultant to carry out pre-S166
Preparation Planning with your firm. By having the right material ready
For the S166 Auditor, you can save tens of thousands of pounds.

13. Tip 5 The first thing that you need to do is issue a companywide
document preservation order, this ensures that everyone knows
not to conceal, delete, destroy, shred or in any way dispose of
any document as these may help you in your new circumstances.
Reality check - Under FSMA Section 177 it can be a criminal
offence if a person destroys any documents suspecting an
investigation.

14. There are several points to consider here, when preparing your list of Skilled Person nominees;
• Does the Consultancy have the right experience and skill set available? There is no point in using
a consultancy that has exclusively dealt with mortgage brokers or stockbrokers, if you are an IFA
firm.
• Is the Consultancy staffed by adequately qualified people with broad professional and life-sense
experience to provide a balanced view point?
• Is the Consultancy familiar with the FCA and their ways of working?
• Do they have the capacity to ramp up quickly if the FCA change the scope to require a project
based S166 for larger samples of cases or a more detailed analysis of your systems and
controls?
• Are they committed to professionalism, quality and accurate representation?

15. You only get a one chance with this. Do not treat the
bidding process like a car insurance quote. The cheapest is
just that, cheap and with no frills. Quite often single
consultant deals can be dangerous if their views are
jaundiced for some reasons or focussed in one particular
area. Without a sanity check of an external person they
could be inadvertently wandering off scope or not have
the support to reinforce their conclusions.

16. Tip 6 The FCA have appointed a panel of
respected and competent firms to act on
their behalf. These are the larger
consultancies that normally perform audit
and past business review work. This is a
more expensive but less time consuming
exercise than pre FCA.

17. Compliance Consultant are experienced, skilled, and
flexible. They always have a Quality Assurance and Project
Oversight who provides this sounding board and independent
viewpoint.

18. What happens when you get your allocated audit firm? Nobody likes
strangers poking about in their affairs for too long. You need to be prepared
for some uncomfortable news, but do not see it as a fight or justification
exercise, the auditors are there to obtain facts and evidence.
To do this work correctly, the files, systems and controls, policies and
governance, TCF or whatever aspect of review has been instructed has to
be done properly for your own sake.
Good preparation by Compliance Consultant can save you £££’s

19. Sit down and consider what would happen if you were new to your firm;
• How long would you want to understand the actual role you are going
to perform, with all the parameters, guidelines and limitations?
• How long would you want to read the company policies and compliance
manual?
• How long would it take you to write a report on ten or twenty files,
meticulously reviewed and appraised, ensuring all the evidence is noted
and identified?

20. • How long would it take to review that number of files properly, in detail,
objectively and commercially?
• Would you consider it fair to prevent the firm from adding in their response to
the report?
• How long would you like to spend on your report making sure that it fairly
represents the evidence you have seen and taken into account the holistic view
of each case?

21. Any external consultant who proposes to review more than 4
differing and varied cases per day (or 2 pension cases) from a
cold start, is misleading you or selling you short and making
uninformed decisions and conclusions that are sent to the
FCA on your behalf. What value is your business worth to you
over the next 12 months, five or even ten years?

22. Tip 7 It is worth getting a thorough and professional job done while you have the
chance, the cost of FCA scrutiny, defending your firm with appointed auditors and
lawyers the cost of fines or loss of livelihood is exponentially greater.
Reality check - After all, we are aware that if you choose well or choose badly, you
may only have one chance at this.

23. Price should be viewed in the round. If the FCA decide you are guilty
they will ask for your costs in conducting the s166 and keep this in mind
when assessing the necessity for fines or the severity of fines. Therefore
often a high cost of the s166 can mean a reduction in ultimate fine; the
true cost of each purchasing decision will show itself over time. Cost
issues continue to present themselves over the useful life of the product
or service purchased, long after the purchase was actually made. If a
report becomes long standing company history, the cost is minimal: if
the company does not last the course, the cost far exceeds the price.

24. We do not keep staff around in case of suitable work and deploy them when and if
the need arises, we only use experienced and qualified compliance staff that are
specific to the project needs.
There will only be the required people working on the report that needs to be there
at any one time this focused approach keeps the cost to your firm at the level
required and nothing else.
Quality Assurance is always carried out independently and we will assist you with
the details when you are invited to provide management responses to the auditors
findings.

25. Once you appoint us, we will discuss with you and the FCA the scope of the scrutiny that
you face and iron out any anomalies and wrinkles. It has been known for the regulators
to get mixed up. We will identify the initial documents required as best we can and make
any preparations for the additional resource we may need to allocate so that they can
work immediately on day 1 to conduct their part of the work efficiently and effectively in
preparation for the S166 auditors.
Reality check - Compliance Consultant Consultants will always conduct a review of your
systems and controls before accepting you as a client (obviously an exception in a S166
exercise) and will provide you with recommendations for improvements.

26. “Had I had the guidance of an expert, with the experience I now have today, my
company and our board would have saved hundreds of thousands in costs, a
similar amount in lost productivity and we would have reduced our personal and
corporate risk.”

27. Our “Conduct Risk” book is as popular in paperback as it
is in Kindle and can be found on Amazon. Covering the
concepts and background to the “Conduct Risk” it also
covers what happens if things go wrong from
Enforcement to S166’s.
http://bit.ly/ConductRiskBook Paperback
http://bit.ly/ConductRiskUK-e Kindle
ISBN-13: 978-1505402490
ISBN-10: 1505402492

28. We have published EBooks to help UK Authorised firms in Compliance
and Risk areas. Our Compliance Managers Guidebook and Reference
Manual suits any small or medium sized enterprise.
Details at http://compliancemanagersguidebook.info
ISBN/EAN13: 1492217476 / 9781492217473

29. Compliance Consultant
Call (UK) 0207 097 1434
(Int) +44 (0)207 097 1434
info@www.complianceconsultant.org
www.complianceconsultant.org