FSA sets out policy on use of reports by skilled persons

FSA Managing Director Michael Foot said:

The way we use the new power to obtain skilled persons reports will be an important illustration of our risk-based approach to regulation. It will also highlight that the FSA will be operating as a single regulator, applying a common regulatory approach for all types of regulated firms. The power will be a valuable part of our regulatory toolkit.

Key features of the new approach are:

• it will be common and integrated across all sectors - banks, insurers and investment firms - and will apply in the same way across our supervisory and enforcement functions;

• it will be risk-based, with each decision to use skilled persons being taken on a case-by-case basis according to the FSA''s need and the circumstances of the situation, bearing in mind factors such as whether the need can be met by the other tools available, the position and attitude of the firm, cost and the benefit to the firm;

• skilled persons reports will meet a range of FSA requirements: for information; for an analysis of information; for an assessment of a situation; and for expert advice or recommendations; and for the purposes of risk assessment, risk mitigation and for responding to risks which have crystallised; and

• reports, which are paid for by the firms concerned, will be commissioned on a focused and proportionate basis.

The FSAs proposals are set out in Consultation Paper 91 Reports by skilled persons. The consultation is being conducted now, because in August 2000 in CP 64 The Supervision manual the FSA proposed to continue with current practice for similar powers under existing legislation when using the skilled persons powers. Since then good progress has been made in developing the FSAs new operating framework and the FSA is ready to implement the new approach on the use of the skilled persons when it comes into its full powers towards the end of this year.

Notes for editors

1. Consultation Paper 91 is available on the FSA Website (www.fsa.gov.uk). Responses should be received by 16 July 2001.

2. The FSA''s power to require firms to provide reports by skilled persons derives from section 166 of the Financial Services and Markets Act 2000. This power will supersede various and differing powers which current regulators have to commission special reports under existing legislation or rules. The power does not limit the types of skilled person that may be used. They can be accountants, actuaries, compliance consultants, lawyers, IT specialists or other experts.

3. The FSAs new regulatory and operating framework are described in A new regulator for the new millennium (January 2000) and Building the new regulator, Progress report 1. (December 2000). Both publications are on the FSA Website.

4. Consultation paper 91 also provides feedback to parts of CP 51 The Interim Sourcebook for Building Societies, CP52 The Interim Prudential Sourcebook for Banks, for CP 64 The Supervision manual and CP 65 The Enforcement manual. Annex G of CP 91 contains draft text of Chapter 5 of the Supervision manual which covers reports by skilled persons.

5. The Treasury announced last month that N2 - the date when the FSA will receive its full powers - will be no later than the end of November 2001.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.