Use the (en)force(ment) - FCA enforcement data shows a sharp increase in s.166 reviews

The FCA has published its annual report and accounts for the year 2023 / 2024. This is a voluminous document running to 170 pages. For the purposes of this blog, we're focussing on some interesting data nestled in an appendix concerning the use of s.166 of FSMA.

As regular readers of these pages will no doubt know, s.166 of the Financial Services and Markets Act 2000 ("FSMA") gives the FCA the power to obtain a report from a skilled person on any aspect of a regulated firm's business. This is often a precursor to a past business review. Firms are particularly keen to avoid a s.166 as they will be required to pay the skilled person's costs, which can be substantial.

The FCA's annual report for 2023/24 shows that a total of 83 skilled person reviews were commissioned in the 2023/24 year. To put this in context, 45 such reviews were commissioned in 2022/23 and only 37 in 2022/23 (net of those that were commissioned and then cancelled).

It's perhaps no surprise that this increase matches up with the advent of the Consumer Duty – the FCA's data confirms that this was one of the issues that was examined via s.166, albeit they don’t set out how many of the 83 reviews commissioned concerned this. However, 20 reviews concerned retail banking, 15 concerned retail lending and 19 concerned retail investments, so a total of 54 were in the retail finance space. Deductive reasoning indicates that a proportion of these will indeed have been concerned with the Consumer Duty and that this could have been the reason for the increase.

I mentioned earlier that firms are generally keen to avoid the costs of such a review. To put this in context, the aggregate cost incurred by firms for s.166 work in the year was £38.3 million. This averages out to £460,000 per review (although this comparison is somewhat flawed as it includes sums incurred on s.166s that were live from previous years).

A combination of the FCA's data led approach and the self-reporting requirements of the Consumer Duty probably mean that this trend will continue. FCA regulated firms (and their insurers) are well advised to ensure that the scope of any such review is properly focussed on the issues and that any subsequent past business review is limited to addressing foreseeable harm and that redress is only paid if a legal liability is established.