Changes to Section 166 reports

20 Sept 2012

Section 166 reports, are ordered by the FSA when a financial company suffers a mishap and can be used as a basis for a fine or other enforcement action. The reports are used in the wake of rogue-trading scandals, client-money problems or data breaches, and are both diagnostic and forensic.

The number of 166 reports has risen in recent years, jumping from 18 in the 2006 to 2007 fiscal year, to 140 in 2010-2011, according to FSA statistics. The number is expected to rise, with the appointment of a panel adding a catalyst, according to one regulatory lawyer applying. Fees can range from £4,000 to £4.4m – paid for by the target company – with costs for large financial institutions typically in the upper range, according to experts.

The reports have until now been the preserve of the Big Four accountancy firms, with lawyers expressing frustration that the tender process was opaque and that it was hard to convince the FSA that they could complete satisfactory investigations.

Data show that the Big Four undertook half of the 88 reports in 2009-2010; the top law firms accounted for just 1 per cent.

The FSA wants a panel in place by March ahead of its split into the Financial Conduct Authority and the Prudential Regulation Authority. The regulator will ask firms to tender for at least 48 different categories of specialisms – depending on expected cost, and whether the troubled financial company is considered “high impact” – sub-divided into various categories including financial crime and information technology

Other features would include

• A target company would be able to see which individuals at firms were skilled in a certain area.

• The FSA would also be able to appoint a skilled person without consulting the company, under a proposal currently being considered.

An FSA spokesman confirmed the panel plans and said that the process would “deliver an open and transparent approach to the appointment and approval of skilled persons”.