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PLENITUDE INSIGHTS: Mitigating the Risks of an S166 Review

Written by Alan Paterson | Feb 22, 2024 2:52:00 PM

Since 2021, the Financial Conduct Authority (FCA) has shifted its focus towards a more assertive yet agile response. As the proportion of s166 reviews related to financial crime risks has remained steady between 2021 and 2023, it is clear that financial crime has and will remain a key concern for the regulators, with fraud and sanctions emerging as key areas of focus. According to the FCA 2022-23 annual report, the FCA commissioned a total of 47 Skilled Person Reports into firms, of which 10 pertain to failures in financial crime compliance, resulting in a total cost incurred by regulated firms of £35.1m. Over the past 12 months, the FCA has continued to issue fines to firms over failures under the anti-money laundering rules, with more attention paid to the role of intermediaries and brokers. These trends are early indicators of how the FCA’s assertive stance will shape up in the coming year.

As activity of the FCA’s enforcement arm has increased, so has that of the supervision arm in the form of the number of Skilled Person Reviews under section 166 of the Financial Services and Markets Act 2000 (FSMA), also known as a “Section 166” or “s166”. The FCA Handbook refers to an s166 in the following way: “Skilled person reviews are considered to be an effective regulatory tool and have a good record of mitigating risks to consumers.” Essentially, this means that Money Laundering Reporting Officers (MLROs – also known as the “SMF 17”) and senior management, including at board level, must ensure they implement a robust financial crime framework, systems and controls to effectively mitigate financial crime risk, taking into consideration the broader context of the FCA’s aims. These aims can be determined by examining feedback from the FCA previously provided to the firm, publicised FCA speeches, “Dear CEO” letters, and root cause issues highlighted in FCA notices.