Prudential Regulation Authority Rulebook

1.1

This supervisory statement is addressed to all firms regulated by the Prudential Regulation Authority (PRA). Its purpose is to set out the PRA’s policy on and expectations for the use of the following powers as supervisory tools:

1. (i) section 166 (Reports by skilled persons) of the Financial Services and Markets Act (FSMA); and
2. (ii) section 166A (Appointment of skilled person to collect and update information) FSMA.

1.2

This statement is intended to be read together with the Use of skilled persons Part of the PRA Rulebook which sets out rules on the contract with the skilled person, and associated delivery and costs. Firms are also advised to read sections 166 and 166A of FSMA.

Update: On 30 September 2015 the PRA updated this statement to provide greater clarity on the use of skilled persons in its supervisory approach, in particular as a discretionary supervisory tool. The statement has also been updated to alert firms to the possibility of avoiding the costs that would otherwise arise if the firm and the PRA both wish to commission work from an external party on the same, or broadly the same, matter. Paragraphs 2.3 – 2.5 have been deleted, and paragraphs 1.7A, 1.7B, 1.7C and 4.4A have been added. Paragraphs 2.2(v) and 2.9 have been updated.

1.3

Under section 166 FSMA, the PRA may, by giving notice, appoint a skilled person to provide it with a report, or require any of the following persons (‘relevant persons’) to provide it with a skilled persons report:

1. (i) an authorised firm (‘firm’);
2. (ii) any other member of the firm’s group;
3. (iii) a partnership of which the firm is a member; or
4. (iv) a person who has at any relevant time been a person falling within (1), (2) or (3); but only if the person is, or was at the relevant time, carrying on a business.

1.4

Under section 166A of FSMA, the PRA may require a firm to appoint, or may itself appoint, a skilled person to collect or update information.

1.5

The appointment of a skilled person to produce a report under section 166 FSMA is one of the PRA’s supervisory tools. The tool may be used:

1. (i) for diagnostic purposes: to identify, assess and measure risks;
2. (ii) for monitoring purposes: to track the development of identified risks, wherever these arise;
3. (iii) for preventative action: to limit or reduce identified risks and so prevent them from crystallising or increasing; or
4. (iv) for remedial action: to allow the PRA to respond to risks when they have crystallised.

1.6

The use of the tool could be prompted by:

1. (i) a specific requirement by the PRA for information;
2. (ii) an analysis of information undertaken by the PRA;
3. (iii) an assessment of a situation by the PRA;
4. (iv) expert advice or recommendations received by the PRA; or
5. (v) a decision by the PRA to seek assurance in relation to a regulatory return.

1.7

The tool may also be used as part of the supervisory programme applicable to a firm, or the result of an event or development in relation to a firm, that is prompted by a need for verification of information provided to the PRA or part of the PRA’s regular monitoring of a firm.

1.7A

The tool is used to support supervisory intervention first and foremost but on occasion the PRA might choose to obtain a report to support enforcement action being contemplated. It may also be the case that a report provided by a skilled person to support supervisory intervention is relied on in subsequent enforcement action taken by the PRA.

1.7B

The use of skilled persons in an enforcement context is rare and it is more likely that in an enforcement context the PRA will use its direct enforcement powers such as section 167 of FSMA or section 168 of FSMA.

1.7C

The PRA encourages firms to speak to their supervisors before commissioning any external review on subject matters which may be of interest to the PRA. This may avoid the firm incurring unnecessary costs where the PRA wishes to make use of skilled persons on the same, or broadly the same, matter.

1.8

The appointment of a skilled person to collect and update information under section 166A FSMA is another one of the PRA’s regulatory tools. It may be used where the PRA considers that a firm has failed to collect, and keep up-to-date, information required by the PRA.