SS7/14 – Skilled Persons Reviews: Check, check, check

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Ciara Russell contributed to the writing of this blog post

In June the PRA issued Supervisory Statement SS7/14 : Reports by skilled persons.  It outlines its expectations for the use of Skilled Person Reviews (SPRs) and the PRA’s supervisory power to appoint the skilled person.

The statement follows a consultation in March of this year and is effective as of 19 June 2014.

The supervisory statement almost acts as a checklist for not only the skilled person and the firm under review, but also for the PRA itself, and what can be expected of it.  This blog summarises the considerations and expectations for relevant parties for different stages of the process.

Initial stages

The first two sections of the statement cover the process of deciding if a review is necessary and if so, appointing a skilled person.

1. Commissioning a review - PRA

The first section puts the onus on the PRA and asks “What should we considering before commissioning a SPR?” The PRA has a sizeable list of things it accounts for before deciding on a SPR, as summarised below:

Considerations

Circumstances relating to the firm

Attitude: Are there any issues over the firm’s co-cooperativeness?

Similar issues in past: Did they occur before and any was corrective action taken?

Quality of systems and records: Are there any issues over ability to supply required information confidently?

Objectivity: Are there any issues over ability and willingness to provide an objective report?

Conflicts of interest: Does the subject involve misconduct, requiring independence?

Knowledge or expertise available to a firm: Does the firm have the required technical expertise?

 

Alternative and complementary tools

Relative effectiveness of:

  • Non-statutory powers e.g. informal visit or information request
  • Power to require information
  • Appointment of investigator

     

    Cost and objectives

    Could a firm derive some benefit from the work and recommendations?

    Is it not possible for the work be reasonably carried out by the firm?

    Is it difficult to get the information due to poor management and record keeping systems?

    Are there risks threatening the security of the firm?

    How serious are the possible consequences of breaches and the need for further action?

     

    PRA resources

    Does the PRA lack the necessary expertise and available resources?

    Are the PRA resources better used elsewhere?

    If a case meets enough of these criteria the PRA will deem it suitable to use a SPR, and the PRA and firm will move on to appointing a skilled person.

    2. Appointment of skilled person - PRA and firm

    Once a SPR has been decided on, the next step is to appoint the skilled person, which can be either via the PRA, using the Skilled Persons Panel, or by direct appointment by the firm under review.

    Things to consider when appointing a skilled person include:

    • Skills and knowledge required
    • Resources available within the suggested timeframe
    • Any potential conflicts or lack of independence

    During the SPR process

    The next sections of the statement discuss the expectations of everyone during the process of carrying out the review and producing a report. We have summarised these by each party.

    1. Skilled person

    The PRA has provided some guidance to help a skilled person meet its expectations. These can be broadly summarised under communication and reporting.

    Communication

    Clarify and discuss matters with the PRA before finalising the contract.

    Provide regular progress updates to the PRA, including issues.

    Inform the firm of communication between the PRA and themselves.

    If appointed by the firm, reporting is done through that firm.

    If appointed by the PRA, reporting is directly to the PRA.

     

    Reporting

    Provide the draft report to both the PRA and firm at the same time.

    Provide an opportunity for the firm to comment on the report.

    Inform the PRA of any potential delays once they become apparent.

    Be available for discussion of the report with the PRA.


    There is a requirement for the reviewer to not pass on information provided to the skilled person for the purpose of the review without lawful authority or consent.

    2. PRA

    Communication works both ways and the PRA has also outlined what other parties can expect of it:

    • Contact relevant parties before finalising its notice for a SPR
    • Provide written communication to relevant persons on the purpose, scope and timescale for the SPR
    • State requirements of the report e.g. contents, information required and format

    3. Firm

    Expectations are set out for the firm in terms of assisting the skilled person. These mainly relate to ensuring data and information is readily available to the skilled person in a timely manner.

    Our comments

    The list of the PRA considerations before commissioning a SPR implies reviews are only used where necessary and are considered the best course of action. Firms will be glad to see that the PRA is mindful of the costs of the reviews, as these are picked up by the firm and can be large. It may also be encouraging to firms to see that the objective is for the review to offer a benefit to them. These factors help to lessen the view that SPRs only arise when a firm is “doing something bad”. As a member of the Skilled Persons Panel, we welcome the additional guidance in the paper and the PRA’s attitude to open dialogue.

    Further information

    You can read the statement in full on the Bank of England's website.