Section 166 Skilled Person Reviews Explained: What Happens and What It Means for Senior Managers
A section 166 review, often called a skilled person review, is one of the regulators’ most powerful supervisory tools. The FCA or PRA requires a firm to commission an independent expert to report on a specific area of concern, at the firm’s own expense. For the Senior Managers responsible for that area, a section 166 is a test of their oversight, and the findings often lead to remediation, changes in leadership and closer supervision. This guide explains what a section 166 review is, how it works and what Senior Managers should do when one is announced.
What Is a Section 166 Review?
Section 166 of the Financial Services and Markets Act 2000 allows the FCA and PRA to require a firm to provide a report from a “skilled person” on any matter relevant to the regulator’s functions. The skilled person is usually an accountancy firm, consultancy or law firm with relevant expertise. The FCA’s approach is set out in SUP 5 of its Handbook and on its skilled person reviews page.
The regulators use section 166 reviews for different purposes:
| Purpose | Typical use |
|---|---|
| Diagnostic | Identifying whether there’s a problem, and how serious it is |
| Monitoring | Tracking a firm’s progress on fixing known issues |
| Preventative | Assessing risks before they cause harm |
| Remedial | Overseeing or carrying out remediation, including customer redress |
A related power, section 166A, allows the regulators to require a skilled person to collect or update information that a firm should have but doesn’t.
Why Does the FCA Order a Section 166?
Common triggers include:
- concerns about financial crime controls, such as transaction monitoring or customer due diligence
- client money and asset failures, including qualified CASS audits
- evidence of poor customer outcomes, mis-selling or the need for redress
- weaknesses in governance, risk management or controls
- IT and operational resilience failures
- doubts about the accuracy of information the firm has given the regulator
How the Process Works
| Stage | What happens |
|---|---|
| Notification | The regulator tells the firm it intends to require a report, often after discussion |
| Requirement notice | The regulator issues a formal notice setting out the scope and timetable |
| Appointment | The firm usually appoints the skilled person, who must be approved by the regulator; sometimes the regulator appoints directly |
| Review | The skilled person reviews documents, interviews staff and Senior Managers, and tests controls |
| Report | The skilled person reports to the regulator, often with draft findings shared with the firm first |
| Remediation | The firm agrees and delivers a remediation plan, sometimes overseen by the skilled person |
The firm pays the skilled person’s costs, which can be substantial, and remediation costs often exceed the review itself. The skilled person’s duty is to report to the regulator, so while they work closely with the firm, they’re independent of it.
What It Means for Senior Managers
A section 166 review often focuses on areas with a named Senior Manager accountable for them. The skilled person will usually want to understand:
- what the responsible Senior Manager knew, and when
- what management information they received
- what challenge and escalation took place
- what reasonable steps they took to prevent or address the problem
The findings may be relevant to the regulator’s assessment of whether the Senior Manager met the Duty of Responsibility and the Senior Manager Conduct Rules. A review doesn’t automatically lead to action against individuals, but Senior Managers should treat it seriously from the start. See our analysis of FCA enforcement trends.
What Senior Managers Should Do
Section 166 checklist for Senior Managers
- Understand the scope and what the regulator is concerned about
- Gather the records that show your oversight: MI, board papers, escalations and decisions
- Be open and cooperative with the skilled person and the regulator
- Make sure the firm has enough capacity to support the review without neglecting day-to-day work
- Consider whether you need independent legal advice, particularly if your own conduct is in question
- Start planning remediation early, rather than waiting for the final report
- Keep the board informed throughout
Staffing a Section 166
A section 166 review puts heavy demands on a firm’s people. The compliance, financial crime or operations team must support the skilled person while continuing its normal work, and remediation often needs specialists the firm doesn’t have. Common appointments include interim heads of compliance or financial crime, remediation programme managers, file reviewers and, where leadership has changed, new permanent Senior Managers. Our article on staffing a section 166 remediation sets out who firms need at each stage, and our fractional and interim SMF cover service supports firms that need experienced leaders quickly.
After repeated concerns about transaction monitoring, the FCA requires a payments firm to commission a section 166 review of its financial crime controls. The firm’s MLRO is already stretched. The firm appoints an experienced interim MLRO to lead its response, and a remediation manager to coordinate evidence for the skilled person. The review finds significant gaps in monitoring and customer due diligence. The firm agrees a remediation plan, recruits a permanent MLRO with payments experience, and the skilled person monitors progress for the following year.
After the Review
The regulator decides what happens next, based on the findings and the firm’s response. Outcomes can include:
- no further action, where the review finds the concern was limited or already being addressed
- a remediation plan, often with deadlines and further skilled person monitoring
- customer redress schemes
- restrictions on the firm’s business, such as voluntary requirements
- enforcement action against the firm or individuals in serious cases
Firms that respond openly, quickly and with credible people usually fare best. Bringing in experienced leadership early often signals to the regulator that the firm is taking the matter seriously.
Preparing Before a Review Arrives
The best defence against a section 166 is evidence of strong oversight, built up over time. Senior Managers should make sure their management information shows real outcomes and risks, that their challenge and escalations are recorded in board and committee minutes, and that known weaknesses have clear remediation plans with owners and deadlines. Firms that can show the regulator they already know about a problem and are fixing it are far less likely to face a review in the first place.
Section 166 Support
Leaders and specialists for firms facing a skilled person review. Every SMF search is led personally by Adrian Lawrence FCA
Interim Leadership
Experienced leaders, quickly.
→ Fractional and interim cover
→ MLRO recruitment (SMF17)
Permanent Senior Managers
When leadership needs to change.
→ Compliance officer (SMF16)
→ Chief Risk Officer (SMF4)
Accountability
Senior Manager exposure.
→ FCA enforcement trends
→ Statement of Responsibilities template
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
What is a section 166 review?
A report by an independent skilled person, required by the FCA or PRA under section 166 of FSMA, on a matter of concern at a regulated firm.
Who pays for a section 166 review?
The firm pays the skilled person’s costs, and any remediation that follows.
Is a section 166 review an enforcement action?
No. It’s a supervisory tool, but its findings can lead to enforcement action in serious cases.
Who chooses the skilled person?
Usually the firm appoints them, subject to the regulator’s approval. The regulator can also appoint the skilled person directly.
How long does a section 166 review take?
It depends on the scope. Many take several months, and remediation and monitoring can continue for a year or more.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He leads every SMF Capital search personally, including interim and permanent leaders appointed during skilled person reviews. View Adrian’s ICAEW profile.
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