Regulation and prosperity in Guernsey
Outside of the EU, just 30 miles west of Normandy, Guernsey is the setting for one of the world’s largest offshore financial centres. It currently has some £270bn funds under management and administration and a global reputation for fiduciary and captive insurance capability. The island’s financial sector and its associated legal and business services account for around half of its GDP and is its largest employer. Guernsey is keen to hold on to its solid reputation and offers a warm welcome to new businesses operating within the financial sector, which are seen as critical to its success.
Baring its enforcement teeth
Guernsey’s rules and regulations for countering money laundering and the financing of terrorism are robust. A recent assessment of Guernsey’s regulatory regime undertaken by MONEYVAL, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures, in January 2016, confirmed that there is a good regulatory environment in place. However, that said, a major criticism of the island was that fines imposed were too low, which was immediately addressed with the introduction of a new regime that increased maximum fines for licensed entities from £200k to £4m and for officers and personal fiduciary licensees from £200k to £400k. Financial penalties for compliance failings now have real teeth. As in the UK mainland, self regulation and monitoring is the “new black”. However, for a regulatory regime to really work, there has to be industry ownership of the regulation that is in place.
Evidently, the island’s economy is dependent on the financial services sector and as a result, the regulator, the Guernsey Financial Services Commission or GFSC, and the industry walk a path where the island’s international reputation for good laws and governance has to be maintained whilst at the same time facilitating financial sector innovation and growth. For many jurisdictions this has frequently proved to be a difficult route to follow. The UK went from being a light touch to an enhanced regulatory framework, with a focus on governance structures and self reporting. Post Brexit there is a renewed focus on protecting the financial services sector and its contribution to the economy. The jury is still out on how effective the changes introduced over the last decade will ultimately be and whether the UK Government’s heart is really in the reform camp.
The only way for regulation to progress in this offshore financial powerhouse is through a fully engaged, meaningful and trusting dialogue between the regulator and industry. This might be viewed as a text book proposition, that is, one that is theoretically marvellous whilst being practically impossible. However, in Guernsey one has a real sense that there is an opportunity here to do things differently, that is, not to follow a them-and-us approach, but to recognise that it’s in everyone’s best interests that a robust, fair and practical regulatory protocol and dialogue is not only in place, but seen to be in place and working effectively.
The island’s population is small, with just 63,000 inhabitants. Regulators and those who are regulated know each other well and most probably went to school together. Everybody knows where the difficulties and problems lie in terms of the practicalities of implementing particular measures, how regulation is enforced and which businesses have processes where improvement is needed. Nevertheless, an open, regular and informal dialogue to ensure that concerns about the practical implementation of regulation are aired has to be beneficial to maintaining the continued success that Guernsey has enjoyed in the financial sector.
Finally, as one might expect in this environment, numerous compliance consultants have cropped up with an outsource offering designed to appeal to smaller entities or those dealing with particularly complex situations. As part of its role to protect the reputation of Guernsey, the regulator must focus in on this consultant sector to ensure that those providing the service are properly qualified and maintain a current knowledge of the changing regulatory landscape.
There is no quick fix to meaningful cultural and regulatory change, which are typically achieved over an extended period. However, Guernsey is well placed to show us all how this can be done.
- Paul Smethurst, Partner, CBW
This article was written for and first published in The Accountant.