GFSC needs to learn and change, industry body says

Friday 28 April 2023

Changes are needed at the Guernsey Financial Services Commission, industry has argued, in the wake of an unprecedentedly critical judgement of its approach to regulation.

That includes considering whether the "right tone" is coming from the top of the organisation in striking the balance between enforcement and natural justice.

The GFSC immediately announced it was going to appeal after it was told that fines it wanted to impose on three people should be cut and bans on them working in senior positions were overturned.

Lt Bailiff Hazel Marshall KC was scathing of the approach taken by the GFSC in its pursuit of the trio, suggesting that instead of accepting, they might have some points which could mitigate the penalties. Its response was driven by “a perceived need to put down the temerity of challenge, be the victor in any argument, and justify the Commission’s original decision in order decisively to exert its authority as regulator".

Finance Sector Lead for the Chamber of Commerce, Stephen Rouxel, said that Guernsey needed solid regulation and an empowered regulator to ensure that the Island keeps its place as a respected offshore financial centre.

“Clearly the role of regulator is a challenging one and the market at this time is a challenging environment,” he said.

“Where there are demonstrable challenges, such as highlighted in this case and judgement, what our members will be keen to see and understand is that the GFSC will take time to reflect on this judgement and seek to learn from these challenges. 

“Given the speed that a decision to appeal was taken, it is not clear that the GFSC is in listening mode which would be of concern. It seems clear from the breadth and depth of the criticism levelled within the judgement that there must be learning points to be taken away and this should be acknowledged.”

When asked what action should be taken, he said that “proper consideration needs to be given to the enforcement process, the decision-making process and where the GFSC should and could learn from past mistakes.”

“The right tone from the top on the difficult balance between the pursuit of enforcement and ensuring natural justice is preserved should be considered,” he said.

“Ultimately what our members will really want to see is an open and honest conversation about what has gone wrong and what changes will be made in the future.”

Mr Rouxel did not think it was fair to suggest there was a pattern of the GFSC doggedly pursuing smaller players in finance.

“The GFSC will, I am sure, be focusing on where they perceive the risk is in the market and whilst size will play a part in that calculation, it won’t be the only dogma. It could be said that larger players have more resources, more complex risk management and mitigation strategies and will, by dint of their great risk management potential, be less of a risk so less of a focus.  This won’t always be the case but I posit it to demonstrate why smaller players may be seen to be a greater risk and why smaller players may be in focus more.”

Some in industry have suggested that the case comes at a particularly bad time for the GFSC, with the Moneyval review on the horizon.

Mr Rouxell was unconcerned on that front.

“Individual circumstances such as this case and judgement may play a factor in any review under immediate outcomes but will not, I am sure, inform the whole review process.”