The Guernsey Financial Services Commission has come in for unprecedented criticism from a judge for doggedly pursuing heavy fines and bans with an attitude that it had to put down any challenge and always win.
Its sanctions against three staff from fiduciary company Artemis were the subject of a successful appeal with Lt Bailiff Hazel Marshall KC rebuking the GFSC for how it handled the case.
She ruled that two of the fines imposed should be cut and quashed all the bans.
The GFSC is appealing the judgement.
Work of the regulator when deciding on sanctions follows stages, with a draft decision made first, which in this case was vigorously challenged.
“Regrettably, I formed the clear impression, in reading through the progress of the matter, that instead of considering dispassionately whether the appellants might have some points (as they did) and whether this might appropriately require some mitigation of the initially proposed penalties, the Commission’s response became 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,” she said.
She accepted that the GFSC’s function is to raise standards and in approaching regulation it had to manage risk.
“However, the danger, it seems to me, is that approaching regulation with a dogged focus simply on risk can lead to a lack of perspective, where adherence to form and process are treated as more important than substance. Whilst the protective effect of requiring adherence to policies, processes and controls is obvious, the Commission must surely, still, apply balance and common sense when determining whether and what sanctions to impose, in respect of defaults, if those sanctions are to remain reasonable and proportionate in the particular case.”
Lt Bailiff Marshall KC said that once any matter had been referred to the GFSC’s enforcement division, it was almost a matter of honour that charges should be laid and severe penalties successfully enacted.
The GFSC wanted to ban Ian Domaille from performing any senior or supervisory role in the financial services sector in Guernsey for a period of eight years and fine him £280,000.
Lt Bailiff Marshall has remitted the fine back to the regulator and suggested it should be cut to £175,000.
Ian Clarke was facing a four year ban and £90,000 fine.
The judge suggested this should be £60,000
The GFSC wanted to ban Mrs Margeret Hannis from holding senior positions for three years and fine her £30,000.
The fine was not appealed.
In defending the appeal, the GFSC rejected any suggestion that its senior decision maker had made an error in law.
“It supports his findings as being perfectly properly and reasonably available to him on the evidence before him; insofar as any errors of fact may appear to have been made, it is submitted that these are very minor, and insufficient to support any argument that the overall conclusions reached, and the sanctions consequently imposed, were not justified or were unreasonable or disproportionate in all the circumstances,” the judgement said.
The judgement was critical about how the GFSC issued a public notice about the penalties despite them being challenged.
Lt Bailiff Marshall KC described it as a “somewhat disquieting procedural event”.
“Obviously, the reputational damage caused by publicising sanctions, and the imposition of a Prohibition Order in particular, can be very grave,” she said.
“The Commission publishes guidance on its website about its procedures, and it had stated that it would not make notice of such sanctions public for a period, to enable parties to notify any intention to appeal, and that it would not publicise a decision which was a contested decision. Its website guidance states (or rather, now, ‘stated’, since it appears that the Commission subsequently removed this reasonable but inconvenient notification), that the publication of notice of Prohibition Orders will only take place ‘upon the uncontested imposition of the Prohibition Order’.”
On 22 July 2022 the Appellants told the GFSC that they intended to appeal if the decision contained the proposed sanctions and asking that they would not be made public for a grace period.
The Commission refused to discuss this.
When the decision was made seven days later, notice of the Prohibition Orders was immediately published on the Commission’s website and automatically sent out to its mailing list.
This was before the Appellants were told.
Two emails were sent by their advocate firm Appleby asking for the prohibition order to be taken down. The Commission refused.
“The Commission contended that a decision which had been formally made could not be regarded as ‘contested’ because of an intimated appeal.”
The Appellants had to get emergency out of hours injunctive relief from the Deputy Bailiff, who granted an interim order that evening.
“I found the Commission’s attitude in the matter, with its apparent conviction that its own view must be rightful because it was exercising its functions as a regulator, its seeming bewilderment at being challenged, its view that its Decision could not reasonably be said to be “contested” just because it was going to be appealed, and its obliviousness to the fact that the Appellants’ reputations could be irreparably damaged in a situation where a successful appeal just might show this to have been unjustified, quite extraordinary.”
In concluding her judgement, she said she felt driven to make a comment.
“The financial services industry is an extremely important part of the economy of Guernsey,” she said.
“It is hugely in Guernsey’s interests to be a location which those who have responsible and respectable fiduciary or finance business to set up, operate or transact find attractive for that purpose.
“The Commission is understandably fervent in the performance of its functions of protecting the public interest and protecting and enhancing the reputation of the Bailiwick as a financial centre.
“However, it seems to me that on occasions, the Commission may overlook the fact that the reputation of the Bailiwick as a financial centre includes the reputation of the Commission itself as a regulator.
“In my judgement that reputation needs to be one of being ‘firm but fair’ and the Commission needs to keep in mind the danger that, in the interests of being perceived to be the former, it may overlook the latter.
“This is particularly so as regards dealing with ‘small’ businesses - persons or entities who could not afford the costs of challenging a decision of the Commission. This is, perhaps, an unusual case in that regard.”
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