Fines cut as court blasts Guernsey's finance watchdog over attitude

Thursday 27 April 2023

A judge has criticised Guernsey's financial services watchdog for "approaching regulation with a dogged focus" and an apparent need to "be the victor in any argument", after a fiduciary company successfully appealed to lessen its sanctions.

Lt Bailiff Hazel Marshall KC ruled that two of the fines that the Guernsey Financial Services Commission imposed on three staff members 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.

The judge said: "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 accepted that the GFSC's function is to raise standards and in approaching regulation it had to manage risk.

She added: "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.

She concluded: "The financial services industry is an extremely important part of the economy of Guernsey."

"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."

More on this story on Bailiwick Express Guernsey.