In an interview with IFC Guernsey, William Mason discusses the obstacles and opportunities that maintaining a robust regulatory regime presents for the Island’s financial services sector and its reputation on the international stage.
IFC: How important is Guernsey’s regulatory regime to the success of its financial services sector?
William Mason: Guernsey’s proportionate, risk-based approach to regulation is an integral component of the financial services sector. It contributes to the island’s success as an international financial services centre, enhancing its excellent reputation as a good place to do business. Financial services firms and their clients are increasingly looking to place their business in reputable jurisdictions which have a demonstrable track record in providing good regulation to international standards.
IFC: How would you describe the relationship between the Guernsey regulator and the private practitioners on the island?
WM: The Commission has a constructive working relationship with the main industry bodies, with all parties respecting where the boundaries are drawn. The Commission hr regular dialogue with those bodies so that issues and areas of mutual interest can be explored at the earliest opportunity. The Commission also promotes an open communications policy to ensure firms and individuals are aware of its requirements and expectations so as to avoid any ‘surprises.’
IFC: How important is it for the GFSC to be innovative in its approach to regulation of the industry or is it more important to be seen to implement the regulatory demands being made by the likes of the EU and the OECD?
WM: It is a question of how we do both of these rather than how we do one or the other. Firms change constantly, particularly in response to new technological changes and it is important that we can understand what they are doing to keep up from a regulatory perspective. We have recently been having discussions with other regulators to appreciate how they are considering using data analytics to enhance their understanding of the firms they regulate, and we have made moves in this direction in recent years through our investment in regulatory technology. In terms of regulatory demands from overseas actors, Guernsey has long had a policy of meeting all relevant international standards from the international standard setters – these being the Basel Committee, the Financial Action Task Force, the International Organisation of Securities Commissions and the International Association of Insurance Supervisors.
IFC: What is the GFSC doing to ‘stimulate and foster innovation’ in Guernsey?
WM: The GFSC has an Innovation Soundbox – an innovation hub which provides a free route for entrepreneurs and innovative businesses to meet directly with the regulator and explore what the regulatory landscape could mean for their business. The Soundbox is not a dedicated team or set of individuals, but instead allows an innovative business direct access to the full range of GFSC resources. In common with other regulators, the GFSC recognises that innovative businesses may not mesh perfectly with specific regulations written before an innovation was foreseen.
Therefore, the Soundbox will listen to the prospective business and work with it to establish whether specific license conditions would be appropriate to allow products or services to be tested in a controlled environment.
The GFSC recognises the economic value, advantages and consumer benefits which may be potentially delivered through the provision of innovative financial services and, in conjunction with other regulators, has adopted a technology neutral stance.
IFC: Do you think there can be too much regulation – when the cost of compliance outweighs the benefits? How is the GFSC managing this dichotomy?
WM: Of course there can be too much regulation. It can be debilitating for an economy. I used to work as part of the Cabinet Office’s Better Regulation Task Force before I joined the Financial Services Authority. Part of my role there was to seek ways to cut regulation and I’m certainly proud of the role I played in writing, “Regulation – Less is More, A Report to the Prime Minister,” which set out how the UK should be seeking to reduce the burden of regulation. I’m delighted to say that many of the concepts which we put forward in that report have stood the test of time and, while originally agreed by Tony Blair, have been implemented through both the coalition government and the more recent Conservative government as a means of keeping the natural regulatory instincts of many civil servants and politicians in check.
In terms of our approach in Guernsey, the Commission seeks to implement the much-evolved post crisis international standards in a proportionate manner. The Commission also works hard as a component part of a number of international policy setters, such as the International Association of Insurance Supervisors and the International Organisation of Securities Commissions, to ensure that the new global rules are proportionate rather than just being designed for large firms in large countries. Despite our size, the quality of our contributions and the recognition of our role in representing the perspectives of a number of smaller jurisdictions on different continents mean that we can get a hearing from bigger countries participating in such fora and secure some drafting improvements in international guidance.
There is a natural pendulum in terms of financial services regulation, as there is in other areas of regulation. After a disaster, everyone cries out for more regulation and attacks the regulator for not having foreseen the then future and prevented it. Politicians then demand much tougher regulations be implemented to help guard against (to pick one obvious example) past banking failures. A few years pass. Industry lobbyists regain influence over a new crop of politicians who were not in power when the last crisis hit. Economists, regulators, think tanks and central banks write papers suggesting that perhaps the solutions to the last crisis were not necessarily perfect and may, in small areas, be capable of refinement to free up markets and improve economic growth. Adaptions are then made and the pendulum swings back a bit if public policy making is working reasonably. In Guernsey, we seek to avoid the extremes of the cycle, to the extent we can, and to act as something of a dampener on the international regulatory pendulum whilst ensuring we remain in sync with it in order to remain an acceptable counter-party to other jurisdictions.
IFC: How are you maintaining the balance between encouraging new investors to the island and enforcing the increased regulation?
WM: The job of promoting the Bailiwick as a good place to do business in the financial services sector falls to Guernsey Finance and Locate Guernsey. Within the confines of its role, the Commission remains cognisant of the States of Guernsey’s overarching objectives for maintaining the island’s economic prosperity. We seek to deliver good regulation in a proportionate manner which enhances rather than compromises the island’s excellent reputation as an international financial services centre. The Commission also works with government and industry in developing new financial services products and policies. Recent examples of this include the launching of the Insurance Linked Securities Rules and the Private Investment Fund regimes, both major new products which are aimed at maintaining the Bailiwick’s reputation as an innovative jurisdiction, as well as the recent policy initiative which has led to the introduction of regulation for the pensions sector.
In terms of enforcement, whilst the Commission recognises that the vast majority of financial services firms in Guernsey are honest, hardworking and providing good advice and a range of services to their clients – there are always a few firms which will seek to exploit their clients and potentially damage the reputation of Guernsey as a good place to do business. The Commission’s role includes taking action against such firms to ensure that a level playing field is maintained with customers receiving appropriate protection.
IFC: What have the repercussions been from data leaks such as the ‘Panama Papers’ and more recently the ‘Paradise Paper’s, and how have international finance centres responded to the difficulties they created?
WM: The Commission is not aware of any specific issues arising for the Bailiwick as a result of the Panama Papers although it is inevitable that major developments such as this will shine a spotlight on international financial centres.
More recently there has, of course, been the apparent theft and publication of the so called ‘Paradise Papers’.
At a recent meeting of the Group of International Financial Centre Supervisors (GIFCS), I was able to discuss current commentary in the media in relation to the papers taken from the law firm Appleby with a number of my international counterparts. We reviewed and collectively re-emphasised the steps which GIFCS members have taken over many years, and will continue to take, to combat financial crime, enhance transparency and promote the probity of business. We think it important that the public are informed that the GIFCS jurisdictions highlighted by the media have full regulation of trustee and company service providers and that overseas tax and law enforcement authorities have access to information from our jurisdictions under the terms of numerous international agreements covering the automatic exchange of information between public authorities.
The fact that, to date, there have been very limited repercussions for the Bailiwick from the leaking of both the ‘Panama’ and ‘Paradise’ papers is perhaps an indicator of the good standards being adhered to by local firms. In that respect, Guernsey is regularly subjected to inspections by international bodies such as the Council of Europe’s Moneyval organisation. As recently as 2016, Guernsey received a good report from Moneyval whose key conclusions were:
The Bailiwick has in place a range of measures to facilitate various forms of international cooperation.
Competent authorities and financial institutions are highly competent, knowledgeable and aware of their obligations.
Cooperation and coordination between Bailiwick authorities is effective.
IFC: How has/will Brexit impact business in Guernsey?
WM: Guernsey’s status with the EU remains unchanged in terms of financial services. We are presently a third country for the purposes of trade in services and post Brexit we will be a third country for the purposes of trade in services with the EU27. Much of the market access to the island’s current key EU trading partner, the UK, is through the UK national regime which we expect to remain broadly unchanged.
We are continuing with our approach of open engagement and dialogue with the European Commission on third country issues. As a jurisdiction we have a broad set of equivalences on EU financial services dossiers – as well as the yet to be consummated positive European Securities and Markets Authority technical equivalence assessment on Alternative Investment Fund Managers Directive passporting. Guernsey has been deemed equivalent on dossiers as broad as audit, data protection and credit risk by varying EU technical authorities. We will continue to seek to extend those IFC Guernsey equivalences as and when appropriate and in the island’s interest.
Similarly, we are maintaining our dialogue with UK regulators to ensure that our regulatory regime provides as broad and deep a market access as practical for firms located in Guernsey. Our dialogue extends to trying to understand potential new regulatory frameworks designed for increased services market access as the UK develops its independent trade policy. The potential that that new independent trade policy gives is regarded as one of the prizes of Brexit by Sir Lockwood Smith, the distinguished New Zealand politician, diplomat and trade negotiator. We are happy to regulate Guernsey firms trading globally.
Overall, the island provides a safe location for investment funds, investment and wealth management services for global investors. In a Europe experiencing much change, these should remain constants.
William Mason has been the Director General of the Guernsey Financial Services Commission since 2013. He is also a member of the Executive Committee of the International Association of Insurance Supervisors where he has previously chaired both the Audit and Risk Committee and the Standards Assessment Working Group. He has a strong interest in Supervisory Technology and Green Finance. Under his leadership the Guernsey Financial Services Commission has developed: The Guernsey Green Fund – possibly the world’s first regulated green fund structure; brought into force environmentally sensitive green capital rules for life insurance individuals – possibly another world first in insurance regulation; and made moves, including planting 53,000 trees this year in an ecologically advantageous fashion, towards becoming a net zero regulator. Prior to becoming a financial regulator, William worked at the UK Cabinet Office where he helped write “Regulation - Less is More, a report to the Prime Minister.” His other publications include: “Freedom for Public Services; The Costs of Regulation and PRISM Explained – Implementing Risk Based Supervision.” Earlier in his career William gained private sector experience working for an international energy firm on three continents and a US strategy house, Monitor Group.