IFC: As financial services businesses increasingly look for reputable financial centres with a sound track record, how important is Guernsey’s regulatory regime to the success of its financial services sector?
WM: I know I would be expected to say this but it’s genuinely vitally important for our future as an IFC. People investing in Guernsey funds need to know that their interests are going to be looked after by competent and honest directors. International firms need to know that money in Guernsey is clean and that we are determined to tackle any small pockets of bad practice if they are to continue to operate and expand in the Bailiwick. Our international counterparts need to know that Guernsey meets the international regulatory standards set out by the Basel Committee, International Organisation of Securities Commissions (IOSCO), Financial Action Task Force (FATF), International Association of Insurance Supervisors (IAIS) and the Group of International Finance Centre Supervisors (GIFCS) if they are to be comfortable continuing to grant Guernsey entities access to their markets under trade treaties and less formal arrangements.
IFC: What do you think sets Guernsey apart from its competitors?
WM:As the regulator, our job is to co-operate with our international counterparts to ensure confidence is maintained in the international financial system as a whole. Jurisdictional competitiveness is explicitly not part of our statutory objectives for that reason. We obviously seek to ensure that we are open to good quality business and that our Authorisations and Innovations Division is able to discuss new novel types of business with promoters at an early stage – something we managed throughout the COVID lockdown.
IFC: Do you feel that increasing regulatory demands from the EU and OECD are hampering innovation?
WM: In recent years, many people have expressed the view that the EU was guilty of regulatory overreach. Since then, I think many within the EU have started to see the flaws in some of the legislation and I think it’s likely that the current Commission will significantly reform some EU directives which have proved overly bureaucratic. I certainly hope that they will because as Guernsey, we certainly wish to see our nearest neighbour enjoying democratic freedoms with a healthy economy and a financial services sector able to stimulate economic growth as the EU struggles to recover from its COVID countermeasures[i].
IFC: How do you balance the demands for regulatory measures with ensuring that Guernsey remains sufficiently innovative to meet client expectations?
WM: By rejecting the dichotomy of your question for a start! In Guernsey we believe in being orthogonal to unthinking orthodoxy. People only started to be properly rewarded for innovation when patents came into existence with patent courts and so forth (regulation) to enforce their rights. If you don’t have the rule of law (regulation) then the man with the most raw power tends to come out on top, irrespective of how little he has contributed to any endeavour. Our job as a regulator is to ensure there is an environment in which good quality firms can put forward their innovations to customers in a fair minded way with customers being happy to experiment, secure in the knowledge that they are not dealing with fraudsters and charlatans. In specific terms, we are an active member of the Global Financial Innovation Network (GFIN), the global body set up by regulators to encourage innovation, and are taking part in this year’s cross jurisdictional trials. Emma Bailey, our Director of Authorisations and Innovations, and her team are happy to discuss new ideas.
IFC: Earlier this year, Guernsey introduced a fast-track system for migrations of investment funds and their managers into the island; how successful has this system been and what benefits does it offer investors?
WM: For us it was part of demonstrating that Guernsey is firmly open for business despite COVID. For investors, an ability to cope with COVID, the need to be domiciled in a jurisdiction of substance with a strong reputation for combatting financial crime, a good quality tax regime and a desire to be somewhere which takes its sustainability obligations seriously have perhaps all become more important factors. Our fast track is offering them an ability to take advantage of Guernsey’s strengths in all these areas.
IFC: How successful has the Commission’s Financial Crime Division been in the fight against AML/CTF?
WM: Guernsey received very high marks against the FATF financial crime standards in its last inspection by the Council of Europe’s Moneyval. We have also continued to invest in Supervisory Technology (SupTech) since then, markedly improving our ability to detect the very few firms which may not be properly complying with financial crime regulations. Our team also undertakes noteworthy outreach programmes to help hundreds of money laundering reporting officers (MLROs) and compliance officers fully understand our financial crime regulations so that they can be assured that they are doing the right thing, taking into account our National Risk Assessment. The team have also produced a series of comic videos to get across some quite serious messages about combatting financial crime in a light-hearted way (www.gfsc.gg/salarie-financial-services) which have been well received.
IFC: How will the UK’s exit from the EU affect Guernsey as an international financial centre?
WM: It opens up opportunities for Guernsey. Guernsey’s partial participation in the EU’s Common Market was negotiated in the early 1970s on the basis that Guernsey made its living from exporting goods, namely tomatoes and flowers. Our terms of trade with the EU have remained pretty unchanged since then and the 1970s arrangement is sub-optimal for our service-based industries which developed over the last half century. The UK leaving and focusing on liberalising global trade in services, including financial services, opens many doors for Guernsey which would have remained shut if the UK had remained in the EU. That is not to say that the UK won’t have to adapt to take advantage of its newly recovered freedoms but I’m certain it shall and a prosperous City of London is good for Guernsey which tends to provide highly complementary financial services.
IFC: The rapid deployment of measures to prevent the spread of COVID-19 is having an impact on how companies continue to meet their regulatory obligations. Concerns have arisen that those measures, such as restrictions on travel and voluntary and mandatory social distancing, could cause difficulties for companies required to satisfy the economic substance test in Guernsey. What measures are being put into place to resolve this issue?
WM: I think many companies are discovering that there are long term welfare and innovation disadvantages from complete home working. Video conferencing, whilst sometimes helpful, is inferior to being in the room with people, particularly when you need to discuss a difficult issue. In Guernsey, we were very fortunate that our health authorities got COVID under control by the end of June. We always kept a skeleton staff in our office and we have been fully back in the office since July alongside almost all financial services firms so we have escaped many of the tricky issues with which other jurisdictions have had to deal. Guernsey firms have always had to have some Guernsey-resident directors and Guernsey pursued a policy of being a jurisdiction of substance long before the OECD decided it was a good idea, so the substance issue has not really arisen to any significant degree.
IFC: What plans are in place to ensure Guernsey’s economic recovery from the COVID-19 crisis?
WM: COVID has been tough for our hospitality sector but that is, compared with many other IFCs, a smaller portion of our economy and the fact that we have been able to live in a COVID- free Bailiwick bubble this summer has meant we have all spent a lot more in local restaurants and so forth than we would have done had we gone overseas, which has done something to alleviate the pressure. I’ve certainly spent a lot of time sailing to Alderney, Herm and Sark this year enjoying their wonderful restaurants having dropped anchor. Many thousands of “Guerns” have done likewise, thereby boosting their tourist economies.
The financial services sector in Guernsey is long term rather than transactional and has proved remarkably resilient. We are, however, anything but complacent and our recent initiatives include:-
[i] The OECD is principally concerned with tax rather than financial services regulation.
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.