2024 Reflections with a Brief Look into 2025
Now that the MONEYVAL process is over with publication of the Bailiwick’s report likely to occur in February or March, we’d much like to thank all those in industry who worked so hard with us to demonstrate the Bailiwick’s robust commitment to and ability in combatting money laundering, terrorist financing and proliferation financing. We are conscious that despite our having been preparing for a good five years for the April 2024 inspection, there are always some things which need to be dealt with at the last minute and changes to well laid plans which simply need to be accommodated. The sense of shared endeavour on behalf of the Bailiwick by those in both the private and the public sector was noteworthy and, before it entirely fades from view, we would like to say thank you to the other members of “Team Guernsey” for undertaking so much work with such good grace allowing the Bailiwick to manage the process so smoothly.
MONEYVAL - whilst our overriding priority in 2024 - was not, of course, all that the Commission did. Contrary to some naysayers who sometimes seem unduly pessimistic as to the Bailiwick’s economic prospects, our Authorisations and Innovation Division dealt with a substantial volume of new financial services business wanting to come to the Bailiwick. We processed over 600 applications during the year which is indicative of a healthy level of activity including some applications such as those for limited permissions or unregulated PCC incorporations which don’t naturally lead to full licences being granted. All of these are good evidence of economic activity. Certainly fund raising is more challenging in a five percent interest environment than in a zero percent environment but many substantial new funds were still launched. There were 50 new funds plus additions to existing funds and 43 new investment licences. The insurance sector also saw over 50 new entities (licences or cells). Our 2024 statistics also suggest that the fiduciary sector remains in robust health, with Guernsey banks continuing to prosper in 2024.
Aside from authorisations, the Commission’s supervisory programme continued, albeit at a reduced intensity in some areas, given the need to divert staff to work on MONEYVAL matters for much of the year. We hope we provided useful feedback through regular engagement with industry bodies, numerous presentations at Les Cotils and with our published thematic reports aiming to provide helpful guidance to those in industry about optimal ways to comply with regulatory requirements without unnecessary and costly gold plating. As we sharpen our focus on accurate and meaningful data as a vital enabler for modern supervision, we also appreciate the efforts made by licensees to produce timely, high quality reporting.
On the enforcement front, we know that when one of our successful enforcement actions is publicised beyond the Bailiwick’s shores it can make for uncomfortable reading but the alternative, of pretending that people do not sometimes do bad things for a whole variety of all too human reasons, is surely much worse. That is an approach which would compromise our future prosperity by undermining confidence in us as a jurisdiction. We are a place which depends on our good international reputation for much of our trade, a point which was made to us strongly by overseas fund management and private wealth lawyers we engaged with over the year in conjunction with Guernsey Finance. On a more simple basis, societies without the rule of law tend not to thrive so we seek to fulfil our duties under the law to ensure the countering of financial crime
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Our approach and our strong track record of having taken action since the last MONEYVAL inspection in 2015, against those who had severely broken the law with regard to money laundering and terrorist financing controls, proved helpful in reassuring the assessors that the Bailiwick is a jurisdiction committed to taking regulatory action to ensure that it is not a safe haven for unclean funds. Our actions against those outside the formal regulatory perimeter who were undertaking unlicensed business were also valuable in proving jurisdictional effectiveness. That said, we were also comfortable explaining to MONEYVAL inspectors that only a tiny fraction of the matters which our supervisors discuss with firms lead to enforcement action because enforcement is a tool which is not required to deal with the vast majority of the issues we encounter. Further, in at least one case we investigated last year, we were pleased to conclude that matters were not severe enough to justify any formal sanctions and that a more collaborative supervisory approach to resolving the issues was appropriate.
A number of enforcement matters, further to our investigation and Senior Decision Maker processes concluding, continued to go before the Royal Court, Court of Appeal and even – in one instance – the Privy Council. The Privy Council’s rejection of this application for leave to appeal just prior to Christmas was good news for the jurisdiction as it provides backing from our highest court for the prior decision of the Guernsey Court of Appeal that we should be taking reasonable action against those who severely break the law. Various other matters continue to progress through the courts and we will look forward to publishing further details on those matters, some of which have now run on for some years since we concluded our investigations, as and when we are legally able to do so in 2025.
Innovation, simplicity, competitiveness & ease of use
In 2024, our technology work encompassed far more than just the successful Finovation technology conference in September which we co-hosted with Guernsey Finance. In the background, work on our multi-year data project continued apace. This project aims to simplify our data architecture radically, creating operational efficiencies and enabling much easier and more intuitive use of the data we gather. Concrete steps taken in 2024 included a new more robust e-mail tracking system and considerable data pruning.
In terms of working towards process simplification and ease of use, we undertook much of the development work on our new and innovative applications and authorisations portal with the alpha release going live in November. In 2025 we will continue to develop the portal so that it is accessible to all those who wish to undertake financial services business in the Bailiwick, hopefully thereby reducing administrative burdens and reducing barriers to entry, encouraging more business to take place on our islands.
In terms of policy creation and simplification, inter alia, we:
- advanced work to create proportionate rules for retail general insurers;
- worked with industry stakeholders to create updated exchange rules complying with the latest IOSCO mandated standards;
- revised the pensions regime to enable new efficient structures to be used more easily by those undertaking pensions business, making Guernsey more attractive;
- concluded a review of the pensions perimeter – offering increased clarity;
- offered clarification on our expectations with regard to unclaimed client money – seeking to reduce excessive caution in terms of how firms can handle it whilst reasonably safeguarding investor interests;
- consulted on modernisation of the prospectus rules with the aim of providing enhanced clarity, simplifying and standardising some requirements to ensure that the Bailiwick’s investment and funds proposition is as accessible and as simple to use as possible whilst continuing to accord with international standards on investor protection;
- amended our Explanatory Note on fund authorisation and registration surrender to reduce unnecessary regulatory burdens on funds and fund investors;
- worked with the States and the banking sector to finalise a proportionate and low cost way in which the Bailiwick can comply with international standards on bank resolution; and
- produced a thoughtful discussion paper on how best to advance towards International Sustainability Standards Board (ISSB) standards in the financial services area. This paper elicited considerable constructive feedback from a number of quarters which we will look forward to using to further develop the Bailiwick’s sustainability plans in 2025, taking full account of the international sustainability landscape.
Evolution of regulatory policy making
It is now two decades since I wrote a substantial part of
Regulation – Less is More – A Report to the Prime Minister. At that time, as a young and optimistic Cabinet Office civil servant, I had genuine hopes that, with the strong support of Tony Blair in the somewhat more relaxed “Cool Britannia” era, we could bear down upon the tendency of state and parastatal actors to develop ever more complex, ever more elitist policy, with which the ordinary hard-working man and woman had little chance of understanding, never mind complying. At the core of the proposition that that report advanced to the then prime minister was the notion that whilst industry might experience policy costs from something the Labour government wished to do, the administrative burdens attaching to those policies could be minimised to reduce the negative externalities the policy decisions would otherwise have on economic growth and national prosperity.
In the two decades since then I fear the world has become even more, rather than less, complex with the 2008 Global Financial Crisis, sadly, putting wind in the sails of those who believe, incorrectly, that there must be a regulatory solution for every social and economic problem. As a close reading of the Old Testament will illustrate, many of the issues which currently afflict our society and economy are as old as human civilisation and we lack perfect solutions for them as much as the judges and kings of ancient Judah lacked perfect solutions. What is perhaps different in the modern age is the new edges which technological innovation has given to many of those age old problems.
The Draghi Report published in September 2024 was a more than overdue rebuttal to the proposition - too popular in many international policy creation circles up to that point - that there must be a regulatory solution to everything. As he put it, “we claim to be in favour of innovation but we continue to add regulatory burdens onto European companies which are especially costly for SMEs and self-defeating for those in the digital sectors.”
2 His advocacy of deep reform and a change in the EU’s policymaking mindset should have influence beyond the EU and will hopefully make it more permissible for us to advance the case in places where we have a voice that the solution to “abc bank” collapse or “xyz fund” failure should not automatically be yet another layer of growth stifling international regulation. Hopefully the tendency we observe from some central bank macro-economists towards the creation of systems based on models built by them, which contain global data sets to permit worldwide Soviet style central planning of the economy, can be resisted for the sake of global prosperity. Whilst some of the high aspirations of the newly planned US Department of Government Efficiency may not be delivered, it will probably not be unhelpful for the Bailiwick to have the government of the world’s largest economy questioning the international mechanisms which tend to push towards regulating many aspects of human social and economic interaction ever more closely.
That so many things are ever more complex does not mean that we cannot and should not all strive for increasing simplicity where we can.As an economic proposition, well understood and well enforced laws help create a stable marketplace within which entrepreneurship and innovation can thrive. Complex laws and convoluted bureaucracy tend to encourage oligarchic corporate structures which are adept at navigating the administrative bureaucracy to secure super-normal profits whilst locking out competition and driving up costs, thereby discouraging high quality economic growth at the margin.
As a Commission, now that the labour of the 2024 MONEYVAL inspection is largely behind us, we would like to work with industry and others to continue to simplify where appropriate, building on the work outlined above which we have already delivered to help make Guernsey an even better place for business. This is not, as
Regulation - Less is More was not, about challenging the policy benefits of some types of regulation in terms of protecting investors, protecting consumers, safeguarding financial stability and combatting crime but it is about saying reflexively - when we approach a problem or a challenge - is there a way in which we can do this more easily with fewer administrative burdens? This will not always be possible and sometimes, ironically, complexity is industry’s friend as it enables lower administrative burdens for lower risk business than would otherwise be possible if the law treated every type of business in exactly the same fashion.
Last year we launched
The Leopard newsletter to try to communicate with those of you we don’t see face-to-face very often, what we are trying to achieve in a clear and transparent manner. We also held a large number of seminars with, collectively, several thousand of you over the course of the year to attempt to demystify and explain some aspects of regulation because we find that good quality understanding leads to proportionate rather than slapdash or excessive implementation of laws - delivering benefits for firms. We intend to continue with these mechanisms with our new in-house conference room becoming available from the middle of 2025. We hope that by doing this we will continue to simplify, de facto if not always de jure, what the regulations are setting out to achieve, thereby helping you to take a principles-based approach to implementation. We are also continuing to work on our website and our portals to ensure that they are relatively intuitive to navigate.
The economic outlook
Many professional full-time economists will doubtless have filled your inboxes with prognoses for 2025. I won’t try to replicate their soothsaying but will merely observe that the outlook is uncertain. If we look around our main trading partners and nearest neighbours we can observe:
- uncertainty in the French National Assembly causing disquiet for various parts of the French economy which cannot safely forecast the near term future in terms of policy;
- an indifferently received October budget in the UK which is likely to have created significant additional inflationary pressure through its increased taxes on employment which were combined with above inflation wage settlements for significant portions of the public sector;
- economic malaise in Germany as it discovers that having invested in advanced mechanical engineering underwritten by low cost energy from Russia, as opposed to digital technologies, was not necessarily the best way to maintain economic competitiveness in the 2020s;
- uncertainty as to how and when the most costly and horrific European war since World War II will end with all the geo-political uncertainty which accompanies that, alongside hostile acts regularly being undertaken on European soil or in European seas outside Ukraine;
- a considerably changed political outlook in the Middle East following the demise of the Baathist regime in Syria and the military failure of Hezbollah in Lebanon combined with uncertainty as to Iran’s longer term intentions and the success of the radical Saudi economic transformation programme;
- continued debate about where the economic benefits and disbenefits of AI will be felt;
- the reconsideration of the commercial wisdom of net zero targets by a number of multi-national Western corporations;
- a relatively exuberant US economy with noteworthily high stock market valuations combined with a growing realisation that USD interest rates will normalise at a much higher level than that previously supposed, settling the global benchmarks for viable economic projects somewhat higher than was generally forecast at the end of 2023;
- geo-political uncertainty in Northeast Asia;
- widespread uncertainty as to the impact of the proposed Trump trade tariffs on global growth; and
- ever increasing cyber risk requiring the utmost vigilance.
Each of you will have better insights than us into what each of these risk factors mean for your individual businesses. It is not the role of the regulator to be professionally optimistic but we hope that stable government, stable capital taxes, stable courts and stable regulation in Guernsey will provide you with a platform from which to undertake beneficial growth in 2025, whatever is happening in our key trading partners. Finally, if you have a financial services idea and want to understand how it might interact with our regulations, please feel free to come and talk to us.
My colleagues and I wish you a Happy New Year,
William MasonDirector General
1 2(2)(d) The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 2 P. 8 The Future of European Competitiveness – Part A – A competitiveness strategy for Europe
