Looking to the year ahead
There are more than 50 elections ahead across the democratic world this year, including those in South Africa, India, Taiwan, the United States and, probably, the United Kingdom. There are also elections in the EU for the European Parliament. The outcome of all these elections is necessarily uncertain and firms will wish to take into account the levels of uncertainty they create when considering the best interests of their customers and investors.
The impact of the ongoing conflict involving Hamas and other radical Islamic movements cannot be underestimated as what was appearing to be a more benign inflation outlook may be reversed by the partial closure of the Red Sea to commercial shipping, radically raising the costs of moving goods between Asia and Europe. Allied to this is the uncertain outcome of the ongoing Ukrainian war, where both Western and Russian prestige are heavily engaged and where an outcome which favoured Russia would severely damage global confidence in the Western-led institutions which underpin the so called “rules led” international order on which many financial services firms rely directly or indirectly.
On the technology front, the practical adoption of generative AI is proceeding apace. This is likely to have significant implications for white collar clerical roles, some of which are highly likely to become obsolescent. Given that these are roles which Guernsey firms often outsource to other jurisdictions on cost grounds there is some reason to hope that the net employment and value impact of the use of such advanced AI by local firms may not be negative to Guernsey and its exchequer. That said, there are clearly huge fraud risks associated with generative AI. Voice replication and simultaneous translation technologies make advanced attempts to defraud those with wealth an order of magnitude easier than was previously the case. All those making significant payments within the financial services sector and particularly those managing assets for the wealthy need to ensure that they are familiar with the advanced AI techniques being used by organised crime and then work to ensure that they agree appropriate AI-resistant protocols with their customers – no longer is recognising someone’s accent and picture likely to be good proof that they are who they say they are.
In terms of the Commission’s priorities for the next year, helping the Policy & Resources Committee and the Law Officers’ Chambers manage the impending MONEYVAL visit is clearly at the top of our agenda. Having contributed significantly to the revised National Risk Assessment (NRA) published in late December, we are now working with industry and official sector counterparts through the first part of this year to help ensure everyone is familiar with the revision to risks contained within that assessment and with its enhanced scope, as it now covers proliferation financing.
Separately from MONEYVAL, we will develop an enquiring discussion paper on how the Bailiwick’s firms might best look to adapt to the International Organisation of Securities Commissions (IOSCO) adopted requirements of the International Sustainability Standards Board. Sensible adoption of these standards will, we believe, become a “licence to operate” issue for Bailiwick firms with international clientele in due course but the methodologies, software and data sets required for low-cost adoption are still under development. In our discussion paper we will aim to set out a number of options and modalities which the Bailiwick might usefully consider adopting and will listen carefully to feedback from all parts of industry as well as reviewing the actions to date of other leading international financial centres such as Singapore. In all that we do in this area, we will seek to position the Bailiwick’s financial services sector to make sure that it does not lose out in what we all hope will be a more nature and climate positive future. We will give weight to the continuing need to finance transition assets as well as dark green assets for several decades to come, if the massive capital investments required to deliver something approximating to a global net zero are to have any chance of being achieved. Optimistic realism will be our watchwords as we play our part in this collective endeavour to make the Bailiwick a place from which profitable eco-friendly investments can be made.
We spent many months during 2023 developing a new technology blueprint for our authorisations processes. During 2024 we plan to build the technology based on this blueprint with a view to having a new digital shop window for our firms and potential applicants in early 2025. This is the most significant “front of house” technology project the Commission has undertaken in several years and it is one which we hope will deliver many benefits for the community who use our authorisations services as well as delivering considerable in-house processing efficiencies, helping the Bailiwick remain an attractive domicile for financial services firms.
William Mason
Director General
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Industry update on the National Strategy and National Risk Assessment
Last week, more than 500 members of the financial services industry attended an industry update on the National Strategy and National Risk Assessment (NRA). The Bailiwick’s AML/CFT authorities once again came together to present to industry on how the updated National Risk Assessment, or NRA2, demonstrates our understanding of the Bailiwick’s money laundering, terrorist financing and proliferation financing threats and vulnerabilities, which drives the risk-based approach taken across the AML/CFT authorities; and now covers, and importantly gives equal treatment to, countering proliferation financing. We were encouraged by, but not surprised by, the great turnout from financial services practitioners who were keen to hear the outcomes from NRA2 and how their participation in the assessment process, through the submission of returns data to the Commission and through engagement in bespoke risk surveys, has contributed to an enhanced NRA. During the event, the Commission’s Director of Financial Crime, Fiona Crocker, and Deputy Director of Financial Crime, Nick Herquin, told the 500-strong audience how NRA2 represents an ‘evolution’ rather than a ‘revolution’ as like the first NRA, the key finding of the second NRA with regard to money laundering risk is that as an international finance centre with a low domestic crime rate, the Bailiwick’s greatest money risk comes from the laundering of the proceeds of foreign criminality. Whilst the risks of terrorist financing and proliferation financing for the Bailiwick are lower, it still remained important for everyone to understand these risks. The updated NRA includes the Bailiwick’s first assessment of the risks of financing of proliferation of weapons of mass destruction. The slides used in the presentations are available on the dedicated NRA page on our website. |
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Digitalising our application and authorisation process
A key focus for the Commission for this year is to develop a new online applications portal which will revolutionise the submission and authorisation process for applications.
Currently, firms and applicants must download and complete a form in Microsoft Word before emailing it, along with attachments, to the Commission for assessment. The new system, due to launch in early 2025, will enable firms and those wanting to do business in the Bailiwick to complete these forms online, with guardrails in place to improve the quality and completeness of submissions. The portal will support online collaboration and communication throughout the application process, between parties drafting an application prior to submission, and with the Commission post-submission.
Four of the most commonly used forms, including the licence application and change of control request, should launch initially, before other application forms are added later in 2025.
Co-Director of Authorisations and Innovation, Alison Gavey, said: “This is an exciting development for the Commission, and the financial services industry. The new front of house platform will support Guernsey's aspirations to grow the financial services industry by making it easier to apply to enter the market.
“Ensuring the new system works for applicants, as well as the Commission, is a priority and there will be opportunities for industry to get involved and provide input during the development process.”
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Data – Please check your returns and get them right
We would like to remind firms about the importance of providing accurate and timely information to the Commission. Errors are found in regular reporting and in response to thematic reviews. Some errors appear to be fat-finger errors (for example extra zeros or miscalculation of exchange rates) whilst other errors persist annually making validation checks by the Commission difficult. We attach great importance to the quality, accuracy and timeliness of data provided by firms in returns submitted to us. The returns form a key part of the Commission’s risk-based supervisory approach and are used as part of our assessment of:
- the risk exposures of licensed firms;
- their capital adequacy;
- the scale, nature and complexity of their operations; and
- their exposure to, and mitigation of, financial crime risks.
Inaccurate data could result in the Commission not being able to make an appropriate assessment of the risks to which a firm is exposed in a timely manner. Should inaccuracy in a return not be identified and corrected it could mask, in extremis, an underlying solvency issue, or other material non-compliance, where a firm’s customers could be exposed to undue risk. As highlighted in past publications, including in our thematic reviews of insurer annual returns in 2018 and the pension transfer landscape in the Bailiwick in 2022, we have previously identified instances where a significant proportion of returns submitted to the Commission were materially inaccurate. The concerns raised in those papers do not appear to have been wholly addressed by industry, as we are continuing to see materially inaccurate returns submitted.
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Have your say on the proposed amendments to the Handbook on Countering Financial Crime
There is still time to respond to our consultation paper on the proposed amendments to the rules and guidance in the Handbook on Countering Financial Crime to cover countering proliferation financing.
The consultation paper and associated draft legislation and Handbook changes can be found on the Commission’s Consultation Hub. Responses are sought by Friday 2 February 2024.
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Upcoming events
Tuesday 20 February at Les Cotils
Enforcement: GFSC case studies
Monday 26 February AM (full), Tuesday 27 February AM (full) and PM (spaces available) at Les Cotils
To book, please email ljordan@gfsc.gg
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Guernsey Court of Appeal affirms our important role in combatting financial crime
We welcome the judgment from the Guernsey Court of Appeal in the case of GFSC and (1) Ian Charles Domaille (2) Ian Geoffrey Clarke (3) Margaret Helen Hannis.
The judgment affirms the Commission’s processes were applied properly in this matter (§71, §190) and our important role in combatting financial crime in the jurisdiction (§67).
In determining that the decision of the Royal Court could not stand (§193), the Court of Appeal found in our favour in respect of all the grounds on which we appealed the judgment to it.
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Updates to Sanctions, Terrorist Financing and Proliferation Financing Guidance
Our Sanctions, Terrorist Financing, and Proliferation Financing web pages have been updated to reflect recent guidance updates issued by the Policy & Resources Committee. Firms are encouraged to familiarise themselves with this new guidance.
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