Warnings and lessons from GFSC public statements of 2018

Since the beginning of 2018 Guernsey's Financial Services Commission has issued three public statements, the third of which was then withdrawn in a matter of days.  The appearance of Public Statements is always useful for industry as, while tricky to decipher, they have an educational role to play. What are the warnings that can be taken and the lessons learned from these statements?

Statement One

The first statement was issued to the Richmond Fiduciary Group Limited, and contains an important reminder on addressing defaults at the time they are identified.

The failings in this case link to record keeping and connected matters first identified in 2013, in particular a failure to obtain adequate CDD and source of wealth information at the start of client relationships. The Commission took particular exception to problems it had identified then not being tackled, the customers concerned posing risks, and the fact that the licensee has not self-reported on the matter before it was identified by the Commission's on-site visit.

The Financial Penalty imposed was £45,500, discounted by 30% for early settlement from the £65,000 which would otherwise have been sought.

The Commission appears to be sending a message to industry regarding the need to fully address historic defects, in particular where these have already been noted by the Commission. However it also appears to indicate that it is satisfied with the direction that the licensee has since taken, as well as its level of co-operation and acceptance of findings.

Statement Two: Regulator Expectations and Sanctions Risks

Following hot on the heels of the first, the Commission released its second Public Statement of 2018 on 31 May. The recipient was Mr Alan Chick, formerly the chairman of the aforementioned Richmond Fiduciary Group.

The statement was accompanied by a financial penalty of £50,000, a five year order preventing Mr Chick from performing the functions of director, controller, partner or manager; and the disapplication of exemptions under the Fiduciaries Law which would otherwise have allowed him to hold up to six directorships without that counting as regulated activity.

The events leading to this statement highlighted the importance of documentation – it's essential to provide a paper trail. This is a first line of defence for allegations of conflicts and should show why investment decisions are made to protect the company and directors in the future.

Statement Three: The Disappearing Statement

The latest Public Statement is noteworthy both for its appearance on 8 June, and for its prompt disappearance on 13 June.

We can reasonably expect that the decision underlying the Public Statement is being challenged.

When facing enforcement actions, it should be expected that the Commission will publish a public statement promptly upon a final decision being made. If a settlement can be reached it may be possible to do some damage limitation on the contents of the statement, but only if the nature and gravity of the misconduct is accepted. This leaves those who challenge the Commission's findings in the unenviable position of being at risk of a damning public statement being made about them before they can conclude their challenge to the Commission.

Once the challenge has concluded, the Public Statement may reappear, it may be amended, or the Final Decision may be overturned such that the Public Statement is never seen again in any form. We await further developments with interest.