What has changed?
Summary of key changes to 2020 Banking Law
New rules to accompany 2020 Banking Law
The Banking Supervision (Bailiwick of Guernsey) Law 2020 (the 2020 Banking Law) has been implemented with effect from 1 November 2021, repealing and replacing the Banking Supervision (Bailiwick of Guernsey) Law 1994 (the 1994 Banking Law), as part of the long-term project of the Guernsey Financial Services Commission (the Commission) to revise its principal regulatory laws.
The 2020 Banking Law does not fundamentally affect the core approach to the regulation of deposit-taking business in the Bailiwick, and the activities captured by the definition of "deposit-taking business" remain unchanged.
However, many of the details relating to the operation of deposit-taking licensees and the powers of the Commission to supervise such licensees have been amended. In addition, as for all principal regulatory laws, the Commission's enforcement powers have been moved from the 1994 Banking Law into a new law, the Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law 2020, essentially aligning the enforcement powers across all regulatory laws.
It is possible to broadly characterise the key amendments to the 1994 Banking Law made by the 2020 Banking Law as those:
- affecting licensees' obligations to notify and/or report to the Commission on a periodic or event-driven basis;
- further defining the Commission's role with respect to supervising deposit-taking business carried on in or from within the Bailiwick and broadening the Commission's supervisory powers; and
- clarifying or codifying current practices.
Summary of key changes to 2020 Banking Law
Key changes to licensees' ongoing obligations
Approved and vetted supervised persons
The categories of key personnel of licensees that need the Commission's prior "no objection" to their appointment have been expanded to now cover:
- significant shareholders;
- money laundering reporting officer;
- money laundering compliance officer;
- compliance officers;
- chief risk officer;
- a person who, under the immediate authority of a director or chief executive, is responsible for maintaining the accounts or other records of the body; and
- the holder of any other role that enables the body to fulfil the requirement that the business be directed by at least two individuals in the Bailiwick, of appropriate standing and experience and sufficiently independent of each other.
The definition of "controller" in this context has been expanded to now cover shareholder controllers,(1) indirect controllers(2) and any person who has the power, alone or with another, to appoint or remove a director or member of a similar governing body or its parent.
Notified supervised persons
The categories of key personnel whose appointment and resignation requires notification to the Commission has been expanded to cover:
- a managing director or chief executive of the licensee (or its parent) (other than a person who has a vetted supervised role above);
- a nominated officer;
- an auditor;
- any "other supervised manager" – namely, a person appointed otherwise than as a chief executive, to exercise, under the immediate authority of a director or partner (or, in the case of a limited partnership, the general partner, or, in the case of a limited liability partnership, the member), the day-to-day managerial functions in relation to deposit-taking business in respect of which the body is or will be licensed. However, this does not include a person who falls into any other category of supervised role; and
- a company secretary.
Notification of acquisition or reduction of voting powers
Persons who alone or with associates are entitled to exercise or control the exercise of 15% or more of the voting power in a licensee (or its parent company) are required to notify the Commission and seek its written approval when it increases its voting power to more than 50% (whether in a single transaction or in a series of transactions).
Conversely, persons who alone or with associates are entitled to exercise or control the exercise of 50% or more of the voting power in a licensee (or its parent company) must notify the Commission when it reduces its voting power to less than 50%.
Rulemaking powers expanded
There are various provisions in the 2020 Banking Law that allow the Commission to make rules and regulations, including as regards:
- deposit-taking business as well as the carrying on and conduct of such business by licensees;
- the issue, form and content of deposit advertisements;
- unsolicited calls on persons in the Bailiwick (or from persons in the Bailiwick to persons elsewhere) with a view to procuring the making of deposits;
- the preparation, keeping, maintenance, submission to the Commission and publication of accounting records, as well as the form of and information and particulars to be contained in accounting records and the auditor's report; and
- an annual review of the business being carried on by the licensee.
The revision also gives the Commission's power to issue codes of practice and guidance on a statutory basis.
Statutory obligation to keep the Commission informed is codified
The 2020 Banking Law requires, as an express statutory obligation, that licensees must deal with the Commission on an open and cooperative manner, and that the licensee must keep the Commission promptly informed of any matter which ought reasonably to be disclosed. This was previously contained in the Code of Practice for Banks.
Expansion of powers
There are a number of provisions in the 2020 Banking Law that also broaden the Commission's supervisory powers, including:
- the power to issue directions to all persons who are or were (or who are exempt under the provisions of the 2020 Banking Law) persons who hold supervised roles in such businesses, and any person suspected of having contravened any provision of the 2020 Banking Law;
- the expansion of the categories of person from whom the Commission may require the production of information or documentation; and
- the expansion of the persons in relation to whom an auditor must whistleblow so that it now includes associated entities of any audited party.
New rules to accompany 2020 Banking Law
In addition, in order to effectively implement the 2020 Banking Law, the Commission has drafted and consulted with the banking sector on revised rules and guidance to accompany the 2020 Banking Law, producing:
- the Banking Supervision (Accounts, Disclosure and Reporting) Rules and Guidance 2021; and
- the Banking Supervision (Large Exposures) Rules and Guidance 2021 (together, the rules).
These rules will replace the Banking (Accounts) Rules 1994 and the existing large-exposure policy, and they will come into effect at the same time as the 2020 Banking Law.
These rules largely concern the ongoing obligations of licensees incorporated in the Bailiwick and require such licensees to:
- prepare annual audited accounts in accordance with an approved accounting standard permitted by the Commission (ie, the International Financing Reporting Standards, the Generally Accepted Accounting Practice in the United Kingdom or the Generally Accepted Accounting Practice in the United States);
- make available on request and to publish online a number of key metrics no later than one month following the submission of the licensee's annual accounts to the Commission. These key metrics include:
- the common equity tier one capital asset ratio, calculated as a ratio of common equity tier one capital to total risk weighted assets;
- the liquidity coverage ratio or, where appropriate, the liquidity mismatch ratio;
- the leverage ratio; and
- the net stable funding ratio;(3) and
- ensure that the licensee's exposure limits comply with the new rules and, if necessary, make a quarterly notification of large exposures.
Branches of licensees incorporated outside of the Bailiwick are also subject to quarterly notifications and must report on their ten largest market loans and ten largest credit exposures on a quarterly basis.
For further information on this topic please contact Michaela Jesson, Paul Chanter, Christopher Jones or Tim Clipstone at Ogier by telephone (+44 1481 721672) or email ([email protected], [email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.
(1) The definition of "shareholder controller" has itself been expanded to cover not only those shareholders holding at least 15% of the voting control of the body directly or indirectly, but also beneficial holders of at least 15% of the issued shares in a cell of a protected cell company that is or will be licensed.
(2) Broadly, "indirect controllers" are persons on whose instructions directors or controllers are accustomed to act, it includes a person that makes it possible to exercise significant influence over the management of a body.
(3) These ratios are defined in more detail in the relevant regulatory returns and guidance issued by the Commission.