Why the change?
What are the key changes?
On 1 November 2021, the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law 2000 (as amended) (the 2000 Fiduciary Law) was repealed and replaced by the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law 2020 (the new Fiduciary Law).
Although the revision of Laws project has taken time to complete and has resulted in a number of new laws, rules and guidance, the intention has not been to fundamentally alter the regulatory regime in Guernsey but rather to modernise, future-proof and consolidate legislation, resulting in a position that should minimise the administrative burden on licensees, avoid duplication of efforts or unhelpful inconsistency, and continue to provide an efficient and well-regulated fiduciary regime.
This article summarises some of the key changes introduced by the new Fiduciary Law (although it is not designed to be a fully comprehensive summary of changes).
The new Fiduciary Law is complemented by revised rules, codes and guidance, some of which will be addressed briefly below, although it should be noted that these most recent revisions do not introduce material policy changes, and the changes they introduce are relatively minor.
The new Fiduciary Law will also be complemented by the Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law 2020, which will apply across all regulatory sectors and does away with any existing inconsistency in enforcement and related provisions between regulatory Laws.
Following consultation with industry and reviews over the past seven years, the 2000 Fiduciary Law is being replaced by new updated legislation, together with complementary secondary and tertiary legislation (ie, regulations, orders, rules and guidance) for the purposes of consistency with other regulatory Laws, as well as modernising and future-proofing legislation in line with international and EU standards, always keeping in mind Guernsey's reputation as a well-regulated and efficient financial centre.
New categorisation of licensees and definition of "Bailiwick body"
The new Fiduciary Law will continue to provide for the issuance of personal fiduciary licences. However, two new categories of fiduciary licence have been introduced to replace the existing licencing categories. Lead licensees have become "primary fiduciary licensees", while joint licensees have become "secondary fiduciary licensees".
This change happened automatically on 1 November 2021 for most licensees, but if a joint licensee were to wish to become a primary fiduciary licensee, it would need to apply to the Guernsey Financial Services Commission (the Commission) with supporting evidence showing it has a business model and the operations necessary to now justify a primary fiduciary licence.
Primary fiduciary licences may only be granted to a Bailiwick body (being a Guernsey company or other legal person or unincorporated body, an Alderney company or unincorporated body or a Sark body) but may not be granted to a body with a corporate director or equivalent (for example, a corporate general partner of a limited partnership). Secondary fiduciary licences will only be granted to a Bailiwick body that is a subsidiary of, or wholly beneficially owned by, a primary fiduciary licensee or its holding company. However, unlike primary fiduciary licences, they may be granted to a body which has a corporate director (or equivalent).
Licensees should have by now received a notice from the Commission confirming the conversion of fiduciary licences.
Definition of "regulated activity"
The definition of what constitutes a "regulated activity" will remain almost identical under the new Fiduciary Law, with minor updates for the purposes of clarification (for example, offering the service to act as a member of a limited liability partnership is a regulated activity, as it would be for a director to provide directorship services).
However, one change in this area is the introduction of a new statutory exemption in relation to "ancillary vehicles", the definition of which is contained in section 20(3) of the Protection of Investors (Bailiwick of Guernsey) Law 2020 (the new POI Law), which itself is subject to the publication of certain rules made pursuant to the new POI Law. Once these rules come into force, the exemption will be subject to the prior notification of the Commission under rules made pursuant to the new POI Law (for further details, please see "Restated Protection of Investors (Bailiwick of Guernsey) Law").
Over the years, ancillary vehicles carrying out such activities have typically sought and obtained a discretionary exemption from the Commission under the 2000 Fiduciary Law. However, the new Fiduciary Law recognises that reliance on such regime may not be the most appropriate route, and the introduction of a new statutory exemption for such activities will likely be welcomed by industry.
The new Fiduciary Law refers to new categories of key personnel of licensees that will hold "approved" or "notified" supervisory roles which are subject to notification to the Commission.
The categories of key personnel of licensees that will be "approved" supervisory roles cover:
- partners of general partnerships;
- general partners of limited partnerships;
- members of limited liability partnerships;
- money laundering reporting officers;
- money laundering compliance officers; or
- compliance officers.
The categories of key personnel whose appointment requires notification to the Commission as a "notified" supervisory role cover:
- a significant shareholder;
- an "other supervised manager". That is to say, a person appointed: "(i) otherwise than as a chief executive, to exercise, under the immediate authority of a director or partner (or general partner, in the case of a limited partnership, or member, in the case of a limited liability partnership), day-to-day managerial functions in relation to regulated activities in respect of which the body is or will be licensed, (ii) to any other role in order to enable the body to fulfil the requirements of paragraph 3 of Schedule 1 (business to be directed by at least two individuals)." This does not include a person who falls into any other category of a supervised role; and
- a company secretary.
In line with changes to other regulatory Laws, the new Fiduciary Law contains provisions regarding the submission by licensees of an annual return containing such information as may be prescribed by the Commission, including:
- audited accounts and statements of income;
- an up-to-date business plan;
- a certificate signed by a prescribed person confirming:
- that there is compliance throughout the period covered by the annual return with the provisions of this law, the appointed Laws and any other prescribed enactment;
- that accounts have been prepared and deposited in accordance with the provisions of the new Fiduciary Law;
- the names of and other prescribed particulars in respect of the holders of supervised roles relating to (or the officers or employees of) a licensee; and
- the number of staff employed.
Information collection, retention and disclosure
The new Fiduciary Law expands provisions regarding:
- the scope of persons from whom the Commission may seek information and the retention of information;
- the powers of the Commission relating to the inspection of information; and
- the disclosure of information.
Various other changes have been made in the new Fiduciary Law, including changes to key definitions or new definitions and to provisions regarding:
- the surrendering of licences and conditions which must be met or may prevent a surrender;
- a statutory requirement to deal with the Commission in an open and cooperative manner;
- direction powers of the Commission – which are very broad (although limited in how long they remain in force in certain circumstances set out) – in relation to all persons who are, were or should be regulated under the new Fiduciary Law or who are exempt under the provisions of the new Fiduciary Law, persons who hold key roles in such businesses, and any person suspected of having contravened any provision of the new Fiduciary Law;
- decisions by the Commission relating to licensees and other relevant persons, notification and challenges to the same;
- accounting and auditing requirements;
- the scope of rules that may be created (see further below), powers to make secondary and tertiary legislation and publicise it, and the effect of non-compliance; and
- provision of electronic documentation.
Fiduciary licensees will be aware of the requirements set out in the Fiduciary Rules and Guidance 2020 (the 2020 Rules), which have been in operation since 31 December 2020. This article does not propose to cover the provisions of the 2020 Rules in detail. However, by way of summary, it is noted that the 2020 Rules brought together the existing regulatory framework and replaced:
- previous Commission Codes of Practice specific to the fiduciary sector;
- the Regulation of Fiduciaries (Accounts) Rules 2001;
- the Financial Resources Requirements Rules 2018; and
- rules 1 to 9 of the Pension Licensees (Conduct of Business) & Domestic and International Pension Scheme and Gratuity Scheme Rules (No. 2) 2017.
The 2020 Rules also brought in new or amended rules relating to banking, client money, outsourcing, record keeping and communications to clients, terms of business and complaints, employee screening and training. They also introduced additional rules applicable to fiduciaries acting as trustees, for corporate service providers and directors, and for foundation service providers.
Following consultation with the industry earlier in 2021, the 2020 Rules were replaced on 1 November 2021 with the Fiduciary Rules and Guidance 2021 (the 2021 Rules), which contain certain amendments to reflect the provisions of the new Fiduciary Law. These include:
- rules to account for the new categories of fiduciary licence under the new Fiduciary Law and how changes between categories can be effected;
- provisions for annual returns (which will result in the repealing of the Regulation of Fiduciaries (Annual Return) Regulation 2017);
- additional notification requirements relating to supervised roles;
- changes to reflect the repeal of the Regulation of Fiduciaries (Fiduciary Advertisements and Annual Returns) Regulations 2012 and the restrictions on a personal fiduciary licensee advertising (with applicable provisions in the 2021 Rules); and
- changes to ensure consistency of definitions with the new Fiduciary Law, particularly in relation to the meaning of "actively trading", noting that a primary fiduciary licensee can actively trade while a secondary fiduciary licensee cannot.
Other regulations and rules, as well as codes and guidance, relating to fiduciary regulation in Guernsey were also amended in light of the revision of Laws project and came into force on 1 November 2021, but the changes are generally considered minor. In addition, some codes and guidance notes are no longer to be used.
For further information on this topic please contact Catherine Moore, Matt Guthrie or Tim Clipstone at Ogier by telephone (+1 284 852 7300) or email ([email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.