Compliance with financial sanctions
Number of Guernsey-domiciled funds highest in decade
Guernsey proposes world's first natural capital fund regime
GFSC proposes measures to counter greenwashing
Guernsey joins TNFD
Updated mind and management requirements for the fiduciary and investment sectors
2021 GFSC annual report
Consultation due on potential new virtual asset service providers legislation
Compliance with financial sanctions
The Guernsey Financial Services Commission (the GFSC) has published a report on the thematic review of its licensees' effectiveness in monitoring and compliance with targeted financial sanctions. The GFSC undertook the work back in 2021, having recognised the growing importance and complexity of sanctions compliance, and the Russian-Ukrainian war has only served to highlight the importance of robust and easily useable controls in this area. However, the GFSC's work predates the conflict and has therefore not assessed the work firms have put into implementing sanctions brought into effect as a consequence of Russia's invasion of Ukraine.
Over 260,000 business relationships with banks were subject to testing, and were found to test 99.8% responsible of inward transactions and 99.6% of outward transactions in and out of Bailiwick of Guernsey during 2021. The results showed that only a small minority of firms were in need of material improvement; such firms have been made subject to risk mitigation programmes set by the GFSC.
All firms are obligated to manage sanctions risk and the GFSC hopes that the report will be of interest to firms in every sector, as they are all under the same obligations in respect of sanctions screening.
Number of Guernsey-domiciled funds highest in decade
The number of investment funds domiciled in Guernsey is at its highest level in almost a decade, with the current total at 855, according to statistics released by the GFSC.
The total net asset value of Guernsey funds has increased in the last quarter by £6 billion (2.0%) to £309.6 billion. Over the past year, total net asset values have increased by £45.9 billon (17.4%).
Guernsey proposes world's first natural capital fund regime
Guernsey could become home to the world's first natural capital fund regime after lawmakers and regulators propose its introduction in a new consultation paper (for further details, see "Guernsey proposes world's first natural capital fund regime").
The paper, published by the GFSC, proposes the creation of a natural capital fund designation that is committed to making nature-positive investments. It will complement the jurisdiction's existing regulated Guernsey green fund regime, which was introduced in 2018 and now channels more than £4.4 billion into green investments.
To be designated a natural capital fund, funds will be required to set and monitor targets aligned with the United Nations' sustainable development goals, as well as the Convention on Biological Diversity's Post-2020 Global Biodiversity Framework's 2030 action targets.
GFSC proposes measures to counter greenwashing
The GFSC has issued a consultation paper proposing new guidance to be made under the Protection of Investors (Bailiwick of Guernsey) Law 2020 (the POI Law). The guidance relates to the transparency of claims relating to environmental sustainability and statements made in respect of Guernsey collective investment schemes that are authorised or registered under the POI Law.
In addition, the paper proposes additional guidance to be added to the Licensees (Conduct of Business) Rules and Guidance 2021, clarifying the GFSC's expectations in respect of promotion and advertising by persons licensed under the POI Law, and in particular in relation to avoiding the risks of greenwashing.
The GFSC has successfully applied to join the Taskforce on Nature-related Financial Disclosure Forum (TNFD) with the aim of further developing the Bailiwick of Guernsey as a leading centre for sustainable finance. The GFSC is already a member of the Sustainable Insurance Forum and the Network for Greening the Financial System.
The TNFD was established to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks, with the aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
As a member of TNFD, the GFSC intends to contribute to the TNFD's ongoing innovative work, an example of which is its new risk management and disclosure framework, which aims to enable organisations to report and act on evolving nature-related risks.
Updated mind and management requirements for the fiduciary and investment sectors
Following completion of its recent consultation on mind and management requirements for the fiduciary and investment sectors, the GFSC has issued updated consolidated versions of the Fiduciary Rules and Guidance 2021 and the Licensees (Conduct of Business) Rules and Guidance 2021 with the addition of a new rule requiring fiduciary and investment licensees (excluding investment licensees, which are administered by another firm in the Bailiwick of Guernsey) to appoint such number of the Bailiwick of Guernsey-based senior executives as is commensurate with the nature, size and complexity of the licensee's activities in the Bailiwick of Guernsey.
The new rules came into operation on 10 June 2022.
The GFSC published its 2021 annual report and financial statements on 31 May 2022.
The report notes that the combination of the vast quantitative easing undertaken across the developed world to combat covid-19 restrictions and the war in Ukraine have crystallised the inflationary risk the GFSC had previously highlighted. The fiscal and monetary responses to this inflation are likely to see increased financial stability risks in the year ahead. Firms need to be mindful of the effect that these economic changes, possibly on a scale unseen in at least 30 years, may have on their customers, risk profiles and business models.
Consultation due on potential new virtual asset service providers legislation
The GFSC published a consultation paper on 21 July 2022 setting out the GFSC's rule and approach for regulating the sectors covered by the Lending, Credit and Finance (Bailiwick of Guernsey) Law 2022.
The purpose of the new law, which the States of Guernsey passed on 14 July 2022, is to protect customers in the Bailiwick of Guernsey who make use of consumer credit in all its forms, including individual loans and home finance. Firms offering or intermediating such services in or from within the Bailiwick of Guernsey will need to be licensed and regulated accordingly.
In addition, the new law and accompanying rules cover fintech platforms operating crowdfunding, peer-to-peer platforms and virtual asset services providers. Guernsey is introducing these new rules, in part, to ensure it remains compliant with the published expectations of the Financial Action Task Force, which has set out detailed guidance on how countries must act to stop cryptocurrency being used for criminal purposes.
The new law will also replace the existing Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law 2008 and introduce instead the licensing and regulation of "financial firm businesses".
Responses to the consultation paper are sought by 15 September 2022.
For further information on this topic please contact Tim Clipstone, Bryon Rees, Gabrielle Payne or Chloe Gill at Ogier by telephone (+1 284 852 7300) or email ([email protected], [email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.