Feedback Presentation on the Revision of Laws Consultation St Pierre Park Hotel 10 June 2015 1

1

Feedback Presentation on the Revision of Laws Consultation

St Pierre Park Hotel10 June 2015

2

WelcomePhilip Nicol-Gent

General Counsel

Guernsey Financial Services Commission

3

Objectives

• Addressing the new MiFID regime• Changes to meet international standards• Enhancing consistency and creating efficiencies• “Future proofing”• What NOT to do

Philip Nicol-Gent, General Counsel

4

The process so far• Informal soundings• Discussion paper• Drop-in sessions 13th and 14th November 2014 – 25 attendees• Legal dinner with UK lawyers 24th November 2014• Feedback:

• Financial Sector Forum• Guernsey International Business Association• Fiscal and Economic Policy Group • Commerce and Employment


5

Consultation paper

• Launched 10 February 2015• Legal dinner with UK lawyers 2nd March 2015• Drop-in sessions 10th and 13th March 2015 – 12 attendees• Consultation period closed 24 April 2015

– 38 responses• 50% licencees• 25% industry bodies• 25% others


6

Today

• Matters discussed are those changes needed to primary legislation• Further amendments needed to rules and regulations• Proposals being made to government• No questions at the end of this presentation – please join us for coffee and

a croissant in the adjoining room


7

The new MiFID regime

Dr Andy Sloan

International Policy Advisor


Markets in Financial Instruments DirectiveMIFID II / MIFIR

‘Europe’s approach to increased market transparency and investor protection post financial crisis’• Determines market access for ‘investment services’ for third

country firms• MIFID II – retail

– Branches (and conditions) or national regimes

• MIFIR – institutional– Passport across EU with ‘jurisdictional equivalence’

8Dr Andy Sloan, International Policy Advisor

MIFID II / MIFIR scopeMIFID II • Authorisation and operating conditions for investment firms, authorisation and operation of

regulated markets and data reporting service providers• Supervision, cooperation and enforcement by competent authorities • Provision of investment services through a branch for third country firms

[retail market access for investment services]

MIFIR• Disclosure of trade data, reporting of transactions, trading of derivatives (on organised

venues), (non-discriminatory) access to clearing and trading in benchmarks• Product intervention powers of competent authorities and powers of ESMA on position limits

and management• Provision of investment services for third country firms through ‘jurisdictional equivalence’

(my words, my italics)• [institutional market access for investment services]


Revision of laws feedback4.3.8. Do you agree with the suggestion that market access to retail clients in the EU (including the UK) is not necessary for Bailiwick firms?

Answer – NO!

4.3.20. Do you support the introduction of a targeted enabling power into each of the Supervisory Laws to ensure that these laws can be efficiently amended once the detailed requirements of the new MiFID regime are clear?

Answer – YES.


Equivalence• MIFID II: No equivalence, market access through branch or national regime • MIFIR: “that firms providing investment services and activities (my italics) in

that third country are: a) subject to authorisation and to effective supervision and enforcement on an ongoing

basis (MIFID II Art 5 – 8, Art 67-78);

b) subject to sufficient capital requirements and appropriate requirements applicable to shareholders and members of their management body (MIFID Art 9, 10 – 15 (plus Prudential Requirements Directive));

c) subject to adequate organisational requirement in the area of internal control functions (MIFID II, Art 16);

d) subject to appropriate conduct of business rules (MIFID II, Art 21-30); and

e) it (the jurisdiction) ensures market transparency and integrity by preventing market abuse in the form of insider dealing and market manipulation” (MIFID Art 31 – 32 MIFIR Art 28 – 30).


Implications for revision of laws• Criteria a) and e) relate to the overall regulatory approach. • Criteria b), c) and d) relate to the specific approach to firms providing investment service

providers. • The simplest approach to equivalence would be to:

– ensure that our sector wide requirements are consistent with the overall regulatory approach (ongoing authorisation, effective supervision and enforcement; prevention of insider dealing and market manipulation) (which may require law change)

– supported by development of a separate and specific ‘rulebook’ for investment services.

• Potentially few necessary law changes: market abuse, clarity over powers of product intervention, enforcement powers and (potentially) the powers to create an investor compensation scheme.

• Detail of depth of assessment not yet known• Acceptability of this approach not for us to determine


13

International standards, clarity, consistency, efficiencies and

“future-proofing”Tania Shires

Legal Project Officer


14

Tania Shires, Legal Project Officer

• Changes necessary to meet international standards (CP section 3)

• Seeking clarity, consistency and efficiency (CP section 5)

• Supporting industry and “future-proofing” (CP section 6)

• Protecting the consumer (CP section 7)

• Gathering information and keeping things confidential (CP section 10)

• Miscellaneous and administrative changes (CP section 12)

15

Changes necessary to meet international standardsCurrent international standards• The Basel Committee Core Principles for Effective Banking Supervision

(revised 2012)• The Insurance Core Principles issued by the International Association of

Insurance Supervisors (revised 2013) • The International Organization of Securities Commissions Objectives and

Principles of Securities Regulation (revised 2010)• The Standard on the Regulation of Trust and Corporate Services Providers

- the Group of International Finance Centre Supervisors (September 2014)


16

Meeting international standards …

• Banking: disclosure of information to resolution authorities; objection to appointment of a significant shareholder; definition of related parties; bilateral meetings with auditors

• Fiduciaries: corporate directors (secondary licensees); notification and approvals of directors and senior management; change of controllers; reporting by auditors; financial statements of parent entities

• Investment: enabling provisions for credit rating agencies

• Insurance: remaining changes limited to rules and regulations


17

Seeking clarity, consistency and efficiency

• Notifications and authorisations: strong support for standardisation across sectors

• Minimum criteria for licensing: unanimous support for standardisation where possible

• Fiduciary exemptions

– Strong support for proposed changes

– Propose merging ss 3(1)(o) and 3(1)(p) and extending to accountants

– Proposal for statutory exemption in respect of PTCs dropped

– NEW: proposed amendment of s 3(1)(w) in relation to the fiduciary/investment overlap


18

Seeking clarity, consistency and efficiency …The fiduciary / investment overlap

• New proposal

• Amendment of s 3(1)(w) in Fid Law Fiduciary exemptions: to include any activity carried on in respect of entities that have been notified to the Commission, and agreed by it as being ancillary entities

• Not limited to private equity structures

• Closely associated vehicles

• Notification at any time / consideration by the Commission / exemption continues so long as requirements are met / periodic self-certification


19

Seeking clarity, consistency and efficiency …

Some definitions

• Definitions committee: representatives from GIBA, GAT, GIFA, Commercial Bar Association and Commerce and Employment

• “manager” – support for clarification

• “by way of business” – decision not to extend to other sectors

• “sophisticated investor”

• “documents” – additional proposal to assist future-proofing

• “promotion” – by whatever means or media


20

Seeking clarity, consistency and efficiency …

• Other matters with unanimous or near unanimous support: – Deemed withdrawal of a licence application after 3 months inactivity

– Change from “designated manager” to “designated administrator”

– Amendment to definition of “significant shareholder” in Banking Supervision Law

– Change to definition of “director” in the Insurance Laws

– Standardisation of the circumstances in which the Commission must give notice of a decision, and the information that must be included in those notices (including the circumstances in which the Commission must give reasons for decisions)

– Standardisation of powers and liabilities of receivers


21

Support industry and future-proofing

• Insurance linked securities: link to GIIA guidance on GFSC website

• Private trust companies: discretionary exemption and guidance

• Personal fiduciary licence regime: ability to suspend

• Unanimous support for a declarations scheme under the POI Law: particulars of the scheme in rules or regulations

• Facilitating prime brokerage and AIFMD

• Consumer credit (outside the scope of the Revision of Laws project)


22

Support industry and future-proofing

• Enabling provisions:

– Credit rating agencies

– MiFID amendments

– New types of investment funds

– Ability to designate products, services and jurisdictions

– Power to amend definitions

– Power to specify and amend restricted descriptions and names


23

Protecting the consumer• Some proposals attracting unanimous or near unanimous support

– Empowering the Commission to refuse consent to surrender of a licence

– Standardisation of the Commission’s investigatory powers in respect of market abuse whether initial suspicion is formed by the Commission or a foreign regulatory authority

– Empowering the Commission to apply for a court direction that an unlicensed entity change its name (subject to the restricted words and names regime being fit for use)

– Making it an offence for a person to adopt a name that falsely implies that a person is licensed without the Commission’s consent (subject to the restricted words and names regime being fit for use)

– Extending powers of intervention and administration


24

Protecting the consumer …

• Investigation of market abuse:

– Standardisation of investigatory powers

– Extension to other sectors

– Safeguards when information is sought from persons outside the regulatory net


25


• Restrictions on descriptions and use of names:

– Strong support for providing universal list in regulations

– Enabling provisions to provide for by regulation

– Concern about “commonplace” words

– Clarification that use of words or descriptions will only be restricted where the use falsely suggests or implies that the person is licensed

– The list of words and descriptions to be implemented by regulation, after consultation

– Starting point FCA’s list of restricted words (subject to proviso above)


26


• Protecting policyholders in an insolvency

– Proposed amendment of Insurance Business Law to require licensee to hold at least 90% of assets representing policyholder liabilities in trust (currently standard licence condition)

– Mixed responses to proposal

– Decision to maintain status quo and not pursue amendment


27


• Extending powers over investment funds

– Notification and authorisation – enabling provisions only (States by Ordinance)

– Minimum criteria for registration or authorisation of investment funds

– Enabling prohibition orders to be made in relation to investment funds

– Obtaining information from investment funds


28

Gathering information and keeping things confidential

• Standardisation of information-gathering powers across all sectors

• Commission may obtain information and documents that it may reasonably require for the performance of its functions.

• “relevant person” and “associated party” are being considered by the definitions committee

• Information from unsupervised entities (with safeguards)


29

Gathering information and confidentiality …

• Information from all exempted entities – policing the perimeter

– Unanimous support for proposals, including re exempt directors

– Obligation on all exempted entities to immediately notify the Commission if any of the circumstances justifying an exemption change

– Exempted entities to certify to the Commission every 3 years that the circumstances justifying an exemption remain unchanged

– Commission to have the power to obtain information from exempted entities and persons associated with those entities to ensure exemption remains appropriate

– Failure to provide information or certification may justify disapplication of exemption


30


• Sharing of information

– “relevant supervisory authority”

– Confidentiality of information received: standardisation of provisions already contained in Insurance Laws across all sectors

– Sharing information with Company Registrars and Legal Aid Authorities

– Providing declarations to support the subsequent use of documents in foreign proceedings

• Retention of documents

– Practical issues associated with this issue under consideration.


31


• Accountants and auditors

– Definition of auditors

– Notification by auditors: when they resign, are removed, not reappointed or sign a qualified audit report

– Bi-lateral meetings


32

Miscellaneous and administrative changes• Proposals attracting unanimous or near unanimous support:

– Extending the ability to introduce codes of conduct under the POI Law

– Express inclusion of acting as an enforcer of a purpose trust as a regulated activity in the Fiduciaries Law

– Amendment of s36C Banking Supervision Law re annual reviews by licensed banks

– General rule-making power around all types of licence, authorisation and registration applications

– Amendments to expressly allow for the electronic service of information and documents

– Amendments to the public disclosure requirements re financial statements of banks Tania Shires, Legal Project Officer

33

Miscellaneous and administrative changes …• Proposals attracting unanimous or near unanimous support (cont):

– Extending provisions relating to the winding up of companies to encompass the dissolution or winding down of entities other than companies

– Clarifying the Commission’s power to publish lists of licensees, as well as the fact that someone is not licensed under each law

– The Commission should be able to recover monies due to it as a civil debt

– Suggested amendments to reflect updates to other legislation

– Suggested amendments to correct typographical errors

• Information relating to money laundering and financing of terrorism


34

Supervision & Enforcement

Philip Nicol-Gent

General Counsel


35

Supervision vs Enforcement

• Understanding the balance

• Getting the balance correct

– Voluntary vs compulsory interviews

– Conditions vs enforcement requirements

– Skilled persons vs inspectors


36

Proposals

• Enforcement Law

– Accumulate existing powers in one place

– Ensure consistency

– Clarity of process


37

Investigation and Proceedings

• Increase ability to police the perimeter

• Ability in appropriate circumstances to announce investigations

• Whistleblowing protection when evidence provided to the Regulator or Law Enforcement subject to safeguards

• Rationalisation of enforcement proceedings

• Rationalisation of appeal provisions


38

Sanctions

• Existing powers

• New proposals

– Enforceable undertakings

– Private reprimands

– Enforcement requirements


39

What Happens Next?

Roadmap• September 2015 – Proposals published in Billet• October/November 2015 – States Debate• Quarter 4 2015 – Drafting begins• Quarter 1 2016 - Consultation on amendments to regulations and rules• July 2016 – draft legislation to Legislation Select Committee• September/October 2016 – Legislation enacted• November 2016 – Royal Assent

40

Citizen Space

• A first for the GFSC• Feedback - positive experience• Worked well, some lessons learned• Efficient process for GFSC


THANK YOU & PLEASE JOIN US FOR

COFFEE

[email protected]

41

Documents

Feedback Presentation on the Revision of Laws Consultation St Pierre Park Hotel 10 June 2015 1