## IMF Module 2 assessment of the Bailiwick of Guernsey — Executive Summary (cr03364) ## Source details **Canonical URL:** [IMF Module 2 assessment of the Bailiwick of Guernsey — Executive Summary (cr03364)](https://www.imf.org/-/media/files/publications/ofca/english/cr03364.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr03364.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr03364.pdf.json) --- ### Introduction and scope - The IMF conducted a Module 2 assessment of the Bailiwick of Guernsey during a mission from November 13–26, 2002. - The assessment reviewed regulatory and supervisory arrangements against internationally accepted standards in banking, insurance, securities, anti-money laundering and combating the financing of terrorism (AML/CFT), and for company and trust service providers (fiduciaries). - Volume I provides an overview and summary findings and the Reports on the Observance of Standards and Codes (ROSCs); Volume II contains detailed principle-by-principle assessments. ### Financial system overview — structure and key statistics (as reported by the IMF) - Jurisdiction and economy: - Bailiwick of Guernsey comprises Guernsey (population 62,000), Alderney (population 2,000), and Sark (population 600). - Financial industry accounted for an estimated 65 percent of Guernsey’s export economy in 2001. - Financial sector employment (Distribution of Staff in the Financial Services Industry 2002): - Banking: 2,750 (41.6 percent) - Insurance and investment business: 1,304 (19.7 percent) - Trust business: 2,556 (38.7 percent) - Total: 6,610 (100.0 percent) - Banking sector: - 69 banks licensed to take deposits under the Banking Supervision (Bailiwick of Guernsey) Law, 1994. - Total deposits: £71.8 billion at end-September 2002; largest source fiduciary deposits. - As of end-October, 2002 there were 69 licensed banks of which 16 were administered banks. - Over 40 percent of aggregate bank deposits originate as fiduciary deposits from Switzerland. - Insurance sector (2002): - Captive insurance market: 383 captive insurance companies and protected cell companies, managed by 30 captive insurance management companies. - Funds under management: £9.3 billion. - Annual premium income: £2.07 billion. - International life assurance: 26 authorized companies managing £2.86 billion of gross assets; annual income for 2002 was £0.83 billion. - Protected cell companies (PCCs): 50 licensed PCCs with 214 cells at end-2002. - For all international insurance companies in 2002: premium income £2.96 billion; assets held £12.16 billion; capital £5 billion. - Securities and funds (end-September 2002 / October 2002): - Collective investment schemes: 208. - Closed-ended collective investment funds: 322. - Total value of collective schemes and funds: £31.9 billion. - Channel Islands Stock Exchange (CISX): securities admitted 280 (as at October 2002); market capitalization: $17 billion. - Firms and corporate registrations (as at June 30, 2002): - 428 companies licensed to conduct controlled investment business, including 267 fund managers and administrators; 108 fiduciaries, banks and non-Guernsey firms conducting investment business; 15 fund custodians; 21 intermediaries/independent financial advisers; 13 investment advisers; 3 stockbrokers; and the CISX. - Companies registered in Guernsey: 15,910; registered in Alderney: 484; no companies incorporated in Sark. ### GFSC governance, staffing, and legal framework - Guernsey Financial Services Commission (GFSC): - Established under the Financial Services Commission (Bailiwick of Guernsey) Law, 1987. - Overseen by the Advisory and Finance Committee of the States Assembly which may give written guidance and direction of a general character after consulting the GFSC. - Required to make an annual report to the Advisory and Finance Committee laid before parliament. - Funded by fees levied on regulated institutions; since November 1, 2002, GFSC sets its fees after consultation with the Advisory and Finance Committee. - GFSC board and staff: - At assessment time, board of five members; chairman was president of the Advisory and Finance Committee (2002 amendment removed necessity for chairman to hold political office). - GFSC staff: 75 (including 5 consultants) at assessment; staff numbers increased to 88 at end of July 2003. - Fiduciary licensing: - 189 licensed providers of trust and corporate services: 141 companies or partnerships holding full fiduciary licenses; 48 individuals holding personal fiduciary licenses. - Personal fiduciary license restricts holder to act as a company director or as a trustee (but not as a sole trustee). - Some fiduciaries operating under transitional provisions; GFSC established an appeals tribunal and mission recommended setting a cut-off date for completion of licensing. ### Legal and regulatory framework (key laws and AML/CFT statutes) - Principal regulatory statutes include: - Financial Services Commission (Bailiwick of Guernsey) Law, 1987 (GFSC Law). - Banking Supervision (Bailiwick of Guernsey) Law, 1994, as amended. - Insurance Business (Bailiwick of Guernsey) Law, 2002. - Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002. - Protection of Investors (Bailiwick of Guernsey) Law, 1987 (POI Law). - Companies (Guernsey) Law, 1994 and Companies (Alderney) Law, 1994. - Trusts (Guernsey) Law, 1989. - Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000. - AML/CFT statutes supporting the regime include: - Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991; - Disclosure of Information Laws, Guernsey (1995), Alderney (1998) and Sark (2001); - Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999; - Drug Trafficking (Bailiwick of Guernsey) Law 2000; - Terrorism and Crime (Bailiwick of Guernsey) Law, 2002. ### Overall assessment — strengths and vulnerabilities - Overall IMF finding: - The financial, regulatory, and supervisory system of the Bailiwick of Guernsey "complies well" with the assessed international standards and was assessed to have a high level of compliance with the four standards covered. - Legal framework for company and trust service providers fully consistent with the Offshore Group of Banking Supervisors (OGBS) Statement of Best Practice. - Noted strengths: - Comprehensive regulatory framework and proactive regulators. - Effective on-site and off-site supervisory processes addressing reputational risks. - Well-established GFSC with experienced staff and a good range of regulatory and enforcement powers. - Developed AML/CFT legal and institutional framework; GFSC guidance notes and surveillance programs; strong institutional relationships and high FI awareness. - Principal vulnerabilities and issues identified: - GFSC independence and statutory objectives: - Section 7 of GFSC Law allows Advisory and Finance Committee to give written guidance and direction of general character—potential intrusion on operational independence. - Section 2 of GFSC Law assigns GFSC functions “to take such steps as it considers necessary or expedient for the development and effective supervision of finance business in the Bailiwick,” creating possible conflict between “development” and “effective supervision.” - IMF recommended removing the Advisory and Finance Committee’s power to give guidance and eliminating “development” as a GFSC function and establishing safety, soundness, and integrity as GFSC objectives. - Resource deficits: - Banking Division resource deficit identified; IMF recommended a “zero based” staffing analysis and additional resources to sustain a full safety-and-soundness supervisory program. - FIS/FIU capacity constraints: shortage of staff and dramatic increase in workload; recommended two further financial investigators, a financial analyst, and an administrative assistant. - Specific legal and procedural limitations: - Limitations on GFSC on-site inspection powers for certain investment licensees and absence of explicit powers of entry and search in some laws. - Absence of complete procedures for dealing with failure of a market participant (intermediary) and need for more explicit rules on large exposures, default, and market disruption. - Criminal Justice (Proceeds of Crime) Law did not, at that time, make it a crime to fail to report a suspicious transaction; STR submission to FIS was not mandated in law. ### Recommended actions and policy priorities (selected, as recommended by the IMF) - Cross-cutting legal and governance reforms: - Amend the GFSC Law to remove the Advisory and Finance Committee’s power to give guidance and direction of a general character. - Amend the GFSC Law to establish safety, soundness, and integrity of the financial system as the GFSC’s objectives and eliminate “development” as a GFSC function. - Ensure no provisions in the Law could potentially compromise these objectives. - GFSC resourcing and supervisory capacity: - Banking Division to conduct a “zero based” analysis of staff needs and address resource deficit; recruit additional staff as identified. - Increase Insurance Division staff (mission recommended at least a second actuary and two more analysts). - Implement dedicated training programs and more extensive on-site visitation program across Divisions. - Banking sector supervisory measures: - Implement and enforce Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003 requirements: - Each Guernsey bank to review at least annually board responsibilities, conduct with respect to corporate governance, and individual loans, asset classification and loss provisions; report shortcomings and remediation to GFSC. - Formalize and distribute “Guidelines for Corporate Governance and Risk Management.” - Extend on-site credit risk assessments to emphasize credit quality and provisioning levels. - Develop methodology to review external auditors’ working papers in cooperation with Guernsey Society of Chartered and Certified Accountants. - Securities and market infrastructure: - Promote statutory on-site inspection powers and powers of entry and search for investment licensees (Protection of Investors Law amendments and Ordinances under the 2003 Amendment Law). - Develop procedures and powers to manage failure of market intermediaries; consult and issue new rules on large exposures, default risk, and market disruption. - Insurance supervision: - Consider increasing legally required solvency minima over time; exercise GFSC power to tailor solvency requirements based on size, complexity and risk. - Add administrative fines (civil money penalties) to GFSC remedial powers. - AML/CFT specific reforms: - Amend laws/regulations to explicitly require customer identification procedures and record-keeping (FATF 10–13). - Adopt legislation to make failure to report a suspicious transaction a criminal offence (per Draft Miscellaneous Provisions Law Sections 1 and 2) replacing reporting-as-defense approach (FATF 14–19). - Consider requiring Guernsey FIs to apply Guernsey AML/CFT requirements to branches and subsidiaries outside Guernsey; issue revised regulations and Guidance Notes to address this (FATF 20–21). - Ratify and implement International Convention for the Suppression of the Financing of Terrorism (FATF Special Recommendation I). - Amend laws to ensure originator information on wire transfers remains with the transfer and require enhanced scrutiny of incomplete wire transfers (FATF Special Recommendation VII). - Strengthen and resource the Financial Intelligence Service: recruit two investigators, a financial analyst, and an administrative assistant; develop IT systems. - Extend AML/CFT framework consideration to money-service businesses (MSBs). - Amend Regulations to require designation of a reporting officer resident in the Bailiwick and provide for FIS authority over STR format and possible instruction powers (to be considered in drafting Guernsey equivalent of UK Proceeds of Crime Act). ### Sectoral assessments — Basel Core Principles (summary) - Overall: High level of compliance with Basel Core Principles for Effective Banking Supervision. - Principal concerns: - GFSC statutory functions and independence (development vs. supervision). - Banking Division resource deficit jeopardizing sustainability of supervisory progress. - Selected Basel CP recommendations: - CP 1: Amend GFSC Law to establish safety, soundness and integrity objectives and remove Advisory and Finance Committee guidance power. - CP 8: Extend on-site credit risk and provisioning assessments. - CP 14: Formalize corporate governance guideline distribution. - CP 16: Complete on-site examination methodology for full scope safety and soundness visits; implement quality control and training. - CP 25: Obtain formal annual confirmation from “home” supervisors to complement licensing confirmations; GFSC to contact home supervisors on an ongoing annual basis. ### Sectoral assessments — FATF 40+8 (summary) - Overall: AML/CFT regime generally satisfactory with developed legal framework, industry awareness, and high level of compliance observed among regulated institutions. - Identified principal concerns: - No legal provision at that time making failure to report a suspicious transaction an offence (reporting-as-defense remained); no legal requirement that STRs be submitted to FIS. - FIS/FIU resource constraints relative to workload. - Legal gap: POI lacked express right for GFSC to enter premises of certain licensees. - Selected FATF recommendations (selected from Table 4): - Amend laws to explicitly require customer identification procedures and improve uniformity of KYC, especially for introduced business and legacy customers. - Adopt criminal offence for failure to report suspicious transactions (Draft Miscellaneous Provisions Law Sections 1 and 2). - Require originator information to remain with wire transfers and enhance scrutiny of transfers lacking complete information within FATF two-year timeframe. - Ratify International Convention for the Suppression of the Financing of Terrorism. ### Sectoral assessments — IAIS Insurance Core Principles (summary) - Overall: Very high standard of observance with IAIS Core Principles; insurance framework recently modernized to meet standards. - Key elements: - GFSC Insurance Division staffing at assessment: total staff 14 (a Director, Deputy Director, an actuary, 8 analysts, a consultant, and 2 support staff). - Mission recommended at least a second actuary and two more analysts; authorities increased staff accordingly (assistant actuary and two analysts appointed). - Minimum paid-up capital: general insurance minimum £10,000; long-term insurance minimum £250,000 — GFSC routinely applies higher solvency requirements in practice. - LICG Code of Conduct in force November 2002; compliance required by December 31, 2003; failure to comply an offence under IB Law. - Recommended actions: amend GFSC Law to secure independence; consider increasing legally required solvency minima; grant supervisor power to impose administrative fines. ### Sectoral assessments — IOSCO Objectives and Principles (summary) - Overall: High standard of compliance with IOSCO Objectives and Principles of Securities Regulation. - GFSC Investment Business Division staffing: 19 people (shortly to rise to 24). - Identified limitations and recommended actions: - Provide GFSC explicit powers of entry and search and statutory on-site inspection powers for investment licensees (POI amendments and Ordinances intended for early 2004). - Provide GFSC access to power to comment on investment business management and market practice. - Review and establish procedures to deal with failure of market intermediaries; propose Ordinance under Protection of Investors Law in 2004 to include failure provisions. - Publish consultation and rules on management of large exposures, default risk, and market disruption in 2004. ### Balance sheet statistics of licensed banks (year-end; In Millions of Pounds) - Assets (1997; 1999; 2001): - Loans, advances, and market loans with banks, etc.: 38,778; 42,138; 51,603 - British Isles public sector: 4; 1; 12 - Companies, persons, other: 4,047; 5,066; 5,333 - CDs: 3,556; 5,287; 5,412 - Government securities: 5,292; 3,882; 10,466 - Company shares/securities: 1,483; 3,657; 5,401 - Other assets: 1,045; 1,589; 2,922 - Total assets: 54,205; 61,620; 81,148 - Liabilities (1997; 1999; 2001): - Deposits by banks, etc.: 11,241; 11,468; 12,424 - British Isles public sector: 36; 50; 59 - Companies, persons, other: 37,162; 44,598; 64,728 - Other liabilities: 4,650; 1,357; 1,841 - Capital (1997; 1999; 2001): - Tier 1 Capital 1/: 1,039; 4,064; 2,069 - Tier 2 Capital 2/: 77; 83; 27 - Total Liabilities and Capital: 54,205; 61,620; 81,148 - 1/ Paid-up share capital and disclosed reserves. - 2/ Undisclosed reserves, revaluation reserves, general provisions, debt/equity instruments and subordinated debts. ### Authorities’ response and follow-up actions (selected) - Authorities (States of Guernsey Advisory and Finance Committee, Attorney General’s Chambers, GFSC, Financial Intelligence Service) welcomed IMF assessment endorsing a high level of compliance and value the recommendations. - Planned or implemented actions noted by authorities (selected): - Seek amendment of GFSC Law to formalize GFSC statutory obligation for safety, soundness and integrity and to address independence concerns. - Banking Division completed zero-based staffing analysis and recruited an additional analyst; Banking Division planning full safety-and-soundness on-site visits for 2004. - Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003 introduced annual review requirements for banks on corporate governance and loan provisioning. - GFSC guidance revisions: “Guidelines for Corporate Governance and Risk Management” to be issued; Guidance Notes on AML/CFT revised and issued for consultation. - Insurance Division staffing increased to include assistant actuary and two analysts; GFSC will report in 2004 on administrative fines recommendation. - Protection of Investors Law amendments and enabling Ordinances under the 2003 Amendment Law planned to provide explicit on-site inspection, entry and search powers and powers to appoint inspectors/investigators; Ordinance intended to be laid before the States Assembly for approval early in 2004. - Criminal Justice (Miscellaneous Provisions) (Bailiwick of Guernsey) Law to be presented early in 2004 to make failure to report a suspicious transaction an offence and permit FIS to prescribe STR format; training and staffing increases for FIS approved and IT improvements planned. - Authorities to consider ratification/extension of international instruments (e.g., International Convention for the Suppression of the Financing of Terrorism) and further legislative enhancements (e.g., Prevention of Corruption Law 2003; Regulation of Investigatory Powers Law 2003). *Source: IMF Module 2 assessment of the Bailiwick of Guernsey (Executive Summary) and associated ROSC excerpts.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Introduction - The IMF conducted a Module 2 assessment of the Bailiwick of Guernsey during a mission from November 13–26, 2002. - The assessment reviewed the extent to which regulatory and supervisory arrangements complied with internationally accepted standards and measures of good practice in banking, insurance, securities, anti-money laundering and combating the financing of terrorism (AML/CFT), and for company and trust service providers (fiduciaries). - Volume I provides an overview and summary findings and the Reports on the Observance of Standards and Codes (ROSCs). Volume II contains detailed principle-by-principle assessments. ### Financial System Overview - Economic and structural context: - The Bailiwick of Guernsey comprises Guernsey (population 62,000), Alderney (population 2,000), and Sark (population 600). - The financial industry accounted for an estimated 65 percent of Guernsey’s export economy in 2001. - Financial sector employment (Distribution of Staff in the Financial Services Industry 2002): - Banking: 2,750 (41.6 percent) - Insurance and investment business: 1,304 (19.7 percent) - Trust business: 2,556 (38.7 percent) - Total: 6,610 (100.0 percent) - Banking: - There are 69 banks licensed to take deposits under the Banking Supervision (Bailiwick of Guernsey) Law, 1994. - Total deposits stood at £71.8 billion at the end of September 2002, the largest source being fiduciary deposits. - Bank activity: private banking for nonresidents, corporate banking, deposit gathering for parent operations, and retail banking for the local population; custody services for mutual funds and services to captive insurance. - Major asset destinations: London money market, placements to fund United Kingdom parent businesses, EU and Switzerland, and the United States for U.S. Government papers. - The banking sector is undergoing consolidation and rationalization; the number of banks is decreasing and mergers are expected to continue. - Insurance: - Captive insurance market: 383 captive insurance companies and protected cell companies, managed by 30 captive insurance management companies. - Funds under management: £9.3 billion (2002). - Annual premium income: £2.07 billion (2002). - International life assurance: 26 authorized companies managing £2.86 billion of gross assets; annual income for 2002 was £0.83 billion. - Protected cell companies (PCCs): 50 licensed PCCs with 214 cells at end-2002. - Securities and funds: - Collective investment schemes: 208. - Closed-ended collective investment funds: 322. - Total value of collective schemes and funds: £31.9 billion (end-September 2002). - Channel Islands Stock Exchange (CISX): commenced operations in 1998; securities admitted as at October 2002: 280; market capitalization: $17 billion; market concentrated on open- and closed-end investment funds and special debt instruments; market is screen-based and does not provide clearance and settlement facilities. - Firms and corporate registrations: - As at June 30, 2002, 428 companies licensed to conduct controlled investment business, including: - 267 fund managers and administrators - 108 fiduciaries, banks and non-Guernsey firms conducting investment business - 15 fund custodians - 21 intermediaries/independent financial advisers - 13 investment advisers - 3 stockbrokers - and the CISX - Companies registered in Guernsey: 15,910; registered in Alderney: 484; no companies are incorporated in Sark (it has no company law). ### Strengths and Vulnerabilities in Regulatory and Supervisory Arrangements - Overall assessment: - The financial, regulatory, and supervisory system of the Bailiwick of Guernsey "complies well" with the assessed international standards. - The jurisdiction has been assessed to have a high level of compliance with the four standards covered in the assessment. - The legal framework for company and trust service providers is fully consistent with the Offshore Group of Banking Supervisors (OGBS) Statement of Best Practice. - Noted strengths: - A comprehensive regulatory framework. - A proactive approach by regulators to achieve high standards across banking, insurance, securities, AML/CFT, and fiduciary best practices. - An off-site and on-site supervisory process addressing key types of reputational risk to the Bailiwick. - Identified areas for further strengthening: - The functions and independence of the Guernsey Financial Services Commission (GFSC). - Resources devoted by the GFSC to bank supervision. - Certain supervisory and regulatory arrangements in banking and securities. - The AML/CFT legal framework, the coverage of guidance notes, and the communication of some policies. ### Recommended Actions and Policy Priorities - Key recommended policy actions encouraged of the authorities: - Enhance the independence of the regulator (GFSC). - Amend the GFSC Law to establish safety, soundness, and integrity of the financial system as the objectives of the GFSC and eliminate “development” as one of the GFSC functions. - Address the resource deficit identified in the GFSC’s Banking Division. - Enhance certain GFSC powers and procedures. - Strengthen the AML/CFT legal framework, broaden the coverage of guidance notes in certain areas, and reinforce the communication of certain AML/CFT policies. - Assessments covered in detail (summarized in Volume I and detailed in Volume II) include: - Basel Core Principles for Effective Banking Supervision (institutional setting, market structure, general preconditions, and principle-by-principle assessment). - FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (information and methodology, preventive measures for financial institutions, summary assessment). - IAIS Insurance Core Principles (institutional and macroprudential setting, general preconditions, principle-by-principle assessment). - IOSCO Objectives and Principles of Securities Regulation (information and methodology, general preconditions, principle-by-principle assessment). *Source: IMF Module 2 assessment of the Bailiwick of Guernsey (Executive Summary).* ### 12. There are 189 licensed providers of trust and corporate services. Of this figure, ### 12. There are 189 licensed providers of trust and corporate services. Of this figure, ### Supervisory authority - There are 189 licensed providers of trust and corporate services: - 141 are companies or partnerships holding full fiduciary licenses (authorizing the holder to undertake the full range of fiduciary activities). - 48 are individuals holding personal fiduciary licenses. - A personal fiduciary license is a restricted category of license authorizing the holder to act as a company director or as a trustee (but not as a sole trustee). - A small number of fiduciaries are operating under transitional provisions; these entities are covered by the supervisory and enforcement provisions of the legislation but some have not yet been licensed because the GFSC is not fully satisfied they meet all licensing criteria. - The Guernsey Financial Services Commission (GFSC): - Was established as a statutory body under the Financial Services Commission (Bailiwick of Guernsey) Law 1987 as a unitary regulator responsible for the regulation of financial services business. - Is overseen by the Advisory and Finance Committee of the States Assembly, which is mandated to oversee the financial services sector, monitor and act as the channel of communication with the GFSC, and may give written guidance and direction of a general character after consulting the GFSC. - Is required to make an annual report to the Advisory and Finance Committee that is laid before parliament. - Is funded by fees levied on regulated institutions and, since November 1, 2002, sets its fees after consultation with the Advisory and Finance Committee. - GFSC governance and staffing: - At the time of the assessment, the GFSC’s affairs were directed by a board of five members, of whom the chairman was the president of the Advisory and Finance Committee; the 2002 amendment removed the necessity for the chairman to hold political office. - The four other members are selected by parliament for terms of three years and can be reelected. - The president of the Advisory and Finance Committee has since stepped down as chairman and has been replaced by a nonpolitician. - The GFSC has a staff of 75 (including 5 consultants) and is divided into four regulatory and two support Divisions reporting to the Director General; staff numbers increased to 88 at the end of July 2003. ### Legal framework - Guernsey’s legal and regulatory infrastructure includes: - Financial Services Commission (Bailiwick of Guernsey) Law, 1987, and amendments (the GFSC Law) — sets out GFSC responsibilities and confers general powers. - Banking Supervision (Bailiwick of Guernsey) Law, 1994, as amended — regulates deposit-taking business, restricts acceptance of deposits to licensed institutions, and gives GFSC powers to impose conditions, directions, penalties, and revoke licenses. - Insurance Business (Bailiwick of Guernsey) Law, 2002 — regulates insurance companies, licensing, suspension, revocation, and authorizes GFSC directions; includes a policyholder-protection-scheme and provisions for a Compensation Scheme. - Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002 — complements Insurance Business Law; permits GFSC to restrict, license, and supervise insurance managers and intermediaries. - Protection of Investors (Bailiwick of Guernsey) Law, 1987 (POI Law) — requires licensing for persons carrying out specified investment activities including administration, advising, custody, management, dealing, promotion, registration, and subscription for certain investments. - Companies (Guernsey) Law, 1994 and Companies (Alderney) Law, 1994 — provide for incorporation and require registered office in Guernsey; PCC legislation introduced; no company law in Sark. - Trusts (Guernsey) Law, 1989, and subsequent amendments — provide for the setting up of trusts. - Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000 — licenses, regulates, and supervises fiduciaries; all those engaged in regulated fiduciary activities must be licensed. - AML regime supported by statutes including: - Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991; - Disclosure of Information Laws, Guernsey (1995), Alderney (1998) and Sark (2001); - Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999; - Drug Trafficking (Bailiwick of Guernsey) Law 2000; - Terrorism and Crime (Bailiwick of Guernsey) Law, 2002. ### Strengths and vulnerabilities in regulatory and supervisory arrangements - Overall assessments: - Financial regulatory system of Guernsey complies well with international standards. - Assessments conducted against: Basel Core Principles for Effective Banking Supervision; Insurance Core Principles of the IAIS; Objectives and Principles of Securities Regulation of IOSCO; FATF 40+8 Recommendations; and reviewed against the OGBS Statement of Best Practice for Company and Trust Service Providers. - Strengths: - GFSC is a well-established and well-respected supervisory agency with experienced staff and a good range of regulatory and enforcement powers. - Supervisory process is, in general, effective. - Legal framework for company and trust service providers is fully consistent with the OGBS Statement of Best Practice. - Vulnerabilities and issues identified: - Two issues could impair GFSC operational independence: 1. Section 7 of the GFSC Law authorizes the Advisory and Finance Committee to give the GFSC written guidance and direction of general character concerning policies to be followed. 2. Section 2 of the GFSC Law provides that “The general functions of the Commission are to take such steps as it considers necessary or expedient for the development and effective supervision of finance business in the Bailiwick,” creating potential conflict between “development” and “effective supervision” without a clear mechanism to resolve conflicts. - The current GFSC Law’s combination of development and supervision functions may compromise regulator independence and judgment in difficult decisions affecting the finance sector. - A resource deficit was noted in the Banking Division; unless adequately resourced, sustainability of progress and effective mandate fulfillment will be at risk. - Some limitations identified in the legal framework for investment activity related to on-site inspection powers, statutory power to obtain information for communication to foreign regulators, and absence of complete procedures for dealing with failure of a market participant. ### Sectoral assessments (summaries) - Basel Core Principles: - High level of compliance. - Two areas for strengthening: GFSC functions/independence and Banking Division resource deficit. - IAIS Core Principles: - High level of compliance. - Concerns on functions and independence of the regulator. - Formal insurance framework is very new; legislation recently amended to reach compliance. - Mission concurs with proposed increase in staff for insurance supervision. - IOSCO Principles: - High standard of compliance. - Issues: regulator independence; limitations on GFSC powers of on-site inspection; statutory power to obtain information for communication to foreign regulators; absence of complete failure procedures for market participants. - FATF 40+8 Recommendations (AML/CFT): - AML/CFT regime is generally satisfactory with a developed legal framework and industry awareness. - High level of compliance with FATF Recommendations. - Strengths: - Developed legal and institutional framework for AML/CFT, particularly confiscation of proceeds, exchange of information, and international cooperation. - Broad regulation of the financial sector. - GFSC has devoted appropriate resources; detailed guidance notes and on- and off-site surveillance programs exist. - Strong relationships among principal institutions and high level of FI awareness and implementation of AML/CFT policies and procedures. - Company and trust service providers: - GFSC regulatory and supervisory framework for fiduciaries is consistent with OGBS Statement of Best Practice. - Application process has been handled well; some fiduciaries remain under transitional provisions pending licensing decisions. - GFSC has established an appeals tribunal to expedite licensing during transition. - Mission recommends setting a cut-off date for completion of the licensing process to avoid inordinate delays. ### Actions recommended to strengthen observance of standards and codes - General recommendation on GFSC independence and objectives: - Amend the GFSC Law to remove the power of the Advisory and Finance Committee to provide guidance and direction to the GFSC. - Establish safety, soundness, and integrity of the financial system as the objectives of the GFSC in the GFSC Law and eliminate “development” as one of the GFSC functions. - Ensure no provisions in the Law could potentially compromise the stated objectives. - These changes would provide a clear legal framework, avoid potential conflicts in GFSC functions, enhance reputation, and contribute to the development of the financial system in Guernsey. - Additional sector-specific recommended actions are provided in the source’s next section for each of the four assessed standards. ### Authorities’ response to the assessment - The States of Guernsey Advisory and Finance Committee, the Attorney General’s Chambers, the GFSC, and the Financial Intelligence Service: - Value and attach great significance to the IMF’s Module 2 assessment, which endorsed a high level of compliance with international regulatory standards in banking, insurance, securities, AML/CFT, and best practice for company and trust service providers. - Welcome the issues raised by the IMF to further enhance implementation of international standards. - Note that many IMF recommendations are or will be satisfied by framework amendments already in progress at the time of the assessment; an action plan is appended to Volume I of the assessment report describing how recommendations are being addressed. - Emphasize concern that the IMF will not be assessing other jurisdictions against the OGBS Statement of Best Practice; authorities view the Statement as an important international benchmark for trust and company service providers and regret the absence of IMF assessments against it. *Summary based on the IMF assessment of the Bailiwick of Guernsey’s financial regulatory and supervisory framework.* ### 39. The IMF’s conclusion that the States of Guernsey Advisory and Finance Committee’s ### The IMF’s conclusion that the States of Guernsey Advisory and Finance Committee’s ### Governance, independence, and statutory roles - IMF concluded that the Advisory and Finance Committee’s ability under the Financial Services Commission (Bailiwick of Guernsey) Law, 1987 to give guidance and directions of a general character to the GFSC has not interfered with the GFSC’s capacity to carry out its functions. - The Committee has never unilaterally provided guidance or directions to the GFSC. - The law permits the Committee to give the GFSC guidance and directions only of general character. - Both the Committee and the GFSC consider: - that the provision provides proper accountability by the GFSC to the Committee, the senior political body of Guernsey’s parliament; and - that the ability to give guidance and directions of general character is in compliance with the international standard which applies to the independence of regulatory bodies. - IMF recommendation (noted and addressed): - Amend the GFSC Law to remove the Advisory and Finance Committee’s right to provide guidance to the GFSC (potentially impairing independence). - Establish safety, soundness, and integrity of the financial system as the objectives of the GFSC and eliminate “development” as one of the GFSC functions to avoid conflicts of interest. ### Statutory objective reform and executive response - Current statutory responsibility: GFSC to “develop and effectively supervise finance business in Guernsey.” - IMF recommended replacing the statutory responsibility to develop the finance sector with a statutory obligation for the safety, soundness and integrity of the financial system. - The Advisory and Finance Committee and the GFSC: - agree that formalizing the GFSC’s approach in this manner better expresses current and continuing objectives; - expect this will enhance reputation and contribute to continuing development of the financial system in Guernsey; - propose to seek amendment of the law at an early stage. ### Resources devoted to banking supervision - GFSC staff resources have continued to grow in line with the size of the finance sector and GFSC responsibilities. - IMF recommendation: Banking Division should carry out a “zero based” analysis of its staff needs based on the expected number of banks. - Action taken: The zero-based analysis was completed and, as a consequence, an additional analyst has been recruited since the assessment to assist systematic corporate governance and full scope safety and soundness on-site visits to banks. - Mission concern: The Banking Division currently has a resource deficit; if not addressed, the Division will be unable to sustain progress or meet its progressive mandate. ### Banking regulatory arrangements and supervisory policies - Legal requirements introduced by the Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003: - Each Guernsey bank must review, at least annually, the responsibilities and conduct of the bank’s board of directors with respect to corporate governance principles; shortcomings must be reported to the GFSC with remediation details. - Each Guernsey bank must review, at least annually, individual loans, asset classification and loss provisions (including on and off balance sheet exposures); shortcomings must be reported to the GFSC with remediation details. - GFSC guidance: - “Guidelines for Corporate Governance and Risk Management” are being revised in light of consultation comments and will be formally issued following consideration of those comments. - Policy changes: - Scope of on-site credit assessments of banks was extended in early 2003 to emphasize credit quality and provisioning levels. - GFSC supervisory plan and expectations: - Move to a more active supervisory approach with a more extensive and substantive ongoing visitation program. - Emphasis initially on AML/CFT, complemented by introduction of credit-risk assessments. - Requirement under section 36C (amendment to the BSL) for annual reviews that include: - responsibilities and conduct of the bank’s board of directors with respect to corporate governance principles; - whether there has been effective control by the bank’s board of directors over every aspect of risk management; - the bank’s control environment; - whether the bank’s financial record-keeping systems and data systems are reliable; - whether any activity has been entered into in the course of the bank’s business in respect of which no director of the bank has a sound knowledge. - GFSC issues guidelines to articulate expectations of a sound corporate governance regime. - Mission recommends GFSC work with the Guernsey Society of Chartered and Certified Accountants to develop a methodology to review working papers supporting external auditors’ work to confirm reliance on external auditors. ### Banking sector structure and market features - Licensing and market structure: - Guernsey issues only one type of banking license, but two types of banks: stand-alone and administered. Administered banks use services and facilities of a stand-alone bank; primary books and records of administered banks must be retained in Guernsey. - Administered banks are licensed and supervised in the same manner as stand-alone banks; no distinction in type of license or supervision. - As of end-October, 2002, there were 69 licensed banks of which 16 were administered banks. - Types of banking business: retail, corporate, and international private banking; private banking complements trust, fiduciary, and company service sector. - Deposits and funding: - Guernsey receives substantial fiduciary deposits from Switzerland; contractually regarded as interbank deposits between Guernsey bank and originating Swiss bank. - Over 40 percent of aggregate bank deposits come from this source, although it does not generate an equivalent amount of income. - Deposit gatherers predominantly on-lend deposits to head offices or place proceeds in money markets, principally through London. - Treasury/business features: - Some banks have active treasury operations participating in CDs, FRNs, and U.S. Government-guaranteed mortgage paper. - Treasury businesses take advantage of a Guernsey tax concession allowing a concessionary 2 percent tax rate on referred business. - Credit business: - Locally generated credit business has gradually but steadily increased over the last five years, primarily for nonresident clients. - Outsourcing: - Selected outsourcing of back-office operations and use of head office IT platforms with firewalls to segregate onshore and offshore clients. - Banking confidentiality: protected by law in the same manner as in the United Kingdom and other common-law jurisdictions. ### Securities regulation and inspection powers - States Assembly approved drafting of separate statutory on-site inspection powers for investment licensees in 2002. - Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2003 provides enabling power for the States Assembly to make an Ordinance covering statutory on-site inspection powers; States Assembly intended to consider the Ordinance in early 2004. - Protection of Investors (Bailiwick of Guernsey) Law, 1987 already provides GFSC with comprehensive powers to obtain information and interview investment licensees’ staff; on-site inspections have been conducted since 1989. - Planned amendments: - Promote amendment to Protection of Investors Law to provide GFSC power to issue written directives and powers of entry and search after obtaining a warrant from the Bailiff (similar provisions already in other GFSC-administered legislation). - GFSC capacity to comment: - GFSC will report to the Advisory and Finance Committee on the recommendation that GFSC possess a general power to comment on investment business management and market practice in 2004. - Nothing in the current framework prohibits GFSC commenting on investment business management and market practice. ### AML/CFT framework and related legislation - Authorities noted IMF recommendations and will continue to enhance the framework to counter money laundering and terrorist financing. - Legislation developments: - Prevention of Corruption (Bailiwick of Guernsey) Law, 2003: - Introduces a statutory offence of corruption; approved by the States Assembly in September 2003. - Once it receives Royal Assent it will supersede existing common law on corruption and assist adoption of the UN Convention Against Transnational Organized Crime (the Palermo Convention) to Guernsey. - Criminal Justice (Miscellaneous Provisions) (Bailiwick of Guernsey) Law: - Will be considered by the States Assembly in early 2004; States Assembly approved a policy letter incorporating drafting instructions in 2002. - The law will include provisions whereby an offence will be committed by a financial services business if it fails to report a suspicious transaction to the Financial Intelligence Service—this will replace the existing legal provision that reporting a suspicion is a defense against committing the offence of money laundering. - GFSC AML/CFT program: - Well established program for implementation of AML/CFT standards by regulated institutions. - Developed comprehensive Guidance Notes and established a strong rapport with licensed institutions on AML/CFT issues. - Conducts on-site inspections of financial services businesses’ AML/CFT standards. - In 2003 the GFSC issued revisions to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 and the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism for consultation on technical issues raised by the IMF. - GFSC routinely communicates policies to the finance sector and is consulting with the finance sector in connection with publication of a statement on the FATF’s June 2003 Recommendation on introduced business. ### Basel Core Principles assessment: summary findings and statistics - Overall assessment: - Prudential regulations and powers are strong and the supervisory process is, in general, effective. - High level of compliance with the Basel Core Principles. - Two principal concerns: - GFSC’s functions include “the development of finance business in the Bailiwick,” which may conflict with other functions. - Banking Division resource deficit; mission concerned the deficit could prevent sustaining progress and meeting future mandate. - Specific assessments and recommendations: - CP 1 (Objectives, autonomy, powers, and resources): - Prudential regulations are sound. - Recommend amending GFSC Law to remove Advisory and Finance Committee’s power to provide guidance. - Recommend GFSC Law establish safety, soundness, and integrity of the financial system as GFSC objectives and eliminate “development” as a GFSC function. - GFSC will continue to have due regard for international standards. - CPs 2–5 (Licensing and structure): Effective licensing authority with fair and equitable criteria. - CPs 6–15 (Prudential regulations and requirements): Compare favorably with international standards and “best practices”; no significant weaknesses noted. - CPs 16–20 (Methods of ongoing supervision): GFSC moving to a more active supervisory approach; two CPs largely compliant and three compliant. - CP 21 (Information requirements): GFSC emphasizes transparency of accounting policies and conformance with international standards; requires banks to publish risk-management policies and practices in detailed annual statements. - CP 22 (Formal powers of supervisors): Legal provisions enable GFSC to take regulatory action; GFSC policy to publicly report noncompliance and regulatory actions. - CPs 23–25 (Cross-border banking): GFSC applies an effective blended supervisory process combining off-site assessment and on-site visitation; policy to license only banks/branches with parent organizations having an acceptable international presence based on GFSC criteria. ### Balance sheet statistics of licensed banks (Table 2, year-end; In Millions of Pounds) - Assets (1997, 1999, 2001): - Loans, advances, and market loans with banks, etc.: 38,778; 42,138; 51,603 - British Isles public sector: 4; 1; 12 - Companies, persons, other: 4,047; 5,066; 5,333 - CDs: 3,556; 5,287; 5,412 - Government securities: 5,292; 3,882; 10,466 - Company shares/securities: 1,483; 3,657; 5,401 - Other assets: 1,045; 1,589; 2,922 - Total assets: 54,205; 61,620; 81,148 - Liabilities (1997, 1999, 2001): - Deposits by banks, etc.: 11,241; 11,468; 12,424 - British Isles public sector: 36; 50; 59 - Companies, persons, other: 37,162; 44,598; 64,728 - Other liabilities: 4,650; 1,357; 1,841 - Capital (1997, 1999, 2001): - Tier 1 Capital 1/: 1,039; 4,064; 2,069 - Tier 2 Capital 2/: 77; 83; 27 - Total Liabilities and Capital: 54,205; 61,620; 81,148 - 1/ Paid-up share capital and disclosed reserves. - 2/ Undisclosed reserves, revaluation reserves, general provisions, debt/equity instruments and subordinated debts. *Source: IMF* ### 78. Memoranda of Understanding (MOUs) are put in place on request, but the existence ### 78–120: Memoranda of Understanding; Basel Core Principles Recommendations; FATF AML/CFT Assessment ### Memoranda of Understanding (MOUs) and Cross-Border Banking (CP 25) - MOUs are put in place on request, but the existence of an MOU is not a precursor to allowing the GFSC to exchange information of common interest to another regulator. - All CPs were considered to be compliant. - Recommendation: obtain a formal confirmation from “home” supervisors on an annual basis to complement the confirmation of support obtained as part of the licensing process. - Authorities’ response: The GFSC is contacting all home supervisors and this process will continue on an annual basis. ### Recommended Actions to Improve Compliance with the Basel Core Principles (selected) - CP 1.1 Objective - Finding: The Law has provided the GFSC with the general function to develop the financial business. This may conflict with its regulatory and supervisory functions. - Recommended action: The GFSC Law should be amended to establish safety, soundness, and integrity of the financial system as the GFSC functions. There should be no other provisions in the Law that could potentially compromise these functions. - CP 1.2 Independence - Finding: The Advisory and Finance Committee’s power to give guidance and directions to the GFSC has the potential of intruding on the operational independence of the latter. - Recommended action: Amend the law to remove these powers; conduct an in-depth analysis of supervisory objectives and means to fulfill those objectives; revisit the existing Banking Division Manpower Plan for 2003–2007 accordingly. - CP 8 Loan Evaluation & Loan Loss Provisioning - Recommended action: Extend current on-site credit risk assessments to include additional emphasis on credit quality and provisioning levels. - CP 14 Internal Control and Audit - Recommended action: Formalize and distribute Corporate Governance Guideline. - CP 16 On-site and Off-site Supervision - Recommended actions: Prioritize completion of the examination methodology to allow for full scope safety and soundness visitations; supplement with more defined quality control procedures; implement a dedicated training program for Banking Division staff; explore increased synergies with external auditors. ### Authorities’ response to the Basel CP assessment - Overview: The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of Guernsey has achieved a high level of compliance with the Basel Committee Core Principles on Banking Supervision. - Objectives (CP 1.1): See paragraph 44 for the response to the recommendation on the GFSC’s objectives. - Independence (CP 1.2): See paragraph 43 for the response to the recommendation on the GFSC’s independence. - Staffing: See paragraph 45 for the response on increasing the GFSC’s staff resources. - Loan evaluation and provisioning (CP 8): See paragraph 47 for the response on GFSC’s reviews of loan evaluation, asset classification and loan loss provisioning. - Internal control and audit (CP 14): See paragraph 48 for the response to formalize and distribute corporate governance guidelines. - On-site and off-site supervision (CP 16) - The GFSC’s Banking Division is planning full safety and soundness on-site visits for 2004. Visits will include techniques and practices to confirm existence and application of an effective and comprehensive risk management process and control culture. - Additional training of staff in this field will continue. - Meetings with external bank auditors will be more frequent and scope for increasing synergies will be explored. ### FATF 40+8 Recommendations — Assessment overview - The Report on the Observance of Standards and Codes for the FATF 40 Recommendations and 8 Special Recommendations was prepared by a team composed of IMF staff and an independent anti-money laundering expert. - The report summarizes levels of observance with the FATF 40+8 Recommendations and provides recommendations to strengthen observance. - Information and methodology: Fund staff reviewed AML/CFT laws and regulations, supervisory and regulatory systems for prudentially regulated FIs, regulatory systems for trust and company service providers in transition, and criminal law enforcement capacity via an independent expert. Field work was undertaken over the course of two visits to Guernsey. ### Criminal justice measures and international cooperation - Guernsey has a generally adequate framework for criminalization of ML and FT. - The Vienna Convention has been ratified on Guernsey’s behalf by the United Kingdom; a request has been submitted for a similar ratification of the Convention for the Suppression of the Financing of Terrorism. - The GFSC has powers to impose a number of sanctions on banks, investment businesses, fiduciaries, and insurance businesses. - ML is criminalized and relates to the proceeds of all serious offenses, including financing terrorism. FT is criminalized consistent with the Convention for the Suppression of the Financing of Terrorism. ### Confiscation and protection of rights - Laws provide for confiscation of laundered property, proceeds from and instrumentalities used in or intended for use in Guernsey with respect to any ML offense. - Provision exists for forfeiture of property that are proceeds of or intended for use in FT. - Protection exists for the rights of bona fide third parties in the case of restraint orders. - Where the Court is satisfied that a victim intends or has instituted civil proceedings, the Court does not have to make a confiscation order in the total sum available to be realized. ### Financial Intelligence Service (FIS/FIU) - Structure and reporting - The FIS is Guernsey’s FIU, an independent unit of the Guernsey Police Force and Officers of the Customs and Excise office, jointly staffed. - Reporting obligations: FIs are required to report to a police officer (defined term includes customs officers) transactions suspected of stemming from criminal activity or used to finance terrorism. Reporting parties must submit suspicious reports where such party knows or suspects that a person is engaged in ML or FT. - In 1998, Guernsey's FIU became a member of the Egmont Group and plays an active role. - Powers and capacity - The FIS does not have the power in law to demand additional information from reporting parties; in practice it requests such information and, in most cases, it is provided. - Statistics are kept relating to amounts of property frozen, seized, and confiscated for proceeds of crime, drug trafficking, money laundering, and financial terrorism, and on all referrals made by the FIS/FIU to other competent authorities. - Capacity constraints: The FIS/FIU as currently structured and funded is capable of performing its functions; however, it is not working at maximum capacity due to shortage of staff and a dramatic increase in workload. - Staffing recommendation: The FIS/FIU requires two further financial investigators, and requires the support of a financial analyst and an administrative assistant. ### Law enforcement, prosecution, and international cooperation - Law enforcement responsibility: Police and Customs and Excise ensure ML and FT offenses are properly investigated; the FIS/FIU is also able to carry out investigative tasks. - Prior to obtaining/serving production orders or warrants, consent/authority of a law officer is required. - Law enforcement can compel production of bank records and other FI records through lawful process. - Mutual legal assistance: Laws and procedures provide for mutual legal assistance regarding use of compulsory measures, including production of records and search of persons and premises; they allow for the widest possible range of mutual legal assistance in AML/CFT matters. - Production orders or warrants may be issued to obtain records from FIs or private individuals. ### Identified principal concerns (AML/CFT) - There is no provision in the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999, as amended, that makes it a crime to fail to report a suspicious transaction, as in the DT Law, rather than as a defense to the crime of money laundering. In addition, there is no requirement in law that STRs should be submitted to the FIS. - Resources available to the FIS are inadequate in light of increasing workload. - While the GFSC conducts on-site inspections to licensees and the POI contains provisions enabling the GFSC to obtain information and interview staff, the law does not contain a specific provision permitting the GFSC to enter a licensee’s premises (this contrasts with banking, fiduciary, and insurance legislation which gives the Commission the express right to enter). ### Preventive measures for financial institutions - GFSC program and guidance - The GFSC has a well-established program for implementing AML/CFT standards by prudentially regulated institutions, including comprehensive Guidance Notes and periodic guidance such as “Business From Sensitive Sources Notices”. - Since 1999, the GFSC has instituted on-site visits to assess compliance and has visited the vast majority of licensees. - The GFSC has been actively involved in facilitating training for regulated institution staff. - GFSC staffing for AML/CFT - The Policy and International Affairs Division had a Deputy Director assisted by a consultant at the level of Assistant Director devoted to AML/CFT on a full-time basis; subsequent to the mission, this officer left the GFSC. - A senior analyst has joined the Division devoted fully to AML/CFT matters. - The GFSC retained an external consultant to assist in its AML/CFT program. - Regulations require the GFSC to train its staff on AML issues; formal in-house training most recently took place in July 2002. - Supervision cycle - All Divisions undertake AML/CFT surveillance including on-site visits scheduled on a two-year cycle. - The Banking Division commenced on-site assessments of licensees in 1999; other Divisions commenced reviews in 2000. - Know Your Customer (KYC) framework and Progressive Program - In December 2000 Guernsey, Jersey, and the Isle of Man developed the consultation document “Overriding Principles For a Revised Know Your Customer Framework.” - A Position Paper outlines direction for AML legal and regulatory frameworks, focusing on verification of customer identity, introduced business, and verification of legacy customers (Progressive Program). - The Position Paper envisages that an “accepting party” will always hold originals or copies of verification documents and that FIs should address deficiencies retroactively on the basis of risk prioritization and trigger events. - Compliance observed among regulated institutions - Regulated institutions in banking, insurance, and securities demonstrate a high level of compliance with assessed criteria, with well-documented procedures and training programs. - Principal supervisory concerns - The Notes do not clearly indicate the standard expected of institutions and other parties covered by AML/CFT legislation in a number of areas. - Visits revealed a wide range of KYC practices related to the Overriding Principles Paper; the GFSC should redouble efforts to achieve greater uniformity, especially for introduced business and retroactive verification of customer identity. - The POI does not give the GFSC the express right to enter premises of licensees for certain sectors, unlike banking, fiduciary, and insurance legislation. ### Regulation of trust and company service providers - The GFSC has started regulating trust and company service providers; the licensing process has not been completed but all persons undertaking these activities are covered by Guernsey’s AML/CFT framework. - Visits indicated a high level of compliance with AML/CFT requirements among these entities. ### Summary assessment and recommended actions (FATF 40+8) - Summary: Guernsey has a sound legal and institutional AML/CFT framework with high levels of compliance observed among regulated institutions; the report makes recommendations for further strengthening. - Selected recommended actions from Table 4: - Customer identification and record-keeping rules (FATF 10-13) - The relevant laws should be amended to explicitly require that customer identification procedures be followed. - The GFSC should redouble efforts to ensure greater consistency in the approach adopted by licensees toward the customer identification standards in the Position Paper. - Increased diligence of FIs (FATF 14-19) - Legislation should be adopted along the lines of the Draft Miscellaneous Provisions Law (Sections 1 and 2) to make it a crime to fail to report a suspicious transaction, as in the DT Law, rather than as a defense to the crime of money laundering. - Measures to cope with countries with insufficient AML measures (FATF 20-21) - Consider requiring all Guernsey FIs to apply Guernsey legal and regulatory AML/CFT requirements to their branches and subsidiaries outside of Guernsey; the GFSC has issued draft revised regulations and Notes for consultation that will address this concern. - FATF Special Recommendation I (Ratification and implementation of UN instruments) - The International Convention for the Suppression of the FT should be ratified. - FATF Special Recommendation VII (Wire transfers) - Within the two-year period referred to by FATF, amend relevant laws to require that accurate and meaningful originator information on funds transfers remain with the transfer throughout the payment chain, and require FIs to give enhanced scrutiny to wire transfers that do not contain complete originator information. ### Authorities’ response to the FATF assessment - Overview: The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of Guernsey has a sound legal and institutional AML/CFT framework with a high level of compliance with the FATF Recommendations. - Customer identification and record keeping (FATF 10-13) - The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 already contain detailed customer identification requirements which must be followed by financial services businesses; failure to comply is an offence. - The IMF’s comment about documentary requirements for legal entities will be considered as part of changes to the Regulations and Guidance Notes arising from the Financial Action Task Force’s new Recommendations (issued in June 2003). - The GFSC is consulting with the finance sector regarding the FATF’s June 2003 Recommendation on introduced business. - Increased diligence of FIs (FATF 14-19): See paragraph 55 for the response on reporting of suspicious transactions to the Financial Intelligence Service. - Measures to cope with countries with insufficient AML measures (FATF 20-21) - Proposed changes to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 and Guidance Notes to include additional detail on application of AML/CFT standards to branches and subsidiaries of Guernsey financial services businesses have been issued to the finance sector for consultation. - Ratification and implementation of UN instruments (FATF Special Recommendation I): authorities’ response noted (see relevant section). *Source: IMF assessment and recommendations as presented in the Report on the Observance of Standards and Codes (ROSC) excerpts for Guernsey (paragraphs 78–120).* ### 121. With the enactment of the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 ### With the enactment of the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 ### Terrorism financing legislation and wire-transfer measures - With the enactment of the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 all relevant legislation to satisfy the International Convention for the Suppression of the Financing of Terrorism has been enacted. - Application has been made for the Convention to be extended to Guernsey. - Proposed changes to the Criminal Justice (Bailiwick of Guernsey) Regulations, 2002 and the Guidance Notes in respect of the requirements for originator information to remain with wire transfers have been issued to the finance sector for consultation. ### IAIS Core Principles — assessment overview and institutional setting - The assessment of Guernsey’s compliance with the IAIS Core Principles has been completed as part of the IMF Offshore Financial Sector (OFC) report. - Guernsey is one of the largest captive insurance centers in the world. - Premium income for all international insurance companies in Guernsey in the year 2002: £2.96 billion. - Assets held: £12.16 billion. - Capital: £5 billion. - The GFSC is the sole regulator for the financial services market; insurance businesses, including company managers and intermediaries, are supervised by the Insurance Division of the GFSC. - The basis of insurance supervision: Insurance Business (Bailiwick of Guernsey) Law, 2002 (IB Law), the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law (IMII Law), and related Regulations, Ordinances, Codes, and Guidance Notes. ### Preconditions for effective insurance supervision - Preconditions are satisfied through a well-developed infrastructure: - the legal framework is consistent, modern, and in compliance with international standards; - the court system is efficient and reliable; - applied accounting standards are internationally accepted; - actuarial and auditing professions are available and apply recognized principles; - an efficient financial market (banks and investment funds) exists; - sound and effective macroeconomic policies are in place. ### GFSC capacity and staffing - The GFSC Insurance Division staffing and composition (at time of assessment): - Total staff: 14 (a Director, Deputy Director, an actuary, 8 analysts, a consultant, and 2 support staff). - Personnel are professionally qualified. - The mission recommended increasing staff: at least a second actuary and two more analysts. - Authorities’ response: staff increased to include an assistant actuary and two analysts as recommended. ### Overall observance and general findings - Guernsey has achieved a very high standard of observance with the IAIS Insurance Core Principles. - The insurance framework is very new; main laws were recently amended with the objective of compliance with international standards like the IAIS Core Principles. ### Principle-specific findings and recommended actions - Organization (Principle 1) - GFSC Law grants the government the right to give written guidance and direction of general character to the GFSC; this possibility may impair operational independence. - The GFSC Law’s Section 2 assigns the GFSC functions “to take such steps as it considers necessary or expedient for the development and effective supervision of finance business in the Bailiwick.” - The concurrent objectives of “development” and “effective supervision” could create potential conflicts and may compromise independence; amendment of the GFSC Law is recommended to resolve this. - Recommended actions: - Amend GFSC Law to remove the power of the Advisory and Finance Committee to provide guidance and direction to the GFSC. - Establish safety, soundness, and integrity of the financial system as GFSC objectives and eliminate “development” as a GFSC function. - Increase GFSC Insurance Division staff (mission recommended at least a second actuary and two more analysts). - Licensing and changes in control (Principles 2 and 3) - Licensing mechanisms are provided by the IB and IMII Laws; GFSC has detailed minimum criteria and powers to suspend or revoke licenses. - Controlling shareholders, including parent corporations, must notify and seek prior GFSC approval for changes in control. - GFSC utilizes internal and external information sources (Shared Intelligence System, Lexis Nexis, the Financial Fraud Information Network, SEC, and FBI websites) in reviews. - Corporate governance and internal control (Principles 4 and 5) - The Licensed Insurer’s Corporate Governance Code of Conduct (LICG Code) came into force in November 2002. - Failure to comply with the LICG Code is an offense under the IB Law. - Compliance with the LICG Code required by December 31, 2003. - The LICG Code requires Boards to establish internal control procedures and to provide the GFSC with copies of inaugural meeting records identifying such controls. - Prudential rules (Principles 6–10) - Approved assets are principally restricted to trading assets and high-quality investments readily realizable in recognized markets. - Valuation of liabilities: IB Law requires liabilities be determined in accordance with recognized accounting standards (i.e., U.K. GAAP); long-term insurance requires an annual actuarial investigation and professional actuarial report. - Insurers must secure that liabilities are covered by assets of appropriate safety, yield, and marketability per IB Law and relevant regulations. - Minimum paid-up capital: - General insurance minimum: £10,000. - Long-term insurance minimum: £250,000. - The minimum capital and minimum solvency margin are relatively low compared with, for instance, the EU; GFSC routinely modifies solvency requirements in practice to reflect size, complexity, and risk exposure, and solvency requirements in practice are usually much higher than legal minima. - The mission recommended considering increasing these minima from time to time. - Derivatives: insurers may only trade in approved derivatives; regulations detail criteria for approval; trading in derivatives in breach of laws or regulations is an offense. - Reinsurance: reinsurance program must be part of the business plan; IB Law requires declaration of reliance on reinsurers as the GFSC may demand; GFSC may impose conditions if a proposed reinsurer is unacceptable. - No professional reinsurer licensed in Guernsey at the time of assessment. - Market conduct (Principle 11) - GFSC Principles of Finance Business require licensees to observe high standards of integrity and fair dealing and to act with due skill, care, and diligence. - Key functionaries must be fit and proper; GFSC may refuse or revoke licenses for non-compliance. - GFSC does not act as ombudsman or arbitrator but follows up complaints with licensees and ensures senior-level handling. - A financial services ombudsman position is in the process of being created. - Monitoring, inspection, and sanctions (Principles 12–14) - Annual reporting: insurers must prepare annual report and financial accounts and submit these with auditor’s report and actuarial report (if applicable) to the GFSC within four months of the financial period. - Similar information required from licensed insurance managers and insurance intermediaries. - Accounts must be drawn up in accordance with Recognized Accounting Standards (U.K. GAAP or other internationally accepted standards). - On-site inspections: GFSC has power to conduct on-site inspections at such times and intervals as it thinks fit; in practice, GFSC carries out visits on a three-year rolling program for all licensees. - In 2002, a total of 26 inspections were undertaken. - GFSC intends to intensify on-site inspections. - Remedial powers: GFSC has a range of powers, including fines, prison sentences, and compulsory winding up; mission recommended adding power to impose civil money penalties (administrative fines) consistent with international standards. - Authorities’ response: GFSC will report to the States of Guernsey Advisory and Finance Committee in 2004 on the recommendation concerning imposition of penalties. - Cross-border operations, supervisory coordination and cooperation, and confidentiality (Principles 15–17) - All insurance activities conducted in or from Guernsey must be licensed and supervised by the GFSC; supervisor can refuse licenses to foreign insurers under the same circumstances as domestic insurers. - GFSC can and will cooperate with home country supervisors, including facilitating on-site inspections within Guernsey. - GFSC has multiple gateways to share information domestically and internationally and has long experience cooperating with foreign regulators; it has MOUs with numerous foreign supervisory authorities. - GFSC law imposes duties of confidentiality on the GFSC and its staff; breach is an offense. Permitted disclosures and sharing are set out in the IB, IMMI, and FSC laws and include disclosure to other supervisors. Confidentiality applies also to information received from other supervisors abroad. ### Consolidated recommended action plan (selected highlights from Table 5) - CP 1 Organization of an Insurance Supervisor - Amend GFSC Law to remove the power of the Advisory and Finance Committee to provide guidance and direction to the GFSC. - Establish safety, soundness, and integrity of the financial system as GFSC objectives and eliminate “development” as a GFSC function to avoid conflicts. - Increase the number of staff. - CP 8 Capital Adequacy and Solvency - Increase the legally required solvency minimum. - CP 14 Sanctions - Complete the range of sanctions by granting the supervisor power to impose penalties (administrative fines). ### Authorities’ response — summary - Authorities welcome the IMF’s assessment that the Bailiwick of Guernsey has achieved a high level of compliance with the IAIS Core Principles. - GFSC Insurance Division staffing increased to include an assistant actuary and two analysts as recommended. - Solvency requirements: IB Law provides for GFSC to modify solvency requirements of each insurer depending on size, nature and complexity of risks; in practice solvency requirements are much higher than legal minima and are continually monitored. - Imposition of penalties: GFSC will report to the States of Guernsey Advisory and Finance Committee in 2004 on the recommendation concerning imposition of penalties. ### IOSCO Objectives and Principles — securities regulation assessment (introductory findings) - The IMF conducted a formal assessment of regulatory and supervisory arrangements for Guernsey’s securities and investment regulation against the IOSCO Objectives and Principles of Securities Regulation. - Information and methodology: - Assessment analyzed rules of law, statements of best practice, and evidence of current practice against the 30 IOSCO Principles. - Mission reviewed IMF guidance notes, IOSCO reports and resolutions, OECD publications, selected Bailiwick legislation, regulations, ordinances, rules, codes, guidance statements, GFSC materials, IOSCO self-assessments prepared by the GFSC, and various operational GFSC documents; mission also held extensive discussions with government, the FSC, professional bodies, industry associations, and representative licensed firms. - Principal types of investment business in the Bailiwick: - management, administration, and custody of collective investment funds (open and closed-ended); - discretionary asset management; - nondiscretionary asset management; - stock broking; - provision of investment advice. - As at June 30, 2002, there were 428 entities licensed to carry on investment business: - 403 companies incorporated in the Bailiwick; - 1 Bailiwick partnership; - 24 branches of international institutions. - Clients of investment businesses include local and overseas residents, local and overseas institutions, and professional firms; the geographical spread of clients is said to be diverse. *Source: Assessment undertaken as part of the IMF Offshore Financial Sector (OFC) report.* ### 167. The GFSC has adopted as its primary objective: ### 167. The GFSC has adopted as its primary objective: ### Objectives and mandate - The GFSC has adopted as its primary objective: “to regulate the Bailiwick’s finance sector to international standards and, by doing so, to protect depositors, investors, policy holders, other customers, and the public.” - Market access is determined by reference to the securities regulatory system and the decisions of the GFSC. - The Bailiwick does not have explicit statute law rules about competition; the IMF mission’s impression is that a diversity of market participants is engaged in investment business. ### Legal and institutional framework - The Bailiwick has a conventional framework of general business law, including a common-law system; securities law is backstopped by contract, tort, property, and criminal law concerning fraud and deceit. - Company law and partnership law provide mature rules about the constitution and administration of entities that issue securities in Guernsey and Alderney. - The Bailiwick’s ability to develop as an international finance center depends on: - the quality of its regulation; - the expertise of its people; - the cost of doing business; and - its tax regime. - The Bailiwick authorities emphasize the importance of sound law and supervisory procedures and of cooperating with equivalent authorities in other jurisdictions. ### IOSCO Principles assessment — overall and resourcing - The IMF mission found Guernsey to have achieved a high standard of compliance with the IOSCO Principles. - The GFSC has a good range of regulatory powers and its Investment Business Division had a staff of 19 people and was shortly to rise to 24; the Division appears resourced appropriately to maintain consistent standards of supervision in the Bailiwick. ### Regulator (Principles 1–5) - GFSC responsibilities are clearly stated; it has adequate powers, proper resources, clear and consistent processes, and high professional standards. - The mission examined GFSC operational independence and noted circumstances where the government may issue guidance or directions on policy or on how the GFSC carries out its functions. ### Self-regulatory organization (Principles 6–7) - One self-regulatory organization (SRO), the CISX, applies in respect of its members and listed issuers. - The GFSC makes appropriate use of the CISX as an SRO and maintains oversight regarding standards of fairness. ### Enforcement (Principles 8–10) - The GFSC has powers of inspection, investigation, and surveillance. - Limitations identified: - No powers of on-site inspection in respect of people who do not hold licenses. - Inadequate powers of entry and search. ### Cooperation (Principles 11–13) - The GFSC has wide powers to share public and nonpublic information with domestic and foreign counterparts. - The GFSC has entered into 11 MOUs with foreign counterparts and is negotiating another 4 MOUs; two of these MOUs were signed subsequent to the mission. - Typical MOU aim: “to establish a framework for mutual assistance and to facilitate the exchange of information between the commissions to enforce or secure compliance with any laws or regulations of their respective jurisdictions.” ### Principles for Issuers (Principles 14–16) - GFSC works to achieve full, accurate, and timely disclosure and fair and equitable treatment for investors; it has powers and resources for these purposes. - Accounting and auditing standards are of an internationally acceptable quality. - Recommendation: the Bailiwick should commit resources to review accounting and auditing standards and review of auditor performance, recognizing international scrutiny. ### Collective investment schemes (Principles 17–20) - Extensive rules of law cover collective investment schemes: standards for operators; legal form and structure; segregation and protection of client assets; disclosure and asset valuation; and unit pricing. - The GFSC maintains an active regulation and supervision program. ### Market intermediaries (Principles 21–24) - Minimum entry standards, ongoing capital, prudential requirements, and standards for internal organization and operational conduct exist. - The mission considers that the Bailiwick lacks a complete procedure for dealing with the failure of a market intermediary and recommends reviewing powers available to the GFSC in this area. ### Secondary market (Principles 25–30) - Trading system establishment is subject to regulatory authorization and oversight; there is ongoing supervision and regulation promotes trading transparency. - Clearance and settlement systems are subject to oversight and designed for fairness and efficiency. - The Bailiwick lacks explicit regulation to ensure the proper management of large exposures, default, and market disruption. ### Recommended Plan of Actions to Improve Observance of IOSCO Principles (selected items) - CP 1 (Principles Relating to the Regulator) - Note the IOSCO Objectives: the protection of investors; ensuring markets are fair, efficient, and transparent; reducing systemic risk. - Recommend GFSC consider whether commitment to these objectives should be more explicitly recognized in any review of its statement of responsibilities. - Recommend GFSC update and better integrate Borrowing (Control) Law powers with other powers; GFSC is proposing to review this Law in context of a general review of Company Law and should undertake this work. - CP 8 (Principles for the Enforcement of Securities Regulation) - Recommend GFSC have access to powers of entry and search, directly or through another agency such as the Law Officers. - Recommend GFSC seek a general power to comment on investment business management and market practice. - CP 16 (Principles for Issuers) - Recommend GFSC, the accounting profession and others continue ongoing consideration of the source of authority for financial reporting and audit standards and review of auditor performance. - CP 24 (Principles for Market Intermediaries) - Recommend the Bailiwick review powers available to GFSC to deal with the failure of an intermediary. ### Authorities’ response and planned actions - Authorities welcome the IMF assessment confirming a high level of compliance with the IOSCO Objectives and Principles. - Control of Borrowing (Bailiwick of Guernsey)(Amendment) Ordinance, 2003 provides GFSC explicit authority to issue guidance on investment supervisory standards under the Control of Borrowing regime. - The Control of Borrowing regime is being reviewed as part of a review of company law; a consultation document will be issued in 2004. - GFSC monitors changing international accounting and auditing standards; it will continue to liaise with the local accounting profession, investment industry and others on matters impacting the Guernsey investment industry. - GFSC intends to promote an Ordinance under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 in 2004 to include specific legislative provisions for dealing with the failure of a market intermediary. - GFSC intends to publish a consultation document on the management of large exposures, default risk and market disruption and to issue new rules during 2004. ### Wider action plan by the Bailiwick authorities - Authorities value the IMF’s Module 2 assessment endorsing high compliance across banking, insurance, securities, anti-money laundering, combating financing of terrorism, and best practice for company and trust service providers. - Many IMF recommendations are, or will be, satisfied by framework amendments already in progress at the time of assessment. - The authorities expressed concern that the IMF will not be assessing other jurisdictions against the Offshore Group of Banking Supervisors Statement of Best Practice for Trust and Company Service Providers and believe the Statement is an important international benchmark. ### Selected specific authority responses and action items (numbered items) - Banking sector - GFSC objective: Authorities propose to seek amendment of the law at an early stage to formalize GFSC’s statutory obligation for safety, soundness and integrity of the financial system. - Independence: The Advisory and Finance Committee and GFSC consider ability to give guidance and directions only of general character complies with international standards on independence. - Staffing: Banking Division completed a “zero based” analysis of staff needs; an additional analyst has been recruited since the assessment. - Loan evaluation and provisioning (CP8): Following Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003, each Guernsey bank must review at least annually individual loans, asset classification and loss provisions and report shortcomings to the GFSC. - On-site and off-site supervision (CP13 and 16): Banking Division plans full safety and soundness on-site visits for 2004; meetings with external bank auditors will be more frequent. - Internal control and audit (CP14): Banks must review annually board responsibilities and conduct with respect to corporate governance; GFSC guidance notes “Guidelines for Corporate Governance and Risk Management” are being revised following consultation. - Validation of supervisory information (CP19): GFSC will meet with the Guernsey Society of Chartered and Certified Accountants to explore access to working papers for verification of quarterly returns and preparing audited accounts; consider bilateral and trilateral meetings with auditors. - Cross-border banking (CP25): GFSC is contacting all home supervisors to obtain formal confirmation of support on an annual basis; this process will continue. - Insurance sector - Insurance Division staff increased to include an assistant actuary and two analysts. - Solvency rules (CP8): Insurance Business (Bailiwick of Guernsey) Law, 2002 allows GFSC to modify solvency requirements by insurer depending on size, nature and complexity; in practice solvency requirements are much higher than legal minima and are continually monitored. - Administrative fines (CP14): GFSC will report to the States of Guernsey Advisory and Finance Committee in 2004 on the recommendation concerning imposition of penalties. *Source: IMF mission assessment and Bailiwick of Guernsey authorities’ responses and action plan.* ### 198. The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of ### 198–199. The authorities’ response to the IMF assessment (Bailiwick of Guernsey) ### Securities regulation — key findings and action plan - The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of Guernsey has achieved a high level of compliance with the IOSCO Objectives and Principles of Securities Regulation. - No. 1 — Principles Relating to the Regulator (Principle 1) - See the text under the heading “Objectives (CP 1.1)” in the recommendations specific to the banking sector of this action plan for the response on the recommendation concerning the GFSC’s objectives. - The Control of Borrowing regime is being reviewed as part of a review of company law and a consultation document will be issued in 2004. - No. 2 — Principles Relating to the Regulator (Principle 2) - See the text under the heading “Independence (CP1.2)” in the recommendations specific to the banking sector of this action plan for the response on the recommendation concerning the GFSC’s independence. - No. 3 — Principles for the Enforcement of Securities Regulation (Principle 8) - The States Assembly approved the drafting of separate, explicit, statutory on-site inspection powers with regard to investment licensees in 2002. - The Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2003 provides the States Assembly with an enabling power to make an Ordinance covering this matter. It is intended that the States Assembly will consider the Ordinance in early 2004. - The Protection of Investors (Bailiwick of Guernsey) Law, 1987 already provides the GFSC with comprehensive powers to obtain information and interview investment licensees’ staff; on-site inspections have been conducted since 1989. - It is intended to promote an amendment to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 which will provide the GFSC with powers of entry and search after obtaining a warrant from the Bailiff. - The GFSC will report to the Advisory and Finance Committee on the recommendation that the GFSC should possess a general power enabling it to comment on investment business management and market practice in 2004. - No. 4 — Principles for Issuers (Principle 16) - The Bailiwick of Guernsey does not issue its own accounting or auditing standards; it follows internationally recognized accounting standards. - The GFSC monitors the changing international standards and will continue to liaise with the local accounting profession, investment industry and other interested parties in respect of accounting and auditing matters that affect the Guernsey investment industry. - No. 5 — Principles for Market Intermediaries (Principle 24) - The GFSC intends to liaise with the finance sector with a view to promoting an Ordinance under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 in 2004, which will include specific legislative provisions for dealing with the failure of a market intermediary. - No. 6 — Principles for Secondary Market (Principles 28 and 29) - The GFSC intends to publish a consultation document on the management of large exposures, default risk, and market disruption and to issue new rules during 2004. ### AML/CFT — key findings and action plan - The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of Guernsey has a sound legal and institutional AML/CFT framework with a high level of compliance with the Financial Action Task Force Recommendations on Money Laundering and the Special Recommendations on Terrorist Financing. - No. 1 — Ratification and Implementation of UN Instruments; Criminalization of ML and FT - With the enactment of the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 all relevant legislation to satisfy the International Convention for the Suppression of the Financing of Terrorism has been enacted. Application has been made for the Convention to be extended to Guernsey. - The Prevention of Corruption (Bailiwick of Guernsey) Law, 2003, which will introduce a statutory offence of corruption, was approved by the States Assembly in September 2003. Once it has received Royal Assent this law will supersede the existing common law on corruption and assist the Bailiwick to adopt the UN Convention Against Transnational Organized Crime (the Palermo Convention). - The authorities will maintain their program of legislation so that the Convention can be extended to Guernsey. - No. 2 — Confiscation of Proceeds of Crime or Property used to Finance Terrorism - Consideration will be given to amending the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 to provide for the appointment of a receiver for all property owned by a defendant and for the sale of such property to satisfy a confiscation order. - During 2004, consideration will be given to new legislation based on the UK Proceeds of Crime Act in respect of the introduction of a statutory asset forfeiture fund and legislation for asset sharing with other jurisdictions. - No. 3 — Increased Diligence of FIs; The FIU and Processes for Receiving, Analyzing, and Disseminating Financial Information - The States Assembly approved a policy letter incorporating drafting instructions for the Criminal Justice (Miscellaneous Provisions) (Bailiwick of Guernsey) Law in 2002. This law is intended to be presented to the States Assembly for approval early in 2004 and it will include provisions making it an offence if a financial services business fails to report a suspicious transaction – this will replace the existing legal provision whereby the reporting of a suspicion is a defense against committing the crime of money laundering. - The new law will also include provisions which permit the Financial Intelligence Service to prescribe the format of suspicious transaction reports. - During 2004, consideration will be given to a requirement for information to be provided by reporting entities on an intelligence basis to the Financial Intelligence Service as part of the drafting of the Guernsey equivalent of the UK Proceeds of Crime Act. - The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 provide that a court may take account of the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism and any other guidance issued, adopted or approved by the GFSC. It is proposed to amend the Regulations to state explicitly that the GFSC must issue guidance notes under the Regulations. - Training of two investigators for the Financial Intelligence Service has been approved. In addition, an intelligence analyst and an administrative assistant were appointed earlier in 2003. - No. 4 — Law Enforcement and Prosecution Authorities, Powers and Duties - The Regulation of Investigatory Powers (Bailiwick of Guernsey) Law, 2003, which was approved by the States Assembly in September 2003, contains provisions that regulate the component parts of controlled delivery. This law includes the legal authority required in order to conduct directed and intrusive surveillance, property interference and the use of covert human intelligence sources. - The Financial Intelligence Service has given consideration to the development of its information technology resources and tenders have been issued. Work on the new computer system will commence as soon as possible. - No. 5 — General Framework - Consideration will be given to the extension of the application of the AML/CFT framework to MSBs (bureau de change activities, cheque cashing and money transmission services) as part of the current consideration of the introduction of new Regulations and Guidance Notes. - No. 6 — Customer Identification - The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 already contain detailed customer identification requirements which must be followed by financial services businesses. Failure to comply with the Regulations is an offence. - The IMF’s comments about the documentary requirements for legal entities will be considered as part of the changes to the Regulations and the Guidance Notes arising from the Financial Action Task Force’s new Recommendations (issued in June 2003). - The GFSC has issued draft revised Guidance Notes for consultation. - The GFSC is consulting with the finance sector in connection with the publication of a statement on the FATF’s June 2003 Recommendation on introduced business. - No. 7 — Wire Transfers; Ongoing Monitoring of Accounts and Transactions - The GFSC has issued draft revised Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism for consultation, which address the enhancements to the framework on ongoing monitoring of accounts and transactions recommended by the IMF. - No. 8 — Record Keeping - The GFSC has issued draft revised Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism for consultation which include the specific recommendations on record keeping made by the IMF. - No. 9 — Suspicious Transactions Reporting - See the text under “Recommendations Specific to Anti-Money Laundering and Countering the Financing of Terrorism”, point 3, paragraph 1, for the response to the recommendation to introduce a new offence for failure to report a suspicious transaction. - Consideration will be given to providing the Financial Intelligence Service with the authority to give instructions to reporting entities and to require financial services businesses to observe instructions of the Financial Intelligence Service as part of the drafting of the Guernsey equivalent of the UK Proceeds of Crime Act. - The GFSC has issued draft revised Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism for consultation, which address the issue of the use of the term “key staff”. - No. 10 — Measures to Cope with Countries with Insufficient AML Measures; Internal Controls, Compliance and Audit - Amendments to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 and the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism have been issued for consultation, which will require all financial services businesses to put in place adequate screening procedures to ensure high standards when hiring employees. - The amendments include additional detail on the application of AML/CFT standards to the branches and subsidiaries of Guernsey financial services businesses. - Amendments to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 have been issued for consultation, which require the designation of a reporting officer who should be resident in the Bailiwick of Guernsey and whose name and title must be provided to the GFSC. - No. 11 — Enforcement Powers and Sanctions - It is intended that legislation will be promoted in 2004 to provide the GFSC with the power to issue a written directive or order in respect of persons undertaking investment business. A similar power is already contained in the other regulatory legislation administered by the GFSC. - It is intended that an amendment to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 will be promoted in 2004, which will provide for the appointment by the GFSC of inspectors to investigate investment licensees. A similar power is already contained in the other regulatory legislation administered by the GFSC. - The GFSC will report to the Advisory and Finance Committee during 2004 in respect of civil money penalties and administrative fines. - An enabling provision has been included in the Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2003, which permits the States Assembly to introduce by Ordinance separate, explicit, legal provisions for on-site visits to be undertaken by the GFSC. An Ordinance is intended to be laid before the States Assembly for approval early in 2004. - No. 12 — Banking and Securities Sector-Specific Criteria - The GFSC has issued draft revised Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism for consultation which include the recommendations on on-going monitoring of accounts and transactions. - See the text under point 11, paragraph 4, for the response to the recommendation on enforcement powers and sanctions made by the IMF. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr03364.pdf_