Changes to the GFSC enforcement process

Ferbrache & Farrell LLP field a recognised team of expert lawyers with a proven track record of dealing with some of the most significant regulatory matters published in Guernsey.

We set out an update below, but the key message when encountering the GFSC, is to take independent legal advice as quickly as possible.

Changes to the GFSC enforcement process

Guernsey’s success as a financial services centre is underpinned by its ability to effectively regulate businesses operating from within it.  Proper regulation ensures compliance with international standards and makes Guernsey an attractive jurisdiction globally for business.  The Guernsey Financial Services Commission (the Commission) is the body responsible for this objective.

The Commission carries out investigations of individuals and entities in Guernsey to determine any breach of the relevant regulatory laws and how that breach should be dealt with. It cannot bring criminal proceedings but can refer appropriate matters to Bailiwick Law Enforcement. In discharging its function, it carries out a quasi-judicial role and must follow the principles of natural justice and fairness.  The Commission must be satisfied that its process is fair, proportionate, transparent and timely and in discharging its obligations jurisprudence suggests it ought to be inquisitorially rather than adversarial.

Following the coming into force of the Financial Services Businesses (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 (the Enforcement Powers Law), the Commission has issued an updated “Explanatory Note on the Investigation and Decision-Making Process Relating to the Use Of Enforcement Powers: November 2021” (the Explanatory Note). This has replaced the November 2019 guidance note on Decision Making Process in relation to the use of enforcement powers (the 2019 Guidance). The Explanatory Note is guidance only and does not have force of law, but reflects the changes under the Enforcement Powers Law.

This note covers the basic process of enforcement and the changes in the updated guidance.

Enforcement Process

The investigation and enforcement process involves a number of stages:

• Executive review
• Investigation
• Draft Enforcement Report and Minded to Notice
• Representations
• Final Decision

Changes have been made under the Enforcement Powers Law and the Explanatory Note as to how this process now takes place.

Executive Review and Investigation

Before a referral to the Commission’s Enforcement Division (ED) is made, a member of the relevant Supervisory Division will carry out an executive review.  If appropriate, they will then refer the matter to the ED. If the ED accepts the matter it will then carry out an investigation using the information seeking powers conferred on it under the 2020 Law.

The investigation normally involves an interview with the relevant parties.  These may be voluntary or compulsory. Parties can request to bring an advocate to the interview, and this is strongly recommended.  It is also prudent to request disclosure of any material that might be discussed in that interview to ensure that the interview process is effective for both sides. A common mistake in our experience is for those being interviewed not to grasp, particularly in respect of a voluntary interview, the potential monumental evidence gathering function that it can be, which can lead to significant issues for the ill prepared.

Once the ED is satisfied that all relevant information has been gathered, it will take a decision as to how to proceed. A Case Review Panel in the Commission will be convened to recommend any further action.

Enforcement Report

If the Case Review Panel decides to take regulatory action, the ED will produce a draft Enforcement Report accompanied by disclosure of all the material on which it intends to rely. This is a change from the 2019 Guidance under which only the “relevant information” was disclosed. The party subject to the draft Enforcement Report is invited to respond to confirm the accuracy of the facts as presented and propose any changes. The Explanatory Note now requires a party proposing changes to provide any evidence to support the assertion made. This was not required under the previous 2019 Guidance. Practical difficulties can arise where a party no longer has access to the material that would provide such evidence.

The Explanatory Note also imposes tighter deadlines and emphasises compliance with these, presumably to avoid drift in a lengthy process.  For example, the newly added paragraph 8.4 states that delayed responses will not be accepted unless there are exceptional circumstances.

Disclosure

The Explanatory Note now contains a much more detailed section dealing with disclosure during enforcement proceedings.  The Commission is able to obtain a wide variety of information and documentation during the investigation process, and such information may not necessarily be easily accessible to the party being investigation.  The principles of natural justice require that the parties should be on an equal footing during this process. The Explanatory Note refers to the disclosure test used in civil proceedings and the Commission is obliged to disclose material in its possession, which meets this test.

A party being investigated may not always have access to the same documents as the Commission thus giving rise to a potential imbalance for those that are not properly prepared.  If a respondent believes there is material in the possession of the Commission that should be disclosed it should provide an explanation as to why.  Under the Explanatory Note, if the Commission is satisfied the material identified meets the disclosure test, it is under an obligation to disclose the material and will do so.

Minded To Notice

If appropriate, the Enforcement Report will then be referred to a decision maker. Under the Explanatory Note, the Enforcement Report will include a draft public statement.  This was not a requirement under the 2019 Guidance. The decision maker then has 30 days (increased from 10 under the 2019 Guidance) to decide whether any further information is required.

After considering the Enforcement Report and any further evidence, if the decision maker considers further enforcement action is necessary it can issue a “Minded To Notice” (MTN) which confirms the decision it is minded to take.  Under the Explanatory Note, the decision maker now has 70 days (increased from 28 days in the 2019 Guidance) to issue the MTN. Any regulatory sanction should be issued within 180 days of the referral to the decision maker save for in exceptional circumstances.

Pursuant to the Explanatory Note, the Commission’s proposed Public Statement will now accompany the MTN. There was no obligation to do so at this stage previously (in fact, preparation of the Public statement was only directed after the issuing of the MTN), and it enables Respondents to more expeditiously consider the proposed Public Statement and address that during the Representation Period, truncating this process.  

Representations

The party receiving the MTN has 28 days to make written and/or oral representations to the decision maker.  This 28 day limit is now applied generally under the Enforcement Powers Law and the Explanatory Note confirms that the Commission is now permitted to extend the representation period if necessary.  

The timeframes for response to the MTN have been significantly tightened in the Explanatory Note. Previously, a respondent could indicate if it required a meeting for oral representations to be made, but under the Explanatory Note, the time in which the meeting should be requested has been restricted to within 3 days of receipt of the MTN, an extremely short deadline on any analysis, especially so, given that many respondents may believe their best prospects of success rest in a full hearing. The date and duration of the meeting should be agreed within 7 days.

The enforcement process can be an extremely unsettling and stressful time and better-managed periods provide a more transparent timeframe and the tight deadlines may increase the pressure on respondents and their ability to seek legal advice and consider their position.  This is why we recommend legal assistance is sought at an early stage.

The Explanatory Note restricts written representations to just one round, unless such representations relate to matters, which arose during the meeting and are invited at the decision maker’s direction before the end of the representation period.  The decision maker will close the meeting when it is satisfied that the relevant party has had a fair and sufficient opportunity to make oral representations.

Appeal

Finally, a party unsatisfied with the Commission’s decision has a right of appeal to the Royal Court.  Under the Enforcement Powers Law, the permissible outcomes of that appeal have been changed to the effect that the Court can no longer dismiss the appeal in whole or in part. 

As set out in the Explanatory Note, in determining the appeal, the Court must either confirm the Commission’s decision in whole or in part or set the decision of the Commission aside.  If the Court considers it appropriate to do so, it may remit the matter to the Commission with such directions as the Court thinks fit.  This provides more certainty of the outcome to appellants.

Conclusion

Our advocates are experienced in advising individuals and entities who are subject to investigation or regulatory decisions of the Commission.  We recommend that you seek legal advice as soon as the possibility of regulatory investigation arises, this may give you the benefit of protection under legal advice privilege.  The costs of legal advice in complying with an investigation, and sometimes of any fine imposed, might be covered by insurance. Check whether your insurance policy covers this and seek guidance from the insurer at the outset.