Feedback Presentation on the Revision of Laws Consultation
Presentation on the revision of laws consultation held at St. Pierre Park Hotel on June 10, 2015, led by Philip Nicol-Gent, General Counsel of Guernsey Financial Services Commission. The event covered objectives, the consultation process, the new MiFID regime, and discussions on necessary legislative changes and proposals for government consideration.
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Feedback Presentation on the Revision of Laws Consultation St Pierre Park Hotel 10 June 2015 1
Welcome Philip Nicol-Gent General Counsel Guernsey Financial Services Commission 2
Objectives Addressing the new MiFID regime Changes to meet international standards Enhancing consistency and creating efficiencies Future proofing What NOT to do Philip Nicol-Gent, General Counsel 3
The process so far Informal soundings Discussion paper Drop-in sessions 13th and 14th November 2014 25 attendees Legal dinner with UK lawyers 24th November 2014 Feedback: Financial Sector Forum Guernsey International Business Association Fiscal and Economic Policy Group Commerce and Employment Philip Nicol-Gent, General Counsel 4
Consultation paper Launched 10 February 2015 Legal dinner with UK lawyers 2nd March 2015 Drop-in sessions 10th and 13th March 2015 12 attendees Consultation period closed 24 April 2015 38 responses 50% licencees 25% industry bodies 25% others Philip Nicol-Gent, General Counsel 5
Today Matters discussed are those changes needed to primary legislation Further amendments needed to rules and regulations Proposals being made to government No questions at the end of this presentation please join us for coffee and a croissant in the adjoining room Philip Nicol-Gent, General Counsel 6
The new MiFID regime Dr Andy Sloan International Policy Advisor Guernsey Financial Services Commission 7
Markets in Financial Instruments Directive MIFID II / MIFIR Europe s approach to increased market transparency and investor protection post financial crisis Determines market access for investment services for third country firms MIFID II retail Branches (and conditions) or national regimes MIFIR institutional Passport across EU with jurisdictional equivalence Dr Andy Sloan, International Policy Advisor 8
MIFID II / MIFIR scope MIFID II Authorisation and operating conditions for investment firms, authorisation and operation of regulated markets and data reporting service providers Supervision, cooperation and enforcement by competent authorities Provision of investment services through a branch for third country firms [retail market access for investment services] MIFIR Disclosure of trade data, reporting of transactions, trading of derivatives (on organised venues), (non-discriminatory) access to clearing and trading in benchmarks Product intervention powers of competent authorities and powers of ESMA on position limits and management Provision of investment services for third country firms through jurisdictional equivalence (my words, my italics) [institutional market access for investment services] 9 Dr Andy Sloan, International Policy Advisor
Revision of laws feedback 4.3.8. Do you agree with the suggestion that market access to retail clients in the EU (including the UK) is not necessary for Bailiwick firms? Answer NO! 4.3.20. Do you support the introduction of a targeted enabling power into each of the Supervisory Laws to ensure that these laws can be efficiently amended once the detailed requirements of the new MiFID regime are clear? Answer YES. Dr Andy Sloan, International Policy Advisor 10
Equivalence MIFID II: No equivalence, market access through branch or national regime MIFIR: that firms providing investment services and activities (my italics) in that third country are: a) subject to authorisation and to effective supervision and enforcement on an ongoing basis (MIFID II Art 5 8, Art 67-78); b) subject to sufficient capital requirements and appropriate requirements applicable to shareholders and members of their management body (MIFID Art 9, 10 15 (plus Prudential Requirements Directive)); c) subject to adequate organisational requirement in the area of internal control functions (MIFID II, Art 16); d) subject to appropriate conduct of business rules (MIFID II, Art 21-30); and e) it (the jurisdiction) ensures market transparency and integrity by preventing market abuse in the form of insider dealing and market manipulation (MIFID Art 31 32 MIFIR Art 28 30). Dr Andy Sloan, International Policy Advisor 11
Implications for revision of laws Criteria a) and e) relate to the overall regulatory approach. Criteria b), c) and d) relate to the specific approach to firms providing investment service providers. The simplest approach to equivalence would be to: ensure that our sector wide requirements are consistent with the overall regulatory approach (ongoing authorisation, effective supervision and enforcement; prevention of insider dealing and market manipulation) (which may require law change) supported by development of a separate and specific rulebook for investment services. Potentially few necessary law changes: market abuse, clarity over powers of product intervention, enforcement powers and (potentially) the powers to create an investor compensation scheme. Detail of depth of assessment not yet known Acceptability of this approach not for us to determine 12 Dr Andy Sloan, International Policy Advisor
International standards, clarity, consistency, efficiencies and future-proofing Tania Shires Legal Project Officer Guernsey Financial Services Commission 13
Changes necessary to meet international standards (CP section 3) Seeking clarity, consistency and efficiency (CP section 5) Supporting industry and future-proofing (CP section 6) Protecting the consumer (CP section 7) Gathering information and keeping things confidential (CP section 10) Miscellaneous and administrative changes (CP section 12) Tania Shires, Legal Project Officer 14
Changes necessary to meet international standards Current international standards The Basel Committee Core Principles for Effective Banking Supervision (revised 2012) The Insurance Core Principles issued by the International Association of Insurance Supervisors (revised 2013) The International Organization of Securities Commissions Objectives and Principles of Securities Regulation (revised 2010) The Standard on the Regulation of Trust and Corporate Services Providers - the Group of International Finance Centre Supervisors (September 2014) Tania Shires, Legal Project Officer 15
Meeting international standards Banking: disclosure of information to resolution authorities; objection to appointment of a significant shareholder; definition of related parties; bilateral meetings with auditors Fiduciaries: corporate directors (secondary licensees); notification and approvals of directors and senior management; change of controllers; reporting by auditors; financial statements of parent entities Investment: enabling provisions for credit rating agencies Insurance: remaining changes limited to rules and regulations Tania Shires, Legal Project Officer 16
Seeking clarity, consistency and efficiency Notifications and authorisations: strong support for standardisation across sectors Minimum criteria for licensing: unanimous support for standardisation where possible Fiduciary exemptions Strong support for proposed changes Propose merging ss 3(1)(o) and 3(1)(p) and extending to accountants Proposal for statutory exemption in respect of PTCs dropped NEW: proposed amendment of s 3(1)(w) in relation to the fiduciary/investment overlap Tania Shires, Legal Project Officer 17
Seeking clarity, consistency and efficiency The fiduciary / investment overlap New proposal Amendment of s 3(1)(w) in Fid Law Fiduciary exemptions: to include any activity carried on in respect of entities that have been notified to the Commission, and agreed by it as being ancillary entities Not limited to private equity structures Closely associated vehicles Notification at any time / consideration by the Commission / exemption continues so long as requirements are met / periodic self-certification Tania Shires, Legal Project Officer 18
Seeking clarity, consistency and efficiency Some definitions Definitions committee: representatives from GIBA, GAT, GIFA, Commercial Bar Association and Commerce and Employment manager support for clarification by way of business decision not to extend to other sectors sophisticated investor documents additional proposal to assist future-proofing promotion by whatever means or media Tania Shires, Legal Project Officer 19
Seeking clarity, consistency and efficiency Other matters with unanimous or near unanimous support: Deemed withdrawal of a licence application after 3 months inactivity Change from designated manager to designated administrator Amendment to definition of significant shareholder in Banking Supervision Law Change to definition of director in the Insurance Laws Standardisation of the circumstances in which the Commission must give notice of a decision, and the information that must be included in those notices (including the circumstances in which the Commission must give reasons for decisions) Standardisation of powers and liabilities of receivers Tania Shires, Legal Project Officer 20
Support industry and future-proofing Insurance linked securities: link to GIIA guidance on GFSC website Private trust companies: discretionary exemption and guidance Personal fiduciary licence regime: ability to suspend Unanimous support for a declarations scheme under the POI Law: particulars of the scheme in rules or regulations Facilitating prime brokerage and AIFMD Consumer credit (outside the scope of the Revision of Laws project) Tania Shires, Legal Project Officer 21
Support industry and future-proofing Enabling provisions: Credit rating agencies MiFID amendments New types of investment funds Ability to designate products, services and jurisdictions Power to amend definitions Power to specify and amend restricted descriptions and names Tania Shires, Legal Project Officer 22
Protecting the consumer Some proposals attracting unanimous or near unanimous support Empowering the Commission to refuse consent to surrender of a licence Standardisation of the Commission s investigatory powers in respect of market abuse whether initial suspicion is formed by the Commission or a foreign regulatory authority Empowering the Commission to apply for a court direction that an unlicensed entity change its name (subject to the restricted words and names regime being fit for use) Making it an offence for a person to adopt a name that falsely implies that a person is licensed without the Commission s consent (subject to the restricted words and names regime being fit for use) Extending powers of intervention and administration Tania Shires, Legal Project Officer 23
Protecting the consumer Investigation of market abuse: Standardisation of investigatory powers Extension to other sectors Safeguards when information is sought from persons outside the regulatory net Tania Shires, Legal Project Officer 24
Protecting the consumer Restrictions on descriptions and use of names: Strong support for providing universal list in regulations Enabling provisions to provide for by regulation Concern about commonplace words Clarification that use of words or descriptions will only be restricted where the use falsely suggests or implies that the person is licensed The list of words and descriptions to be implemented by regulation, after consultation Starting point FCA s list of restricted words (subject to proviso above) Tania Shires, Legal Project Officer 25
Protecting the consumer Protecting policyholders in an insolvency Proposed amendment of Insurance Business Law to require licensee to hold at least 90% of assets representing policyholder liabilities in trust (currently standard licence condition) Mixed responses to proposal Decision to maintain status quo and not pursue amendment Tania Shires, Legal Project Officer 26
Protecting the consumer Extending powers over investment funds Notification and authorisation enabling provisions only (States by Ordinance) Minimum criteria for registration or authorisation of investment funds Enabling prohibition orders to be made in relation to investment funds Obtaining information from investment funds Tania Shires, Legal Project Officer 27
Gathering information and keeping things confidential Standardisation of information-gathering powers across all sectors Commission may obtain information and documents that it may reasonably require for the performance of its functions. relevant person and associated party are being considered by the definitions committee Information from unsupervised entities (with safeguards) Tania Shires, Legal Project Officer 28
Gathering information and confidentiality Information from all exempted entities policing the perimeter Unanimous support for proposals, including re exempt directors Obligation on all exempted entities to immediately notify the Commission if any of the circumstances justifying an exemption change Exempted entities to certify to the Commission every 3 years that the circumstances justifying an exemption remain unchanged Commission to have the power to obtain information from exempted entities and persons associated with those entities to ensure exemption remains appropriate Failure to provide information or certification may justify disapplication of exemption Tania Shires, Legal Project Officer 29
Gathering information and confidentiality Sharing of information relevant supervisory authority Confidentiality of information received: standardisation of provisions already contained in Insurance Laws across all sectors Sharing information with Company Registrars and Legal Aid Authorities Providing declarations to support the subsequent use of documents in foreign proceedings Retention of documents Practical issues associated with this issue under consideration. Tania Shires, Legal Project Officer 30
Gathering information and confidentiality Accountants and auditors Definition of auditors Notification by auditors: when they resign, are removed, not reappointed or sign a qualified audit report Bi-lateral meetings Tania Shires, Legal Project Officer 31
Miscellaneous and administrative changes Proposals attracting unanimous or near unanimous support: Extending the ability to introduce codes of conduct under the POI Law Express inclusion of acting as an enforcer of a purpose trust as a regulated activity in the Fiduciaries Law Amendment of s36C Banking Supervision Law re annual reviews by licensed banks General rule-making power around all types of licence, authorisation and registration applications Amendments to expressly allow for the electronic service of information and documents Amendments to the public disclosure requirements re financial statements of banks Tania Shires, Legal Project Officer 32
Miscellaneous and administrative changes Proposals attracting unanimous or near unanimous support (cont): Extending provisions relating to the winding up of companies to encompass the dissolution or winding down of entities other than companies Clarifying the Commission s power to publish lists of licensees, as well as the fact that someone is not licensed under each law The Commission should be able to recover monies due to it as a civil debt Suggested amendments to reflect updates to other legislation Suggested amendments to correct typographical errors Information relating to money laundering and financing of terrorism Tania Shires, Legal Project Officer 33
Supervision & Enforcement Philip Nicol-Gent General Counsel Guernsey Financial Services Commission 34
Supervision vs Enforcement Understanding the balance Getting the balance correct Voluntary vs compulsory interviews Conditions vs enforcement requirements Skilled persons vs inspectors Philip Nicol-Gent, General Counsel 35
Proposals Enforcement Law Accumulate existing powers in one place Ensure consistency Clarity of process Philip Nicol-Gent, General Counsel 36
Investigation and Proceedings Increase ability to police the perimeter Ability in appropriate circumstances to announce investigations Whistleblowing protection when evidence provided to the Regulator or Law Enforcement subject to safeguards Rationalisation of enforcement proceedings Rationalisation of appeal provisions Philip Nicol-Gent, General Counsel 37
Sanctions Existing powers New proposals Enforceable undertakings Private reprimands Enforcement requirements Philip Nicol-Gent, General Counsel 38
What Happens Next? Roadmap September 2015 Proposals published in Billet October/November 2015 States Debate Quarter 4 2015 Drafting begins Quarter 1 2016 - Consultation on amendments to regulations and rules July 2016 draft legislation to Legislation Select Committee September/October 2016 Legislation enacted November 2016 Royal Assent 39
Citizen Space A first for the GFSC Feedback - positive experience Worked well, some lessons learned Efficient process for GFSC Philip Nicol-Gent, General Counsel 40
revisionoflaws@gfsc.gg THANK YOU & PLEASE JOIN US FOR COFFEE 41
