Guernsey-Crown Dependency of the United Kingdom: Assessment of the Supervision and Regulation of the Financial Sector Volume II—Detailed Assessment of Observance of Standards and Codes

International Monetary Fund

doi:10.5089/9781451814224.002.A001

Guernsey-Crown Dependency of the United Kingdom

Assessment of the Supervision and Regulation of the Financial Sector Volume II—Detailed Assessment of Observance of Standards and Codes

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International Monetary Fund

International Monetary Fund
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Publication Date:: 25 Nov 2003

eISBN:: 9781451814224

Language:: English

Keywords:: ISCR; CR; business plan; financial institution; GFSC staff; investment funds; senior management

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The completion of the detailed assessment serves several purposes. First, it benchmarks the current state of banking supervision, recognizing that there have been extensive changes in the last years. Second, it suggests a number of further improvements or changes. Thus, this report provides a key input for the development of an action plan to move toward full compliance with the Core Principles. The assessment of the effectiveness of banking supervision was based on a review of the legal framework.

Abstract

I. Basel Core Principles for Effective Banking Supervision

A. General

1. This assessment of Guernsey’s compliance with the Basel Core Principles for Effective Banking Supervision has been completed as part of the IMF Offshore Financial Sector (OFC) assessment program. Completion of a formal assessment serves several purposes. First, it benchmarks the current state of banking supervision, recognizing that there have been extensive changes in the last years. Second, it suggests a number of further improvements or changes. Thus, this report provides a key input for the development of an action plan to move toward full compliance with the Core Principles. The assessment team² expresses its thanks to the staff of the Banking Division who cooperated in the completion of the assessment.

Information and methodology used for assessment

2. This assessment of the effectiveness of banking supervision was based on a review of the legal framework, both generally and as specifically related to the financial sector, the self-assessment of the Core Principles, and extensive discussions with the staff of the Guernsey Financial Supervision Commission (GFSC) the external auditors and the management of commercial banks.

Institutional and macroprudential setting, market structure overview

3. There are 69 banks licensed to take deposits under the Banking Supervision (Bailiwick of Guernsey) Law, 1994. These banks are subsidiaries or branches and come from Europe; Asia; the Middle East; North America; and South Africa. Total deposits stood at £71.8 billion at the end of September 2002, the largest source being fiduciary deposits.

4. Licensed banks carry out private banking services for nonresidents, corporate banking, deposit gathering for funding parent operations, and retail banking for the local population. Some banks also carry out custody work for mutual funds, and others provide banking services to the captive insurance sector.

5. Financial sector supervision is undertaken by the GFSC which 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. The Advisory and Finance Committee of the parliament (States Assembly) is mandated to oversee the financial services sector and to monitor and act as the channel of communication with the GFSC.

6. The Banking Supervision Law, 1994, as amended, provides for the regulation of deposit-taking business. It gives the GFSC the ability to set out conditions for issuing licenses. The Law restricts the acceptance of deposits to licensed institutions and provides for the regulation and supervision of such institutions. It also gives the GFSC the ability to impose conditions on licensees, to give directions to institutions, and to provide for penalties for breach of the legislation and for the revocation of licenses.

General preconditions for effective banking supervision

7. The GFSC operates within a context of a generally strong legal and regulatory framework and effective implementation of supervisory processes. An effective licensing authority is in place supplemented by fair and equitable criteria to ensure a consistent approach is applied to permissible activities, ownership, and investment criteria. Prudential regulations and requirements compare favorably with international standards and best practices.

8. The GFSC applies an effective supervisory process that blends off-site assessment of internationally active banking organizations and regulatory agencies with a visitation program to confirm the results of the off-site assessment process. It is the policy of the GFSC to grant licenses only to banks or branches that have parent organizations with an acceptable international presence in accordance with criteria established by the Commission.

9. The GFSC has emphasized the importance and need for transparency of accounting policies and practices and conformance with international standards. Legal provisions are in place, which enable the GFSC to take regulatory action against a noncompliant bank.

10. The GFSC has a range of gateways to enable it to share information domestically and internationally.

B. Detailed Assessment

Table 1.

Detailed Assessment of Compliance with the Basel Core Principles

Table 2.

Summary Compliance with the Basel Core Principles

^{^1/}C: Compliant;

^{^2/}LC: Largely compliant;

^{^3/}MNC: Materially noncompliant;

^{^4/}NC: Noncompliant;

^{^5/}NA: Not applicable.

Table 2.

Summary Compliance with the Basel Core Principles

Core Principle	C^1/	LC^2/
1. Objectives, Autonomy, Powers, and Resources
1.1 Objectives		X
1.2 Independence		X
1.3 Legal framework	X
1.4 Enforcement powers	X
1.5 Legal protection	X
1.6 Information sharing	X
2. Permissible Activities	X
3. Licensing Criteria	X
4. Ownership	X
5. Investment Criteria	X
6. Capital Adequacy	X
7. Credit Policies	X
8. Loan Evaluation and Loan-Loss Provisioning		X
9. Large Exposure Limits	X
10. Connected Lending	X
11. Country Risk	X
12. Market Risks	X
13. Other Risks		X
14. Internal Control and Audit		X
15. Money Laundering	X
16. On-Site and Off-Site Supervision		X
17. Bank Management Contact	X
18. Off-Site Supervision	X
19. Validation of Supervisory Information		X
20. Consolidated Supervision	X
21. Accounting Standards	X
22. Remedial Measures	X
23. Globally Consolidated Supervision	X
24. Host Country Supervision	X
25. Supervision Over Foreign Banks’ Establishments	X

^{^1/}C: Compliant;

^{^2/}LC: Largely compliant;

^{^3/}MNC: Materially noncompliant;

^{^4/}NC: Noncompliant;

^{^5/}NA: Not applicable.

Table 2.

Summary Compliance with the Basel Core Principles

Core Principle	C^1/	LC^2/
1. Objectives, Autonomy, Powers, and Resources
1.1 Objectives		X
1.2 Independence		X
1.3 Legal framework	X
1.4 Enforcement powers	X
1.5 Legal protection	X
1.6 Information sharing	X
2. Permissible Activities	X
3. Licensing Criteria	X
4. Ownership	X
5. Investment Criteria	X
6. Capital Adequacy	X
7. Credit Policies	X
8. Loan Evaluation and Loan-Loss Provisioning		X
9. Large Exposure Limits	X
10. Connected Lending	X
11. Country Risk	X
12. Market Risks	X
13. Other Risks		X
14. Internal Control and Audit		X
15. Money Laundering	X
16. On-Site and Off-Site Supervision		X
17. Bank Management Contact	X
18. Off-Site Supervision	X
19. Validation of Supervisory Information		X
20. Consolidated Supervision	X
21. Accounting Standards	X
22. Remedial Measures	X
23. Globally Consolidated Supervision	X
24. Host Country Supervision	X
25. Supervision Over Foreign Banks’ Establishments	X

^{^1/}C: Compliant;

^{^2/}LC: Largely compliant;

^{^3/}MNC: Materially noncompliant;

^{^4/}NC: Noncompliant;

^{^5/}NA: Not applicable.

Recommended actions and authorities’ response to the assessment

Recommended actions

Table 3.

Recommended Actions to Improve Compliance with the Basel Core Principles

Table 3.

Recommended Actions to Improve Compliance with the Basel Core Principles

Reference Principle	Recommended Action
1.1 Objectives	The GFSC Law should establish safety, soundness, and integrity of the financial system as the objectives of the GFSC and eliminate “development” as one of the GFSC functions. The GFSC should be able to continue its support of the activities of the Training Agency that are consistent with the revised mandate.
1.2 Independence	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. It is recommended that the law be amended to remove these powers. An in-depth analysis of the supervisory objectives and the means to fulfill those objectives should be made. The existing Banking Division Manpower Plan for 2003-2007 should be revisited accordingly.
8 Loan Evaluation & Loan Loss Provisioning	Extend current on-site credit risk assessments to include additional emphasis on credit quality and provisioning levels.
14 Internal Control and Audit	Confirm formalization and distribution of Corporate Governance Guideline.
16 On-site and Off-site Supervision	Prioritize the completion of the examination methodology to allow for full scope safety and soundness visitations to be carried out supplemented by more defined quality control procedures. A dedicated training program directed at assisting Banking Division staff with the enhanced accountabilities would be beneficial. Explore increased synergies with external auditors.

Table 3.

Recommended Actions to Improve Compliance with the Basel Core Principles

Reference Principle	Recommended Action
1.1 Objectives	The GFSC Law should establish safety, soundness, and integrity of the financial system as the objectives of the GFSC and eliminate “development” as one of the GFSC functions. The GFSC should be able to continue its support of the activities of the Training Agency that are consistent with the revised mandate.
1.2 Independence	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. It is recommended that the law be amended to remove these powers. An in-depth analysis of the supervisory objectives and the means to fulfill those objectives should be made. The existing Banking Division Manpower Plan for 2003-2007 should be revisited accordingly.
8 Loan Evaluation & Loan Loss Provisioning	Extend current on-site credit risk assessments to include additional emphasis on credit quality and provisioning levels.
14 Internal Control and Audit	Confirm formalization and distribution of Corporate Governance Guideline.
16 On-site and Off-site Supervision	Prioritize the completion of the examination methodology to allow for full scope safety and soundness visitations to be carried out supplemented by more defined quality control procedures. A dedicated training program directed at assisting Banking Division staff with the enhanced accountabilities would be beneficial. Explore increased synergies with external auditors.

Authorities’ Response to the Recommended Action Plan to Improve Compliance with the Basel Core Principles

Overview

11. 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)

12. Currently, the GFSC has a responsibility under the Financial Services Commission (Bailiwick of Guernsey) Law, 1987 to develop and effectively supervise finance business in Guernsey. The IMF’s recommendation that the GFSC should be provided with a statutory obligation for the safety, soundness and integrity of the financial system in place of its responsibility to develop the finance sector has been noted. The States of Guernsey Advisory and Finance Committee and the GFSC agree with the IMF’s view that formalising the GFSC’s approach in this manner better expresses the GFSC’s current and continuing objectives and will enhance the reputation and contribute to the continuing development of the financial system in Guernsey. The Committee proposes to seek amendment of the law at an early stage.

Independence (CP 1.2)

13. The IMF’s conclusion that the States of Guernsey 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 is noted. As stated by the IMF, the Committee has never unilaterally provided guidance or directions to the GFSC. As is also acknowledged, the law permits the Committee to give the GFSC guidance and directions only of general character. Both the Committee and the GFSC consider that this provision provides proper accountability by the GFSC to the Committee, which is the senior political body of Guernsey’s parliament. The Committee and the GFSC consider 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.

14. Staff resources of the GFSC have continued to grow in line with the size of the finance sector and the responsibilities of the GFSC. The IMF has recommended that the GFSC’s Banking Division should carry out a “zero based” analysis of its staff needs based on the expected number of banks. This has been completed and, as a consequence, an additional analyst has been recruited since the assessment in order to assist the Division to carry out a systematic programme of corporate governance and full scope safety and soundness on-site visits to banks.

Loan Evaluation and Loan Loss Provisioning (CP 8)

15. Following the introduction of the Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003, it is a legal requirement for all Guernsey banks to review, at least annually, their individual loans, asset classification and loss provisioning (including on and off balance sheet exposures). Should the review identify any shortcomings, the bank is required to report any findings to the GFSC, together with the details of how it proposes to address the shortcomings.

16. With regard to policies followed by the GFSC, the scope of on-site credit assessments of banks was extended in early 2003 to give additional emphasis to credit quality and provisioning levels.

On-Site and Off-Site Supervision (CP 13 and 16)

17. The GFSC’s Banking Division is planning full safety and soundness on-site visits for 2004. Additional training of staff in this field of work will continue. The visits will include techniques and practices to confirm or otherwise the existence and application of an effective and comprehensive risk management process and control culture.

18. Meetings by the GFSC with external bank auditors will be more frequent and scope for increasing synergies will be explored.

Internal Control and Audit (CP 14)

19. Following the introduction of the Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003, it is a legal requirement for each Guernsey bank to review, at least annually, the responsibilities and conduct of the bank’s board of directors with respect to corporate governance principles. Should the review identify any shortcomings, the bank is required to report any findings to the GFSC, together with the details of how it proposes to address the shortcomings.

20. GFSC guidance notes entitled “Guidelines for Corporate Governance and Risk Management” are being revised in light of comments received during consultation with banks and will be formally issued as soon as possible, following consideration of the comments arising from the consultation.

Validation of Supervisory Information (CP 19)

21. Meetings will be held with the Guernsey Society of Chartered and Certified Accountants to explore the possibility of the GFSC having access to working papers in connection with the verification of quarterly returns and preparing audited accounts. Where necessary, the GFSC will also consider the benefits of bilateral and trilateral meetings with auditors.

II. FATF Recommendations for Anti-money Laundering and Combating the Financing of Terrorism

A. General

Information and methodology used for the assessment

22. A detailed assessment of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of Guernsey was prepared by a team of assessors that included staff of the International Monetary Fund (IMF) and an expert not under the supervision of IMF who was selected from a roster of experts in the assessment of criminal law enforcement and nonprudentially regulated activities³. IMF staff reviewed the relevant AML/CFT laws and regulations, and supervisory and regulatory systems in place to deter money laundering (ML) and financing of terrorism (FT) among prudentially regulated financial institutions. In addition, the IMF staff reviewed the framework in respect of trust and company service providers, which were in a transitional stage towards full prudential regulation. The expert not under the supervision of IMF reviewed the capacity and implementation of criminal law enforcement systems.

23. This assessment is based in part on discussions on AML/CFT issues that were held with officers and other representatives of the following offices among others, all of whom were most helpful in the preparation of this assessment: the GFSC; the Bailiffs Chambers; Attorney General’s Chambers; Customs and Excise Department; Guernsey Police and the Financial Intelligence Service (FIS). In addition, the assessors met with a number of financial sector parties, including banks, investment management companies, fiduciaries, insurance companies, lawyers, and associations representing these sectors.

24. Information used for the assessment was obtained from the following:

The Money Laundering (Disclosure of Information) (Guernsey)⁴ Law, 1995 (the “1995 Law”); the Money Laundering (Disclosure of Information) (Alderney) Law, 1998 (the “1998 Law”); the Money Laundering (Disclosure of Information) (Sark) Law, 2001 (the “2001 Law”); the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 as amended (the “POC Law”); the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations 2002 (the Regulations); the Criminal Justice (International Cooperation) (Bailiwick of Guernsey) Law, 2001 (the “CJIC Law”); the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991 (the “Fraud Investigation Law”); the Terrorism and Crime Law (Bailiwick of Guernsey) Law, 2002 (the “Terrorism Law”); the Terrorism (United Nations Measures) (Channel Islands) Order 2001 (the “Terrorism Order”) and the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002 (the “Al-Qa’ida Order”); the Drug Trafficking (Bailiwick of Guernsey) Law, 2000 (the “DT Law”); the Banking Supervision (Bailiwick of Guernsey) Law, 1994 (the “Banking Law”); and the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism issued by the Guernsey Financial Services Commission (the “Notes”);⁵ Position Paper entitled Overriding Principles for a Revised Know Your Customer Framework issued in February 2002 jointly by the Guernsey, Jersey and Isle of Man Commissions (the “Position Paper”); Business from Sensitive Sources Notices issued by the Guernsey Financial Services Commission; The Protection of Investors (Bailiwick of Guernsey) Law, 1987 and associated rules and regulations (the “POI Law”); The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000 and associated Codes of Conduct (the “Fiduciary Law”); the Insurance Business (Bailiwick of Guernsey) Law, 2002 (the “Insurance Business Law”); the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002 (the “Insurance Managers and Intermediaries Law”); the Financial Services Commission (Bailiwick of Guernsey) Law, 1987 as amended (the “Commission Law”); the Control of Borrowing Ordinance, 1959 as amended (the “Control of Borrowing Ordinance); the Companies (Guernsey) Law, 1994 as amended (the “Companies Law”); the Data Protection (Bailiwick of Guernsey) Law, 2001 (the “DP Law”); the Data Protection (Transfer in the Substantial Public Interest) Order, 2002; the Interpretation (Guernsey) Law 1948 (the “Interpretation Law”); the Misuse of Drugs (Bailiwick of Guernsey) Law, 1974 (the “Misuse of Drugs Law”) Law; Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 (the “Investment Licensees Rules”); the Policy Letter dated September 26, 2002 with respect to Amendments to Regulatory Legislation (the “Policy Letter”); Projet de Loi (draft law) entitled The Prevention of Corruption (Bailiwick of Guernsey) Law 2003 (the “Draft Corruption Law”); Project de Loi entitled The Criminal Justice (Miscellaneous Provisions)(Bailiwick of Guernsey) Law, 2003, (the “Draft Miscellaneous Provisions Law”); The United Kingdom Recording and Dissemination of Intelligence Material, Code of Practice (the “Intelligence Material Code of Practice”); The Royal Court (Bar Administration) Order, 1993 (the “Royal Court Order”); the Rules of Professional Conduct for Guernsey Advocates.

25. For purposes of this assessment, the term Financial Institution (FI) has the definition found in the Schedule to the POC Law, as follows:

Any person or body carrying on or providing services in or from within the Bailiwick of Guernsey in relation to the business of: (i) lending (including, but not limited to, consumer credit, mortgage credit, factoring with or without recourse, financing of commercial transactions (including forfeiting) and advancing loans against checks); (ii) financial leasing; (iii) money service business including money or value transmission services, currency exchange (bureaux de change) and/or cheque cashing; (iv) provision of services for, and/or the facilitation of, the transmission of money or value through an informal money or value transfer system or network; (v) issuing, redeeming, management and/or administration of means of payment (for example, credit, charge and debit cards, checks, travelers’ checks, money orders and bankers’ drafts); (vi) providing financial guarantees and/or commitments; (vii) trading for account of customers (spot, forward, swaps, futures, options etc) in: money market instruments (for example checks, bills, certificates of deposit); foreign exchange; exchange, interest rate and/or index instruments; commodity futures, transferable securities and/or other negotiable instruments and/or financial assets, including bullion; (viii) participating in securities issues, including underwriting and/or placement as agent (whether publicly or privately) and/or the provision of services related to such issues; (ix) settlement and/or clearing services for financial assets including securities, derivative products and/or other negotiable instruments; (x) providing advice to undertakings on capital structure, industrial strategy and/or related questions and/or advice as well as services relating to mergers and/or the purchase of undertakings; (xi) money broking/changing; (xii) providing individual and/or collective portfolio management services and/or advice; (xiii) providing safe custody services; (xiv) providing the services of safekeeping and/or administration of cash or liquid securities on behalf of clients; (xv) credit unions; and/or (xvi) accepting repayable funds other than deposits.
‘Deposit taking’ as a deposit-taking business as defined in Section 3 of the Banking Law.
‘Controlled investment business’ as defined in Section 1, and Schedules 1 and 2 of the POI Law.
‘Insurance business’ as defined in Section 2 and schedule 1 of the Insurance Business Law and Sections 1 and 2 of the Insurance Managers and Intermediaries Law.
‘Regulated activities’ as defined in Section 2 of the Fiduciary Law.
Section 1 above applies to lawyers,⁶ accountants and actuaries providing non-incidental financial services.

26. The main institutions in Guernsey in the AML/CFT area are the Financial Intelligence Service, which is an independent unit of the Guernsey Police and Customs and Excise Department jointly staffed by each and is the FIU for Guernsey; the Police and the Customs and Excise Department, each of which investigate criminal activities; the Attorney General’s Chambers, which prosecutes ML and FT, defends Guernsey authorities against any suit, and advises the States Assembly (Parliament) and the government on legal issues; the GFSC, which is the financial regulator for Guernsey and is responsible for monitoring compliance for FIs that are regulated by it; and the Advisory and Finance Committee of the States Assembly (the “Committee), which issues regulations on AML/CFT and other matters.

Overview of measures to prevent money laundering and terrorism financing

Legal and Institutional Framework

27. Guernsey has a developed legal and institutional framework generally, particularly with respect to confiscation of the proceeds of criminal conduct, exchange of information, and international cooperation. The broad regulation of the financial sector, including banking, investment companies, insurance business, and fiduciaries (company and trust service providers), is another strength. However, Guernsey’s legal and institutional framework falls short in a number of areas outlined in greater detail below.

Implementation of the Legal and Institutional Framework, and Financial Sector-specific Issues

28. The general framework for AML/CFT in Guernsey has been implemented well. The GFSC has devoted an appropriate level of resources to this issue. Detailed Guidance Notes have been developed and the GFSC has established a program of on- and off-site surveillance of financial service businesses to assess compliance with required standards. There is a strong relationship amongst the principal institutions involved including the GFSC, the FIS, the Attorney General’s chambers, and prudentially regulated financial institutions (FSBs). Visits to FIs revealed a high level of awareness and, in general, the existence of appropriate AML/CFT policies and procedures. However, there are a number of areas in which the implementation of the AML/CFT framework could be strengthened as set forth in greater detail below.

B. Detailed Assessment

29. The following detailed assessment was conducted using the October 11, 2002 version of Methodology for assessing compliance with the AML/CFT international standard, i.e., criteria issued by the Financial Action Task Force (FATF) 40+8 Recommendations (the Methodology).

Assessing criminal justice measures and international cooperation

Table 4.

Detailed Assessment of Criminal Justice Measures and International Cooperation

Table 4.

Detailed Assessment of Criminal Justice Measures and International Cooperation

I—Criminalization of ML and FT (compliance with criteria 1-6)
Description
1. The Vienna Convention was ratified on Guernsey’s behalf by the United Kingdom on 9 April 2002. The Council of Europe Convention on Laundering, Search and Seizure was extended to Guernsey from on January 2003. Guernsey, by letter dated 15 August 2002, asked the United Kingdom to effect ratification of the Convention for the Suppression of the Financing of Terrorism. The application is now in the hands of the Foreign and Commonwealth Office. All necessary legislation to ratify the Convention has been enacted. The laws of Guernsey meet most of the provisions of the Palermo Convention, however additional implementing legislation will be needed prior to ratification, as follows: (i) Guernsey’s current law concerning corruption is not wide enough to meet the Convention requirements. The States of Guernsey (the island’s parliament) have agreed in principle to enact a comprehensive anti-corruption law which is expected to be laid before it in the autumn of 2003. A Bill has been drafted and comments received from the Home Office. The authorities have indicated that the Bill is expected to become law in early 2004; and (ii) to meet the terms of Article 3 of the Protocol on Trafficking Persons it will be necessary to enact provisions similar to sections 30 and 31 of the English Sexual Offenses Act 1956; and (iii) legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings. The authorities have advised that legislation will be enacted as required to implement the Palermo Convention. 2. Money laundering has been criminalized, as follows: Drug trafficking money laundering is criminalized under the provisions of sections 57-59 of the DT Law. Money laundering for terrorism is criminalized by section 11 of the Terrorism Law. Money laundering for other crimes is criminalized by sections 38-40 of the POC Law. The financing of terrorism is criminalized by sections 8-10 of the Terrorism Law. Offenses relating to money laundering extend to proceeds of all serious offenses, including financing terrorism, and are consistent with provisions of the Vienna and Palermo Conventions and the FATF Recommendations. The definition of the financing of terrorism is also consistent with the definition set out in the Convention for the Suppression of the Financing of Terrorism. According to the authorities, in Guernsey’s courts, the intentional element of ML and FT may be inferred from the totality of the evidence submitted to the court. The offense of ML extends to persons who have committed ML as well as both the laundering and predicate offense (sections 38(1) of the POC Law and section 57(1) of the DT Law). It is not necessary that a person be convicted of a predicate offense to establish that assets were the proceeds of a predicate offense (Sections 38-40 of the POC Law, sections 57-59 of the DT Law and Section 11 of the Terrorism Law). All serious crimes are predicate offenses for money laundering, including the financing of terrorism. (Section 1 of the POC Law, Section 1 of the DT law, Section 1 of the Terrorism Law). The offense of ML extends to any property which represents the proceeds of criminal conduct (Sections 38(1)(a), 38(2), 39(2) and 40(1) of the POC Law, sections 57(1)(a), 57(2), 58(2) and 59(1) of the DT Law, and sections 7(2)(a) and 11(1) of the Terrorism Law). In each provision, reference is made to property which “in whole or in part directly or indirectly represents….. ” The predicate offenses for ML extends to conduct that occurred in another country and which would have constituted such an offense had it occurred domestically (Section 1(b) of the POC Law, section 1 of the DT Law and section 1(4) of the Terrorism Law). 3. FT has been criminalized on the basis of the Convention for the Suppression of the Financing of Terrorism (Sections 8, 9 & 10 of the Terrorism Law). The predicate offense for FT extends to terrorists or terrorist organizations located in another country and to conduct that occurred in another country (Section 1 of the Terrorism Law). 4. The offenses of ML applies to individuals and legal entities that engage in ML activities (Section 49(4)(d) of the POC Law); the offense of FT extends to those who should have reasonable cause to suspect that money or other property may be used in terrorism activities (Sections 8(3) & 10(b) of the Terrorism Law). According to the authorities, in Guernsey’s courts, the intentional element of ML and FT may be inferred from the totality of the evidence submitted to the court. In Guernsey, the offenses of money laundering and financing of terrorism extend to all entities. Section 2 of the Interpretation Law states that ‘person’ includes a body corporate. All of Guernsey’s money laundering offenses and those relating to the financing of terrorism apply at least to those knowingly engaged in money laundering or terrorist financing. Section 38(2) of the POC Law, section 57(2) of the DT Law and section 11 of the Terrorism Law include the objective test within their terms. Therefore, where an individual has reasonable grounds for suspicion, but fails to disclose such a suspicion, and it is subsequently established that a reasonable person would have suspected and disclosed that suspicion, an offense has been committed. The offense of FT extends to those who should have reasonable cause to suspect that money or other property may be used in terrorism activities (Sections 8 & 10(b) of the Terrorism Law). 5. (see response to criterion 64) 6. Guernsey falls marginally short of having an adequate number of law enforcement personnel who are tasked with providing the resources to effectively combat money laundering and financing of terrorism. This process, is supervised by the offices’ of the Attorney General and Solicitor General in Guernsey and prosecuted by experienced personnel who have also worked for the Crown Prosecution Service in the United Kingdom. The Guernsey Police and Customs & Excise approach to financial crime is coordinated and directed by a Service Authority which is staffed by Senior Commanders of Police and Customs and Excise. The Financial Intelligence Service (FIS) which is the FIU in Guernsey carries out the immediate tasks in respect of money laundering. On the investigation stages matters are then referred to the agencies (A) Police Commercial Fraud and External Affairs, (B) Customs and Excise Fraud and International Team. In Guernsey the total authorized establishment of the police force is 177 and total number of Customs and Excise Law Enforcement officers is 51. The Guernsey Commercial Fraud and External Affairs Department is staffed by a D/Inspector, D/Sergeant and 2 D/Constables with part-time administrative support. Their mandate is: To assist external law enforcement agencies to obtain evidence in relation to financial crime within the Bailiwick of Guernsey. Investigate serious and complex fraud and financial crime committed within the Bailiwick of Guernsey. Investigate, identify and restrain proceeds of crime and drug trafficking, in Guernsey. The Customs and Excise Fraud and International Team is staffed by a senior investigating officer, two investigating officer’s, an office manager/analyst with secretarial support. This unit is mandated to: Investigate Customs and Excise related fraud and identify, then restrain proceeds of crime and drug trafficking. Assist external law enforcement agencies to obtain evidence within the Bailiwick in relation to Customs related offenses and Money Laundering. Conduct and support local money laundering investigations. Investigate suspected breaches of UN and EU sanctions within the Bailiwick. The Financial Intelligence (FIS) is headed by a director and is staffed equally by Police and Customs and Excise. Its current staff complement comprises two Senior Intelligence Officers, four Intelligence Officers, a Financial Analyst, an Office Manager and an Administrative Assistant. At the time of the assessment two of the Intelligence Officer posts and the positions of Financial Analyst and Administrative Assistant were vacant. The FIS was in the process of advertising the Analyst and Administrative positions (these posts have now been filled). The vacant positions of Intelligence Officers are expected to be filled in early 2004. Therefore there is a shortage of personnel in the unit. The aim of the FIS/FIU is to: Provide quality in financial crime intelligence particularly money laundering. Ensure full international cooperation. Enhance the coordination and development of financial crime intelligence within Guernsey. Gather, collate and evaluate all Bailiwick financial crime intelligence, i.e. suspicious transaction reports (STR). Lawful and proper dissemination of financial crime intelligence. Providing strategic and tactical intelligence with regard to financial crime.
Analysis of Effectiveness
Measures taken to criminalize money laundering and terrorist financing are generally adequate. Present arrangements will be enhanced when Guernsey implements legislation to give effect to the Palermo Convention and the Convention for the Suppression of the Financing of Terrorism is extended to Guernsey.
Recommendations and Comments
Legislation will be required to implement the Palermo Convention as follows: Guernsey’s current law concerning corruption is not wide enough to meet the Convention requirements. The States of Guernsey (the island’s parliament) have agreed in principle to enact a comprehensive anti-corruption law to be presented to the States Assembly for approval in September 2003; To meet the terms of Article 3 of the Protocol on Trafficking Persons, it will be necessary to enact provisions similar to sections 30 and 31 of the English Sexual Offenses Act 1956; and Legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings.
Implications for compliance with FATF Recommendations 1, 4, 5, SR I, SR II
Full compliance will be achieved when the Convention for the Suppression of the Financing of Terrorism is extended to Guernsey.
II—Confiscation of proceeds of crime or property used to finance terrorism (compliance with criteria 7-16)
Description
7. Laws provide for the confiscation of laundered property, proceeds from and instrumentalities used in or intended for use in Guernsey with respect to any ML offense (Sections 2 of the POC and DT Laws). In addition, laws do provide for the forfeiture of property that is the proceeds of or intended for use in FT (Section 18 of the Terrorism Law). Parts I of the POC Law and the DT Law provide for the confiscation in criminal cases of the proceeds of crime and include any income gains from the proceeds of crime. Both laws provide for the enforcement of confiscation orders which are made in countries which are designated in secondary legislation. Guernsey designates those countries which are designated by the United Kingdom under the Criminal Justice Act 1988 and the Drug Trafficking Act 1994. It is likely that the need for designation will be abolished in the proposed proceeds of crime legislation. Laws do not provide for the confiscation of property of equivalent value. The instrumentalities of crime may be forfeited by a court by the use of its power under common law and statutory powers such as those contained within section 26 of the Misuse of Drugs Law 1974 which provides for the forfeiture and destruction of anything found to the satisfaction of the court to relate to an offense under the Law. Forfeiture orders concerning the instrumentalities of crime that are made by courts in another jurisdiction may be enforced locally under section 8 of the CJIC Law. The Law contains a provision concerning the designation of countries which is similar to that contained in the POC Law and the DT Law. Section 18 and schedule 2 of the Terrorism Law provides for the forfeiture of any property connected with terrorism; paragraphs 8-10 provide for the enforcement of orders made elsewhere. With respect to confiscation of property of corresponding value, AML laws in Guernsey 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 (POC and DT Laws Sections 5, 6, 29-31). However, the Terrorism Law does not contain comparable provisions. The law does provide for restraint orders against all realizable property whether described in an order or not (Section 26 of the POC Law). Freezing orders may also be made with respect to FT (Sections 20 & 21 of the Terrorism Law). Restraint orders may be obtained under sections 25 and 26 of the POC and DT Laws. Applications for restraint orders may be made by ex parte applications. Orders may apply to all realizable property as defined by section 6 of both laws. Realizable property includes “any property held by the defendant.” A restraint order under the POC and DT Laws may be obtained if proceedings have been instituted against a defendant or when a person is to be charged with an offense. With regard to terrorism, under section 18 and schedule 12, paragraph 3 of the Terrorism Law, a restraint order may be made by ex parte applications in respect of any property liable to forfeiture. An order may be made if proceedings have been instituted and not concluded or an investigation has been commenced and in both cases it appears to the court that a forfeiture order may be made in proceedings for the offense. Sections 20-29 and schedule 4 of the Terrorism Law provide for the making of freezing orders by the Committee if certain criteria are met. Under Article 6 of the Terrorism Order and Article 8 of the Al-Qa’ida Order, freezing orders may be made by the Attorney General. The proceeds of crime and terrorist property held by members of a criminal organization or a company used as a vehicle to commit crime may be confiscated by the Royal Court (trial court equivalent to the Crown Court in England) following conviction under the POC Law, DT Law and the Terrorism Law. In the event of an order being made under the POC Law or the DT Law, the court may make an order that the convicted person must pay a monetary amount. No reference is made by the court to specific assets (sections 5(1) of POC Law and 5(1) of DT Law). Section 29 of both the POC Law and the DT Law and section 18 and schedule 2 of the Terrorism Law give power to the Royal Court to appoint a receiver to gather in a convicted person’s assets, sell them and put the proceeds towards settling a confiscation order. It is currently not possible for the authorities to apply for confiscation orders using the civil process. Consideration is being given to the introduction of civil forfeiture powers based upon the United Kingdom’s Proceeds of Crime Act or the equivalent legislation in the Republic of Ireland. According to the authorities, it is however open to a person who has lost any property as a result of a person’s unlawful act to seek the return of the assets and damages through the civil courts. 8. Production Orders and warrants may be obtained to identify and trace property. (Sections 45 and 46 of the POC Law; sections 63 and 64 of the DT Law and sections 36 and schedule 5, section 37 and schedule 6 and section 39 and schedule 7 of the Terrorism Law). Section 37 and schedule 5 and section 39 and schedule 7 of the Terrorism Law provide for the obtaining of information about bank accounts and the monitoring of accounts respectively. Police and Customs Officers, by virtue of these laws, may apply to the Court for orders to gain access to material so as to identify and trace property that is, or may become, subject to confiscation. Such powers are exercisable where there are sufficient grounds to suspect and where it is in the public interest to do so. Police and Customs Officers have no power of discovery outside of the judicial process. 9. There are protections for the rights of bona fide third parties in the case of restraint orders (Section 25(5) (c) of the POC Law). In addition, under section 2(6) of the POC Law, where the Court is satisfied that a victim of any relevant criminal conduct has instituted, or intends to institute, civil proceedings against the defendant in respect of loss, injury or damage sustained in connection with that conduct, the Court does not have to make a confiscation order in the total sum which is available to be realized. When a restraint order is made under the POC, DT or Terrorism Laws notice of the order must be given to persons affected by the order. Any person affected by the restraint order may apply for its discharge or variation. (Sections 25(5) (c) and (7) of the POC and DT Laws and section 18 and schedule 2 paragraphs 4(1) (c) and 4(4) of the Terrorism Law). Under the POC Law (Section 8(1)(a) and the DT Law (Section 8(1)(a), only assets held by a defendant or gifts made during the previous six years may be considered when calculating the amount of a confiscation order. Under Section 31(4) of the POC and DT laws, a receiver appointed to enforce a confiscation order must exercise their powers with a view to allowing any person other than the defendant or the recipient of a gift to retain or recover the value of any property held by him. 10. According to the authorities, it is likely that the Guernsey courts would declare as void any contract whose purpose was to frustrate the authorities from recovering the proceeds of crime, thereby making the value of the assets concerned liable to be included in any confiscation order. 11. Statistics on amounts of property frozen, seized, and confiscated relating to proceeds of crime, drug trafficking, money laundering, and financial terrorism are kept by the FIS. 12. The Judiciary, law officers and Crown Advocates who are involved in administering the law and mounting all prosecutions in Guernsey are familiar with applications made in respect of money laundering, production orders and freezing orders, as these people are involved in the formulation of the existing Guernsey laws relating to this subject. They have obtained their experience and training through basic law studies for many years, they attend training courses in the UK routinely and also attend seminars and conferences and discuss the matter with experts and keep themselves abreast of all money laundering legislation. The police and customs officers who are involved in the financial investigation matters in Guernsey have undergone training courses in the UK and are required to attain the same standards applicable to UK counterparts. All law enforcement officers engaged in the area of Financial Investigations are required to be accredited as “Financial Investigators” by UK Home Office’ Center of Excellence. 13. There are measures for freezing of funds and/or property of terrorists (Article 6 of the Terrorism Order and Article 8 of the Al Qa’ida Order). I am satisfied from the records produced to me which are confidential at this point of time, that the Guernsey authorities do keep records and statistics. 14. Under Article 10 of the Terrorism Order, information may be obtained to secure compliance with the Order or detect evasion of the Order. Article 6 of the Order provides for the freezing of funds connected with terrorism. Section 36 and schedule 5 of the Terrorism Law allow information to be obtained in connection with terrorist investigations; section 37 and schedule 6 are concerned with the collection of information relating to bank accounts and Section 39 and schedule 7 permit the monitoring of accounts. Section 18 and schedule 2 of the Terrorism Law provides for the restraint of assets which are or may be liable for forfeiture. Freezing orders may be made under section 20 of the Terrorism Law. In addition, the Terrorism Order allows for the obtaining of information by the Attorney General (Article 10) and the freezing of funds by order of the Attorney General (Article 6). All the above provisions may apply to persons or entities not included on lists maintained by relevant Committees of the UN Security Council. 15. There is no statutory asset forfeiture fund. In a number of cases, assets have been shared by other jurisdictions with Guernsey. The money received has been paid into accounts in the name of the Receiver General (who is the Attorney General). These funds were used by the Receiver General following consultation with the Chief Officers of Police and Customs, senior members of the States of Guernsey and senior civil servants to fund special projects connected with law enforcement that are not covered by general revenue. The Bailiwick Financial Crime Committee is currently considering whether legislation should be drafted to formalize the fund. 16. There is no statutory asset sharing mechanism. However, in the event of a confiscation order made in another jurisdiction being enforced by Guernsey, the authorities have indicated that they would be prepared in appropriate cases to share a proportion of the funds realized with the other jurisdiction. Unless agreed, no conditions would be imposed on the jurisdiction recovering the shared property.
Analysis of Effectiveness
The framework in place for the confiscation of the proceeds of crime or property used to finance terrorism is generally adequate. The framework would however be improved by the adoption of legislation to provide for an asset forfeiture fund and for asset sharing with other jurisdictions.
Recommendations and Comments
Consideration should be given to amending the Terrorism Law to provide for the appointment of a receiver for all property owned by a defendant to satisfy a confiscation order. Consideration should be given to adopting legislation that would provide for an asset forfeiture fund and for asset sharing with other jurisdictions. The authorities have informed us that such consideration will take place in connection with the consideration of an amended Proceeds of Crime Act in early 2004.
Implications for compliance with FATF Recommendations 7, 38, SR III
Compliant
III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels (compliance with criteria 17-24)
Description
17. The FIS is the FIU and is an independent unit of the Guernsey Police Force and Officers of the Customs and Excise office, jointly staffed by both the Police and Customs. Police Officers. FIs are required to report to a police officer (a defined term which includes customs officers) transactions suspected of stemming from a criminal activity or used to finance terrorism (Regulation 6(5) of the Regulations; Sections 39(3) and 40(5) of the POC Law; Sections 58(3), 59(5) and 60(1) of the DT Law; Sections 12 & 13 of the Terrorism Law). There is no requirement in law that STRs must be submitted to the FIS. Guernsey has had an FIU since 1989. In 1998 Guernsey’s FIU became a member of the Egmont Group in which it plays an active role. On 2 April 2001, and following a Financial Crime Review conducted by two Senior Managers from Police and Customs, the FIU became known as the Financial Intelligence Service (the “FIS”). The mandate and mission statement of the FIS states as follows: In order to enhance this joint policy the Financial Intelligence Service shall, as far as possible, stand alone from either of its parent organizations but will remain within both Police and Customs responsibilities. The Financial Intelligence Service shall be staffed equally by Police and Customs Officers seconded for a fixed tenure under a clear line management system. The Financial Intelligence Service shall be responsible to a Service Authority constituted equally from Senior Operational Police and Customs Managers who shall in turn, be directly responsible to their respective Chief Officers. The Financial Intelligence Service will have its own budget funded equally by Police and Customs and dedicated accommodation. A Director shall be appointed from Police and Customs on the basis of a three year contract. The post of Director of the Financial Intelligence Service will be independent of both Police and Customs. Reporting parties are required to submit suspicious reports where such party knows or suspects that a person is engaged in money laundering or the financing of terrorism (Regulation 6(5) of the Regulations; Sections 39(3) and 40(5) of the POC Law; Sections 58(3), 59(5) and 60(1) of the DT Law; Sections 12 & 13 of the Terrorism Law). Although the Notes (paras. 101 and 109) state that STRs should be submitted to the FIS by FIs, there is no requirement in law to do so, and it is not clear whether the GFSC has the requisite legal authority to impose a more specific requirement than the law. The GFSC has issued Notes which include sections on the identification of complex and unusual transactions although the authority for the GFSC to do this is unclear. The FIS assists the GFSC in preparing the Notes by providing typologies relating to money laundering (ML) and the financing of terrorism (FT). The Notes provide examples of suspicious transactions, for example: paragraphs 92 (general indicators of suspicious activity), 136 and 139A (relating to banking), 163 (investments), 167 (fiduciary business) and 184 (insurance). Appendices B and BB outline case studies of money laundering and terrorist financing. In addition, the FIS also publishes via the GFSC’s website other typologies and case studies. There are reporting procedures prescribed by the Regulations and FIs have been provided with guidance regarding the manner of reporting (Regulation 6 of the Regulations, and Section 109 together with Appendix I of the Notes. There is no requirement in law or in the Notes that a standard form of STR be used, since the Notes state that “[i]t would be of great assistance to the FIS if disclosures were made in standard form” (Appendix I, Part 5, first bullet). However, the States Assembly (Parliament) has approved in principle the enactment of legislation that would allow the Committee to prescribe by regulation the form and manner in which STRs may be made (Clause 5(1) of the Draft Miscellaneous Provisions Law). This law will be presented to the States Assembly for approval in early 2004. 18. The FIS does not have the power in law to demand additional information from reporting parties. According to the authorities, in practice it does request such information and in most cases the required information is provided. In addition, FIs, relying on Tournier v. National Provincial and Union Bank of England (1924), are permitted to disclose information in order to protect the public and their own interests. If the requisite information fails to be forthcoming, the FIS may seek to obtain a production order in serious or complex fraud cases from the Attorney General (Section 1 of the Fraud Investigation Law) or in other types of cases from a judge (Sections 45 and 46 of the POC Law, Sections 63 and 64 of the DT Law, and Section 36 and schedule 5 of the Terrorism Law). To obtain a production order there must be reasonable grounds for doing so and depending on the legislation other criteria may also need to be met prior to the order being granted. Finally, the Draft Miscellaneous Provisions Law (Clause 5(2) states that regulations made under the Law may provide that such regulations may include a request as part of the STR form to the submitter of an STR to provide additional information. 19. Real time searches are possible on the Customs and Police databases by virtue of the fact that the FIS is staffed by Police and Customs Officers. Immigration details are also available as the Immigration Department is under the same management structure as the Customs Department and has a common Chief Officer. The FIS is able to search using the Police National Computer. The FIS also has access to records such as vehicle registration, company records, court judgments, passport, land and property title documents, and many other government departments. In addition, the Draft Miscellaneous Provisions Law (Clause 21) provides that the States Income Tax Authority will be permitted to disclose information for the purpose of, for example, facilitating a determination of whether any criminal investigation should be initiated or terminate (Clause 21 2)(e). The FIS also subscribes to commercial databases through which credit reporting and other records can be obtained. The FIS can call for an individual’s credit records for a fee through the various commercial databases it subscribes to. In addition, the FIS liaises with the GFSC’s Fiduciary Services and Enforcement Division in order to obtain information from the GFSC. 20. Although the FIS is not authorized by law to order sanctions or penalties, the GFSC may do so under its broad administrative powers with respect to FSBs. See response to Criterion 5. With respect to criminal sanctions, failure to disclose knowledge or suspicion of ML connected with drug trafficking is an offense punishable with up to five years imprisonment (Section 60 of DT Law). Failure to disclose knowledge or suspicion of other crimes is not currently an offense but will become so in the near future (Sections 1 and 2 of Draft Miscellaneous Provisions Law). 21. The FIS is authorized to disseminate financial information and intelligence to domestic authorities for investigation when there are grounds to suspect ML or FT (Section 43 of the POC Law). The FIS routinely disseminates intelligence to various agencies within Guernsey for the purposes of the investigation of crime in Guernsey whether on its own initiative or upon request. 22. The FIS is authorized to share financial information, either on its own initiative or upon request, outside Guernsey with respect to all crimes other than drug trafficking and terrorism (Section 44(1) of the POC Law) and, according to the authorities, common law would so allow for other disclosures. The FIS primarily exchanges intelligence with other FIUs within the Egmont Group. The FIS also seeks to enter into memoranda of understandings with other FIUs should this be a requirement of their domestic legislation in order to facilitate an exchange of intelligence (although the FIS locally does not have any such pre-condition in order to cooperate with third parties), such as Belgium and France. There are adequate safeguards to protect any information disclosed outside Guernsey under the POC Law (Section 44(1) of the POC Law). Information may be exchanged outside Guernsey for the purposes of the investigation of crime or criminal proceedings to a ‘competent authority.’ In general, information exchanges by law enforcement authorities are governed by codes of practice, such as the Intelligence Material Code of Practice, and the DP Law. The codes of practice set out procedures for the recording and dissemination of information. In addition, the codes set out the principles that govern these functions, which, for example, require that where it is necessary to keep the source of intelligence confidential, a record will be kept separately of the source’s identity. Under the Data Protection Law, law officers are required to undertake risk assessments prior to intelligence being released externally. The risk assessment is required to consider issues such as the source, subject and content of the intelligence paying due regard to the human rights and security of all concerned, while taking into account the jurisdiction to which the material may be sent. For example, the eighth principle of the DP Law prohibits the transfer of personal data outside Guernsey unless that country “ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data” (para. 8, Part I, schedule I of DP Law). 23. Statistics are kept by FIS as part of its function relating to amounts of property frozen, seized and confiscated relating to proceeds of crime, drug trafficking, money laundering and financial terrorism.
	2000	2001	2002
Number of Disclosures	482	605	777
• STRs resulting in investigation, prosecution, or convictions; Statistics and records are kept. There is a number of ongoing money laundering investigations. However, no company or person has been convicted of Money Laundering in Guernsey. • Requests for assistance received by the FIS or other competent authorities, from both domestic and foreign authorities, as well as the number of responses provided to the requests received; The FIS maintains good records in relation to this information.
Example:
	2000	2001	2002 (Half Year)
Request for Assistance	154	170	139
Of which:
Internal	84	87	90
External	70	83	49
• Spontaneous referrals made by the FIU or other competent authorities to both domestic and foreign authorities; Records are kept on all referrals made by the FIS to other competent authorities. Following examination of STRs the FIS refers most of them (50-60 percent) to NCIS. If the STR referred to a resident of Ireland for example. The STR would be forwarded to the FIU in Ireland. • If the jurisdiction requires the reporting of large currency transactions, statistics should be kept on the number of reports filed. The Bailiwick of Guernsey has no legislation which requires reporting large currency transactions. However cash seizures occur under the Drug Trafficking (Bailiwick of Guernsey) Law 2000. This law covers the seizure and detention of cash both import and export. It empowers Law Enforcement/Customs and Excise to forfeit and confiscate cash on a civil standard of proof i.e. the balance of probability in respect of cash suspected to be involved in drug trafficking. A soon to be enacted Miscellaneous Provisions Law will provide for the seizure of cash on an ‘all crimes’ basis. 24. The FIS as currently structured and funded is capable of performing its functions, however it is not working at maximum capacity due to shortage of staff as outlined in Criteria 6 and a dramatic increase in work load (the number of STRs rose by 100 percent over last 5 years). The FIS requires two further Financial Investigators, to bring the unit to the recommended and approved strength and the support of a Financial Analyst and an administrative assistant. Following a review of the FIS’s first year of operations the Service Authority recommended to the Chief Officers (Police and Customs) that the resources allocated to it be increased. In addition, the Service Authority also sought additional increases in staff to their respective Commercial Fraud Departments. The Chief Officers supported the recommendations and subsequently obtained the necessary approval of the relevant Government departments to increase the FIS’s staff and that of the Custom & Excise Fraud and International team. In addition, the Chief Officer of Police secured a five year housing license for a former Metropolitan Police Financial Investigator who is now supplementing the established complement of the Police’s Fraud and External Affairs Department. The Director of FIS is accountable to the Chief Officers of Police and Customs and Excise through the Service Authority. The Director of FIS manages the operations/investigations and ensures that its functions are properly executed. All staff appointed to FIS from Police/Customs and Excise, are on a fixed tenure basis. The organizational structure is of high standard, with very good work practices. Where the FIS becomes aware of an institution’s failure to report suspicions, the FSC is informed. The Guernsey FIS/FIU unit has sufficient independence and autonomy to ensure its functions are performed without interference on its day to day activity as it is controlled and directed by a Director whose position allows a certain amount of independence for Police and Customs and Excise. The situation with all law enforcement FIS/FIU there are matters and decisions to be made from time to time that require advice from the law officers or senior personnel within the Police Authority and Customs Authority, which is readily available to the Director. The procedures used in recording analyzing and disseminating information ensures that the information and intelligence is properly protected and lawfully disseminated to investigation units or exchanged with international law enforcement authorities in accordance with the laws of the Bailiwick of Guernsey. The FIS/FIU publishes from time to time articles in the Compliance Officers Association Newsletter and on the Guernsey Financial Commission website on its role, statistics, typologies and trends. The unit submits periodic reports to the Egmont website. The FIS submits an annual report to the Bailiwick Financial Crime Committee. A less detailed version of the report was circulated to other external bodies and interested parties.
Analysis of Effectiveness
Arrangements for processing, receiving, analyzing, and disseminating financial information are generally adequate. The framework would be strengthened if the law required the reporting of suspicious transactions to the FIS, made failure to report, a crime and gave the FIS the power to require additional information from reporting parties without a production order. The general arrangements would also be strengthened if the staff complement of the FIS was increased by at least two persons.
Recommendations and Comments
Legislation should be adopted along the lines of the Draft 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. In addition, legislation should be considered along the lines of the Draft Miscellaneous Provisions Law (Section 5) to provide that STRs should be submitted to the FIS on a form to be prescribed by law, with appropriate penalties. This draft law is expected to be considered by the States Assembly by the end of 2003. Finally, consideration should be given to providing authority in law to the FIS to require additional information from reporting parties, without the need to meet the burden of proof required for a production order. The provision in the Draft Miscellaneous Provisions Law that such regulations may include a request as part of the STR form to the submitter of an STR to provide additional information does not appear to be sufficient for this purpose. Consideration should be given to amending the relevant laws to provide explicit legal authority for the GFSC to issue guidance notes. The Guernsey authorities should implement plans to increase the staff of the FIS by two intelligence officers as soon as is practicable.
Implications for compliance with FATF Recommendations 14, 28, 32
Compliant
IV—Law enforcement and prosecution authorities, powers and duties (compliance with criteria 25-33)
Description
25. The responsibility to ensure that ML and FT offenses are properly investigated rests with the Police and Customs and Excise. The FIS/FIU is also able to carry out this task as it is staffed with personnel from Police and Customs and Excise. Prior to obtaining/serving production orders or warrants, the consent/authority of a Law Officer is required. The structure of Law Enforcement ensures that all offenses are properly investigated. 26. The use of covert and investigative measures are permitted by common law and governed by codes of practice (internal guidelines) issued by the Police and Customs. Courts in Guernsey have accepted the use of a wide range of investigative techniques, such as controlled delivery, undercover operations and covert and intrusive surveillance. The States of Guernsey have agreed in principle to the enactment of a law based upon the UK’s Regulation of Investigatory Powers Act 2000. The proposed law will provide for the interception of communications, the carrying out of surveillance, and the use of covert intelligence sources. The UK Act does not contain provisions relating to controlled deliveries, and therefore such provisions are not contained in the Guernsey proposal. The Guernsey FIS/FIU and other law enforcement units tasked with enforcing ML and FT matters use all investigative techniques including covert, overt and intrusive measures that are legally at their disposal in the Bailiwick of Guernsey. These matters are dealt with on a case by case basis and the investigation teams consult regularly with their Attorney General for directions and advice. 27. Law enforcement authorities are able to compel production of bank records and other records maintained by FIs through lawful process (Sections 45 & 46 of the POC Law; Sections 43 & 44 of the Terrorism Law). Law enforcement authorities are also able to compel production of bank records and other records maintained by FIs through lawful process (Sections 45 & 46 of the POC Law; Sections 63 and 64 of DT law; Section 36 of the Terrorism Law and Section 1 of the Fraud Investigation Law). 28. The FIS/FIU is an inter-agency type unit, therefore “Task Force” style enquiry teams, are a regular feature of how Guernsey investigate/prosecute ML/FT and predicate offenders, where the need arises. There is a culture of partnership work and clear understanding that this style of enquiry team is necessary to achieve results in complex investigations of ML/FT. 29. This has been addressed at Criteria 24 and I am satisfied that the FIS/FIU Service Authority conduct reviews annually which has resulted in increased resources of FIS/FIU and commercial fraud departments of Police and Customs and Excise. Resources are in place to prosecute/enforce the legal means for effective implementation of the ML and FT laws. It is however clear that the number of STRs and external request for assistance in relation to ML and FT continue to increase annually. The Islands Authorities should therefore continue to review and support requests from the FIS’s Service Authority for any additional resources that are considered necessary to maintain current levels of effectiveness. The FIS/FIU have secured some funding and consultants to develop their IT needs, those being the need for a rationalization and introduction of a new computer system in order to enhance and streamline their capabilities of monitoring the receipt, analysis and dissemination of STRs which will benefit them in their overall investigations. 30. Statistics of the number of ML and FT investigations, prosecutions and convictions where the investigation was initiated on the basis of an STR are recorded, by FIS. Due to lack of feedback from Foreign Jurisdictions to the Bailiwick of Guernsey, the FIS/FIU is unable to give an accurate figure in respect of convictions for ML and FT investigations. Despite several money laundering investigations, no domestic prosecution has taken place in Guernsey. Following the arrest/charge of persons for predicate offenses, a preliminary financial investigation is carried out in every case where an offender is being tried on indictment. This investigation is conducted in order to aid the gathering of additional evidence to support the predicate offense and also to ascertain if the criminals concerned have benefited financially from criminal conduct and have assets that could be confiscated. 31. The Guernsey FIS and Law Enforcement units examine typologies and trends on regular reviews on an interagency basis in the financial crime group and terrorist financing team and new typologies or trends identified are then disseminated to the operational people at the coal face and in a limited number of cases new typologies may well be published via the Commissions website. 32. Members of the FIS are skilled in the administrative, investigative, prosecutorial and judicial aspects of enforcing the law on ML and FT. All law enforcement officers have undergone training that’s available to financial investigators in the UK. Additionally local training courses are conducted to increase the investigation/technical knowledge that is needed in Guernsey, e.g., areas relating to trust funds. The key personnel appear to have all the skills and technical knowledge to enable them to perform their functions adequately and are in a position to train and pass on their skills. Officers are encouraged to attend lectures given on the Bailiwick from the private sector. Law enforcement personnel in the Bailiwick of Guernsey are professional in their approach, to tracing property suspected of being the proceeds of crime or used in the finance of terrorism and they are skilled in obtaining seizure, freezing and confiscation orders to remove those assets. A number of officers in the Guernsey FIS/FIU units have undergone special training in financial investigations and have obtained accreditations on a level of the financial investigators provided by the Home Office Center of Excellence in the UK. 33. The Financial Crime Committee and the Financial Crime Group play an important role in providing advice and guidance on best practices to the FIS. This includes guidance that is based on evolving international standards and best practice. Additionally the Bailiwick of Guernsey law enforcement publish their financial crime strategy annually, which is circulated to all relevant parties including the Attorney General’s chambers and the Commission. This document identifies problems encountered and indicates how they were addressed. In order for the authorities and investigation units of the Bailiwick of Guernsey to be successful, the personnel involved attend international conferences to keep themselves abreast of current trends of combating money laundering and identifying methodologies used to finance terrorism, The law enforcement agents in the Bailiwick of Guernsey make use of the partnership approach, to identifying proceeds or property to finance terrorism.
Analysis of Effectiveness
The general framework for the powers and duties of law enforcement and prosecution authorities is considered to be adequate. The framework would be strengthened if sufficient funding were made available for technical support requirements of the FIS and if the planned legislation on investigatory powers included provision for controlled delivery.
Recommendations and Comments
Consideration should be given to including controlled delivery in the proposed legislation on investigatory powers. Funding should be made available for the development of the FIS’ IT resources. This technical support is essential for its future effectiveness and success especially in light of the continuing increase in STRs.
Implications for compliance with the FATF Recommendation 37
Compliant
V—International Cooperation (compliance with criteria 34-42)
Description
34. There are laws and procedures which provide for mutual legal assistance regarding the use of compulsory measures including the production of records, search of persons and premises (Sections 4 & 7 of the CJIC Law). The following laws allow for the widest possible range of mutual legal assistance in AML/CFT matters: The Fraud Investigation Law, Section 1; The POC Law, Sections 45 and 46; The DT Law, Sections 63 and 64; The Terrorism Law, Section 36 and schedule 5, paras. 1 and 4; The CJIC Law, Sections 4 and 7; The Terrorism Order, Article 10; and The Al-Qa’ida Order, Article 18. Production orders or warrants may be issued to obtain records from FIs or private individuals (section 1 of the Fraud Investigation Law, sections 45 and 46 of the POC Law, sections 63 and 64 of the DT Law and section 36 and schedule 5 of the Terrorism Law). If a warrant is issued searches may be made of business premises and private dwellings. These laws do not contain provisions which compel persons to make witness statements for use in court proceedings. However, in practice many financial services businesses permit their employees to make full witness statements. Testimony under oath for use in another jurisdiction can be obtained under section 4 of the CJIC Law in connection with all types of criminal investigations and prosecutions. Search warrants can be obtained under section 7 of the 2001 Law. The only restriction is that, before a warrant is issued, it must be shown that the conduct constituting the offense under investigation would have constituted a criminal offense punishable with imprisonment if it had occurred in Guernsey. There are appropriate laws and procedures relating to the following: (i) Production or seizure of information: Section 1 the Fraud Investigation Law; Sections 45 and 46 of the POC Law; Sections 63 and 64 of the DT Law; Section 36 and schedule 5 of the Terrorism Law; and Sections 4 and 7 of the CJIC Law. (ii) Taking of statements: Witnesses are required to provide information and documents (the Fraud Investigation Law (Section 1), POC Law (Section 45), DT Law (Section 63) and Terrorism Law (Section 36 and schedule 5 (para. 4). They cannot be required to make formal witness statements under the law of the requesting state. However, many FIs do allow their employees to make formal witness statements under the law of the requesting state. In cases where a formal witness statement is not made, evidence under oath which can be used in a foreign court can be obtained in connection with all types of criminal investigation under section 4 of the CJIC Law. (iii) Identification, seizure etc: The identification of assets can be achieved under the legislation referred to under (i) above. The freezing and confiscation of assets may be achieved under Part I of both the POC and DT Laws, and Section 18 and schedule 2 of the Terrorism Law. The provisions of section 8 of the CJIC Law may be used to freeze instrumentalities. Assistance may be provided in connection with criminal proceedings or criminal investigations (Section 4 of the CJIC). Assistance may also be provided in investigations and proceedings where persons have committed both the money laundering and the predicate offense under the provisions of sections 45 and 46 of the POC Law, sections 63 and 64 of the DT Law and sections 4 and 7 of the CJIC. 35. The Guernsey FIS has procedures and structures in place that use all available legislation to provide assistance to foreign authorities on the question of international investigation of ML/FT. The publication entitled “Mutual Legal Assistance” and the Bailiwick of Guernsey clearly sets out guidelines and notes, to obtain mutual legal assistance in Guernsey. In order that mutual assistance is achievable the FIS/FIU in Guernsey is capable of sharing information and intelligence with FIUs in other jurisdictions as they are members of the Egmont Group. There is no impediment within the Bailiwick of Guernsey and their legislation makes no distinction in the mental element of an offense and does not preclude assistance being given by the Bailiwick of Guernsey. Therefore dual criminality is not a precondition in mutual legal assistance. Arising from statistics produced, all appropriate efforts are taken by the investigation agencies in the Bailiwick of Guernsey to provide a uniform and effective response to requests. It is obvious from the statistics that the investigation units in Guernsey respond to follow-up requests in the most expeditious manner possible. Statistics on request are by the FIS and other relevant agencies. 36. On September 30, 2002, a letter was lodged with the Council of Europe by the United Kingdom’s representative to the Council indicating that the 1990 Convention on Money Laundering etc., will extend to Guernsey as from 1 January 2003. On 15 August 2002, Guernsey’s authorities asked by letter that the United Kingdom seek ratification on Guernsey’s behalf of the United Nations Convention for the Suppression of Terrorist Financing. Ratification will be sought for the Palermo Convention, the Council of Europe Convention on Corruption and the OECD Convention on Corruption as soon as the necessary legislation has been passed by the States of Guernsey. The FIS has MOUs with TRACFIN in France and CTIF in Belgium. Generally, however international cooperation is supported through informal mechanisms. The GFSC has entered into a number of MOUs. Please refer to the response to criterion 67 for further details. However, the GFSC does not require an MOU to have been executed with foreign supervisors/regulators or law enforcement bodies before exchanging information with them. 37. According to the authorities, the law enforcement authorities are permitted under common law to exchange information regarding the subjects of investigations with their international counterparts. No agreements or MOUs are needed for this purpose. Appropriate statistics are maintained, however information on the resolution of cases is not up to date. This is due in part to poor feedback from the requesting countries. 38. Law enforcement authorities in Guernsey are able freely to cooperate with investigations being conducted in other jurisdictions. Foreign investigators are able to come to Guernsey and accompany local officers when production orders and warrants are served. Although not expressly provided by statute, controlled deliveries, particularly in connection with drug trafficking, are used in connection with enquiries. Production orders in fraud investigations are issued by the Attorney General (section 1(2) of the Fraud Investigation Law). Production orders issued under section 45 of the POC Law, section 63 of the DT Law and section 36 and schedule 5, paragraph 4 of the Terrorism Law are issued by a judge. In all cases warrants are issued by judges (section 1(4) of the Fraud Investigation Law, section 46 of the POC Law, section 64 of the DT Law and section 36 and schedule 5, paragraph 1 of the Terrorism Law). 39. The authorities in the Bailiwick of Guernsey are more than anxious/capable to coordinate action locally and internationally to coincide with law enforcement action in any jurisdiction. On the question of sharing of confiscated assets there is no legislation in Guernsey for the sharing of assets, however, the Bailiwick of Guernsey has on a case by case basis entered into agreements to share assets with other jurisdictions, for example assets voluntarily repatriated to the USA where a proportion has been shared with the Bailiwick of Guernsey. Guernsey law enforcement authorities have partaken in joint investigation teams with other jurisdictions. This involved the execution of warrants in Guernsey simultaneously with law enforcement conducting operations elsewhere. 40. The Extradition Act 1989 (United Kingdom) as extended to Guernsey permits the extradition of those wanted in other jurisdictions for money laundering and terrorist financing offenses. All persons resident in Guernsey, if wanted in connection with criminal activity in another jurisdiction, are liable for extradition under the Extradition Act 1989. 41. Guernsey’s Immigration Act sets out certain requirements for non-European nationals wishing to take up residence in the Bailiwick. If immigration officials are satisfied that applicants are not conducive to the public good for permanent residency in Guernsey they are refused admission. Special Branch and customs officers monitor all persons arriving in Guernsey and are familiar with any wanted posters on criminals or on known terrorist or suspected terrorists. Therefore these persons are closely monitored and policed at points of entry to Guernsey. Any person identified with residence in Guernsey who is wanted in connection with a terrorist related crime is liable to extradition under the provisions of the Extradition Act 1989. Any foreign national from outside the EU area of common travel is required to seek permission to enter or leave the island and in a number of cases a visa is required by foreign nationals before permission is granted for them to enter the island. Prior to the granting of such visa all law enforcement data based on criminal/terrorism connections will be examined in order for the authorities to make a decision. 42. Guernsey has adequate resources that are committed to fully investigating and dealing with requests for assistance from other jurisdictions that are involved in the international fight of money laundering and financing terrorism.
Analysis of Effectiveness
There is an adequate framework for international cooperation.
Recommendations and Comments
Implications for compliance with FATF Recommendations 3, 32, 33, 34, 37, 38, 40, SR I, SR V
Compliant

Table 4.

Detailed Assessment of Criminal Justice Measures and International Cooperation

I—Criminalization of ML and FT (compliance with criteria 1-6)
Description
1. The Vienna Convention was ratified on Guernsey’s behalf by the United Kingdom on 9 April 2002. The Council of Europe Convention on Laundering, Search and Seizure was extended to Guernsey from on January 2003. Guernsey, by letter dated 15 August 2002, asked the United Kingdom to effect ratification of the Convention for the Suppression of the Financing of Terrorism. The application is now in the hands of the Foreign and Commonwealth Office. All necessary legislation to ratify the Convention has been enacted. The laws of Guernsey meet most of the provisions of the Palermo Convention, however additional implementing legislation will be needed prior to ratification, as follows: (i) Guernsey’s current law concerning corruption is not wide enough to meet the Convention requirements. The States of Guernsey (the island’s parliament) have agreed in principle to enact a comprehensive anti-corruption law which is expected to be laid before it in the autumn of 2003. A Bill has been drafted and comments received from the Home Office. The authorities have indicated that the Bill is expected to become law in early 2004; and (ii) to meet the terms of Article 3 of the Protocol on Trafficking Persons it will be necessary to enact provisions similar to sections 30 and 31 of the English Sexual Offenses Act 1956; and (iii) legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings. The authorities have advised that legislation will be enacted as required to implement the Palermo Convention. 2. Money laundering has been criminalized, as follows: Drug trafficking money laundering is criminalized under the provisions of sections 57-59 of the DT Law. Money laundering for terrorism is criminalized by section 11 of the Terrorism Law. Money laundering for other crimes is criminalized by sections 38-40 of the POC Law. The financing of terrorism is criminalized by sections 8-10 of the Terrorism Law. Offenses relating to money laundering extend to proceeds of all serious offenses, including financing terrorism, and are consistent with provisions of the Vienna and Palermo Conventions and the FATF Recommendations. The definition of the financing of terrorism is also consistent with the definition set out in the Convention for the Suppression of the Financing of Terrorism. According to the authorities, in Guernsey’s courts, the intentional element of ML and FT may be inferred from the totality of the evidence submitted to the court. The offense of ML extends to persons who have committed ML as well as both the laundering and predicate offense (sections 38(1) of the POC Law and section 57(1) of the DT Law). It is not necessary that a person be convicted of a predicate offense to establish that assets were the proceeds of a predicate offense (Sections 38-40 of the POC Law, sections 57-59 of the DT Law and Section 11 of the Terrorism Law). All serious crimes are predicate offenses for money laundering, including the financing of terrorism. (Section 1 of the POC Law, Section 1 of the DT law, Section 1 of the Terrorism Law). The offense of ML extends to any property which represents the proceeds of criminal conduct (Sections 38(1)(a), 38(2), 39(2) and 40(1) of the POC Law, sections 57(1)(a), 57(2), 58(2) and 59(1) of the DT Law, and sections 7(2)(a) and 11(1) of the Terrorism Law). In each provision, reference is made to property which “in whole or in part directly or indirectly represents….. ” The predicate offenses for ML extends to conduct that occurred in another country and which would have constituted such an offense had it occurred domestically (Section 1(b) of the POC Law, section 1 of the DT Law and section 1(4) of the Terrorism Law). 3. FT has been criminalized on the basis of the Convention for the Suppression of the Financing of Terrorism (Sections 8, 9 & 10 of the Terrorism Law). The predicate offense for FT extends to terrorists or terrorist organizations located in another country and to conduct that occurred in another country (Section 1 of the Terrorism Law). 4. The offenses of ML applies to individuals and legal entities that engage in ML activities (Section 49(4)(d) of the POC Law); the offense of FT extends to those who should have reasonable cause to suspect that money or other property may be used in terrorism activities (Sections 8(3) & 10(b) of the Terrorism Law). According to the authorities, in Guernsey’s courts, the intentional element of ML and FT may be inferred from the totality of the evidence submitted to the court. In Guernsey, the offenses of money laundering and financing of terrorism extend to all entities. Section 2 of the Interpretation Law states that ‘person’ includes a body corporate. All of Guernsey’s money laundering offenses and those relating to the financing of terrorism apply at least to those knowingly engaged in money laundering or terrorist financing. Section 38(2) of the POC Law, section 57(2) of the DT Law and section 11 of the Terrorism Law include the objective test within their terms. Therefore, where an individual has reasonable grounds for suspicion, but fails to disclose such a suspicion, and it is subsequently established that a reasonable person would have suspected and disclosed that suspicion, an offense has been committed. The offense of FT extends to those who should have reasonable cause to suspect that money or other property may be used in terrorism activities (Sections 8 & 10(b) of the Terrorism Law). 5. (see response to criterion 64) 6. Guernsey falls marginally short of having an adequate number of law enforcement personnel who are tasked with providing the resources to effectively combat money laundering and financing of terrorism. This process, is supervised by the offices’ of the Attorney General and Solicitor General in Guernsey and prosecuted by experienced personnel who have also worked for the Crown Prosecution Service in the United Kingdom. The Guernsey Police and Customs & Excise approach to financial crime is coordinated and directed by a Service Authority which is staffed by Senior Commanders of Police and Customs and Excise. The Financial Intelligence Service (FIS) which is the FIU in Guernsey carries out the immediate tasks in respect of money laundering. On the investigation stages matters are then referred to the agencies (A) Police Commercial Fraud and External Affairs, (B) Customs and Excise Fraud and International Team. In Guernsey the total authorized establishment of the police force is 177 and total number of Customs and Excise Law Enforcement officers is 51. The Guernsey Commercial Fraud and External Affairs Department is staffed by a D/Inspector, D/Sergeant and 2 D/Constables with part-time administrative support. Their mandate is: To assist external law enforcement agencies to obtain evidence in relation to financial crime within the Bailiwick of Guernsey. Investigate serious and complex fraud and financial crime committed within the Bailiwick of Guernsey. Investigate, identify and restrain proceeds of crime and drug trafficking, in Guernsey. The Customs and Excise Fraud and International Team is staffed by a senior investigating officer, two investigating officer’s, an office manager/analyst with secretarial support. This unit is mandated to: Investigate Customs and Excise related fraud and identify, then restrain proceeds of crime and drug trafficking. Assist external law enforcement agencies to obtain evidence within the Bailiwick in relation to Customs related offenses and Money Laundering. Conduct and support local money laundering investigations. Investigate suspected breaches of UN and EU sanctions within the Bailiwick. The Financial Intelligence (FIS) is headed by a director and is staffed equally by Police and Customs and Excise. Its current staff complement comprises two Senior Intelligence Officers, four Intelligence Officers, a Financial Analyst, an Office Manager and an Administrative Assistant. At the time of the assessment two of the Intelligence Officer posts and the positions of Financial Analyst and Administrative Assistant were vacant. The FIS was in the process of advertising the Analyst and Administrative positions (these posts have now been filled). The vacant positions of Intelligence Officers are expected to be filled in early 2004. Therefore there is a shortage of personnel in the unit. The aim of the FIS/FIU is to: Provide quality in financial crime intelligence particularly money laundering. Ensure full international cooperation. Enhance the coordination and development of financial crime intelligence within Guernsey. Gather, collate and evaluate all Bailiwick financial crime intelligence, i.e. suspicious transaction reports (STR). Lawful and proper dissemination of financial crime intelligence. Providing strategic and tactical intelligence with regard to financial crime.
Analysis of Effectiveness
Measures taken to criminalize money laundering and terrorist financing are generally adequate. Present arrangements will be enhanced when Guernsey implements legislation to give effect to the Palermo Convention and the Convention for the Suppression of the Financing of Terrorism is extended to Guernsey.
Recommendations and Comments
Legislation will be required to implement the Palermo Convention as follows: Guernsey’s current law concerning corruption is not wide enough to meet the Convention requirements. The States of Guernsey (the island’s parliament) have agreed in principle to enact a comprehensive anti-corruption law to be presented to the States Assembly for approval in September 2003; To meet the terms of Article 3 of the Protocol on Trafficking Persons, it will be necessary to enact provisions similar to sections 30 and 31 of the English Sexual Offenses Act 1956; and Legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings.
Implications for compliance with FATF Recommendations 1, 4, 5, SR I, SR II
Full compliance will be achieved when the Convention for the Suppression of the Financing of Terrorism is extended to Guernsey.
II—Confiscation of proceeds of crime or property used to finance terrorism (compliance with criteria 7-16)
Description
7. Laws provide for the confiscation of laundered property, proceeds from and instrumentalities used in or intended for use in Guernsey with respect to any ML offense (Sections 2 of the POC and DT Laws). In addition, laws do provide for the forfeiture of property that is the proceeds of or intended for use in FT (Section 18 of the Terrorism Law). Parts I of the POC Law and the DT Law provide for the confiscation in criminal cases of the proceeds of crime and include any income gains from the proceeds of crime. Both laws provide for the enforcement of confiscation orders which are made in countries which are designated in secondary legislation. Guernsey designates those countries which are designated by the United Kingdom under the Criminal Justice Act 1988 and the Drug Trafficking Act 1994. It is likely that the need for designation will be abolished in the proposed proceeds of crime legislation. Laws do not provide for the confiscation of property of equivalent value. The instrumentalities of crime may be forfeited by a court by the use of its power under common law and statutory powers such as those contained within section 26 of the Misuse of Drugs Law 1974 which provides for the forfeiture and destruction of anything found to the satisfaction of the court to relate to an offense under the Law. Forfeiture orders concerning the instrumentalities of crime that are made by courts in another jurisdiction may be enforced locally under section 8 of the CJIC Law. The Law contains a provision concerning the designation of countries which is similar to that contained in the POC Law and the DT Law. Section 18 and schedule 2 of the Terrorism Law provides for the forfeiture of any property connected with terrorism; paragraphs 8-10 provide for the enforcement of orders made elsewhere. With respect to confiscation of property of corresponding value, AML laws in Guernsey 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 (POC and DT Laws Sections 5, 6, 29-31). However, the Terrorism Law does not contain comparable provisions. The law does provide for restraint orders against all realizable property whether described in an order or not (Section 26 of the POC Law). Freezing orders may also be made with respect to FT (Sections 20 & 21 of the Terrorism Law). Restraint orders may be obtained under sections 25 and 26 of the POC and DT Laws. Applications for restraint orders may be made by ex parte applications. Orders may apply to all realizable property as defined by section 6 of both laws. Realizable property includes “any property held by the defendant.” A restraint order under the POC and DT Laws may be obtained if proceedings have been instituted against a defendant or when a person is to be charged with an offense. With regard to terrorism, under section 18 and schedule 12, paragraph 3 of the Terrorism Law, a restraint order may be made by ex parte applications in respect of any property liable to forfeiture. An order may be made if proceedings have been instituted and not concluded or an investigation has been commenced and in both cases it appears to the court that a forfeiture order may be made in proceedings for the offense. Sections 20-29 and schedule 4 of the Terrorism Law provide for the making of freezing orders by the Committee if certain criteria are met. Under Article 6 of the Terrorism Order and Article 8 of the Al-Qa’ida Order, freezing orders may be made by the Attorney General. The proceeds of crime and terrorist property held by members of a criminal organization or a company used as a vehicle to commit crime may be confiscated by the Royal Court (trial court equivalent to the Crown Court in England) following conviction under the POC Law, DT Law and the Terrorism Law. In the event of an order being made under the POC Law or the DT Law, the court may make an order that the convicted person must pay a monetary amount. No reference is made by the court to specific assets (sections 5(1) of POC Law and 5(1) of DT Law). Section 29 of both the POC Law and the DT Law and section 18 and schedule 2 of the Terrorism Law give power to the Royal Court to appoint a receiver to gather in a convicted person’s assets, sell them and put the proceeds towards settling a confiscation order. It is currently not possible for the authorities to apply for confiscation orders using the civil process. Consideration is being given to the introduction of civil forfeiture powers based upon the United Kingdom’s Proceeds of Crime Act or the equivalent legislation in the Republic of Ireland. According to the authorities, it is however open to a person who has lost any property as a result of a person’s unlawful act to seek the return of the assets and damages through the civil courts. 8. Production Orders and warrants may be obtained to identify and trace property. (Sections 45 and 46 of the POC Law; sections 63 and 64 of the DT Law and sections 36 and schedule 5, section 37 and schedule 6 and section 39 and schedule 7 of the Terrorism Law). Section 37 and schedule 5 and section 39 and schedule 7 of the Terrorism Law provide for the obtaining of information about bank accounts and the monitoring of accounts respectively. Police and Customs Officers, by virtue of these laws, may apply to the Court for orders to gain access to material so as to identify and trace property that is, or may become, subject to confiscation. Such powers are exercisable where there are sufficient grounds to suspect and where it is in the public interest to do so. Police and Customs Officers have no power of discovery outside of the judicial process. 9. There are protections for the rights of bona fide third parties in the case of restraint orders (Section 25(5) (c) of the POC Law). In addition, under section 2(6) of the POC Law, where the Court is satisfied that a victim of any relevant criminal conduct has instituted, or intends to institute, civil proceedings against the defendant in respect of loss, injury or damage sustained in connection with that conduct, the Court does not have to make a confiscation order in the total sum which is available to be realized. When a restraint order is made under the POC, DT or Terrorism Laws notice of the order must be given to persons affected by the order. Any person affected by the restraint order may apply for its discharge or variation. (Sections 25(5) (c) and (7) of the POC and DT Laws and section 18 and schedule 2 paragraphs 4(1) (c) and 4(4) of the Terrorism Law). Under the POC Law (Section 8(1)(a) and the DT Law (Section 8(1)(a), only assets held by a defendant or gifts made during the previous six years may be considered when calculating the amount of a confiscation order. Under Section 31(4) of the POC and DT laws, a receiver appointed to enforce a confiscation order must exercise their powers with a view to allowing any person other than the defendant or the recipient of a gift to retain or recover the value of any property held by him. 10. According to the authorities, it is likely that the Guernsey courts would declare as void any contract whose purpose was to frustrate the authorities from recovering the proceeds of crime, thereby making the value of the assets concerned liable to be included in any confiscation order. 11. Statistics on amounts of property frozen, seized, and confiscated relating to proceeds of crime, drug trafficking, money laundering, and financial terrorism are kept by the FIS. 12. The Judiciary, law officers and Crown Advocates who are involved in administering the law and mounting all prosecutions in Guernsey are familiar with applications made in respect of money laundering, production orders and freezing orders, as these people are involved in the formulation of the existing Guernsey laws relating to this subject. They have obtained their experience and training through basic law studies for many years, they attend training courses in the UK routinely and also attend seminars and conferences and discuss the matter with experts and keep themselves abreast of all money laundering legislation. The police and customs officers who are involved in the financial investigation matters in Guernsey have undergone training courses in the UK and are required to attain the same standards applicable to UK counterparts. All law enforcement officers engaged in the area of Financial Investigations are required to be accredited as “Financial Investigators” by UK Home Office’ Center of Excellence. 13. There are measures for freezing of funds and/or property of terrorists (Article 6 of the Terrorism Order and Article 8 of the Al Qa’ida Order). I am satisfied from the records produced to me which are confidential at this point of time, that the Guernsey authorities do keep records and statistics. 14. Under Article 10 of the Terrorism Order, information may be obtained to secure compliance with the Order or detect evasion of the Order. Article 6 of the Order provides for the freezing of funds connected with terrorism. Section 36 and schedule 5 of the Terrorism Law allow information to be obtained in connection with terrorist investigations; section 37 and schedule 6 are concerned with the collection of information relating to bank accounts and Section 39 and schedule 7 permit the monitoring of accounts. Section 18 and schedule 2 of the Terrorism Law provides for the restraint of assets which are or may be liable for forfeiture. Freezing orders may be made under section 20 of the Terrorism Law. In addition, the Terrorism Order allows for the obtaining of information by the Attorney General (Article 10) and the freezing of funds by order of the Attorney General (Article 6). All the above provisions may apply to persons or entities not included on lists maintained by relevant Committees of the UN Security Council. 15. There is no statutory asset forfeiture fund. In a number of cases, assets have been shared by other jurisdictions with Guernsey. The money received has been paid into accounts in the name of the Receiver General (who is the Attorney General). These funds were used by the Receiver General following consultation with the Chief Officers of Police and Customs, senior members of the States of Guernsey and senior civil servants to fund special projects connected with law enforcement that are not covered by general revenue. The Bailiwick Financial Crime Committee is currently considering whether legislation should be drafted to formalize the fund. 16. There is no statutory asset sharing mechanism. However, in the event of a confiscation order made in another jurisdiction being enforced by Guernsey, the authorities have indicated that they would be prepared in appropriate cases to share a proportion of the funds realized with the other jurisdiction. Unless agreed, no conditions would be imposed on the jurisdiction recovering the shared property.
Analysis of Effectiveness
The framework in place for the confiscation of the proceeds of crime or property used to finance terrorism is generally adequate. The framework would however be improved by the adoption of legislation to provide for an asset forfeiture fund and for asset sharing with other jurisdictions.
Recommendations and Comments
Consideration should be given to amending the Terrorism Law to provide for the appointment of a receiver for all property owned by a defendant to satisfy a confiscation order. Consideration should be given to adopting legislation that would provide for an asset forfeiture fund and for asset sharing with other jurisdictions. The authorities have informed us that such consideration will take place in connection with the consideration of an amended Proceeds of Crime Act in early 2004.
Implications for compliance with FATF Recommendations 7, 38, SR III
Compliant
III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels (compliance with criteria 17-24)
Description
17. The FIS is the FIU and is an independent unit of the Guernsey Police Force and Officers of the Customs and Excise office, jointly staffed by both the Police and Customs. Police Officers. FIs are required to report to a police officer (a defined term which includes customs officers) transactions suspected of stemming from a criminal activity or used to finance terrorism (Regulation 6(5) of the Regulations; Sections 39(3) and 40(5) of the POC Law; Sections 58(3), 59(5) and 60(1) of the DT Law; Sections 12 & 13 of the Terrorism Law). There is no requirement in law that STRs must be submitted to the FIS. Guernsey has had an FIU since 1989. In 1998 Guernsey’s FIU became a member of the Egmont Group in which it plays an active role. On 2 April 2001, and following a Financial Crime Review conducted by two Senior Managers from Police and Customs, the FIU became known as the Financial Intelligence Service (the “FIS”). The mandate and mission statement of the FIS states as follows: In order to enhance this joint policy the Financial Intelligence Service shall, as far as possible, stand alone from either of its parent organizations but will remain within both Police and Customs responsibilities. The Financial Intelligence Service shall be staffed equally by Police and Customs Officers seconded for a fixed tenure under a clear line management system. The Financial Intelligence Service shall be responsible to a Service Authority constituted equally from Senior Operational Police and Customs Managers who shall in turn, be directly responsible to their respective Chief Officers. The Financial Intelligence Service will have its own budget funded equally by Police and Customs and dedicated accommodation. A Director shall be appointed from Police and Customs on the basis of a three year contract. The post of Director of the Financial Intelligence Service will be independent of both Police and Customs. Reporting parties are required to submit suspicious reports where such party knows or suspects that a person is engaged in money laundering or the financing of terrorism (Regulation 6(5) of the Regulations; Sections 39(3) and 40(5) of the POC Law; Sections 58(3), 59(5) and 60(1) of the DT Law; Sections 12 & 13 of the Terrorism Law). Although the Notes (paras. 101 and 109) state that STRs should be submitted to the FIS by FIs, there is no requirement in law to do so, and it is not clear whether the GFSC has the requisite legal authority to impose a more specific requirement than the law. The GFSC has issued Notes which include sections on the identification of complex and unusual transactions although the authority for the GFSC to do this is unclear. The FIS assists the GFSC in preparing the Notes by providing typologies relating to money laundering (ML) and the financing of terrorism (FT). The Notes provide examples of suspicious transactions, for example: paragraphs 92 (general indicators of suspicious activity), 136 and 139A (relating to banking), 163 (investments), 167 (fiduciary business) and 184 (insurance). Appendices B and BB outline case studies of money laundering and terrorist financing. In addition, the FIS also publishes via the GFSC’s website other typologies and case studies. There are reporting procedures prescribed by the Regulations and FIs have been provided with guidance regarding the manner of reporting (Regulation 6 of the Regulations, and Section 109 together with Appendix I of the Notes. There is no requirement in law or in the Notes that a standard form of STR be used, since the Notes state that “[i]t would be of great assistance to the FIS if disclosures were made in standard form” (Appendix I, Part 5, first bullet). However, the States Assembly (Parliament) has approved in principle the enactment of legislation that would allow the Committee to prescribe by regulation the form and manner in which STRs may be made (Clause 5(1) of the Draft Miscellaneous Provisions Law). This law will be presented to the States Assembly for approval in early 2004. 18. The FIS does not have the power in law to demand additional information from reporting parties. According to the authorities, in practice it does request such information and in most cases the required information is provided. In addition, FIs, relying on Tournier v. National Provincial and Union Bank of England (1924), are permitted to disclose information in order to protect the public and their own interests. If the requisite information fails to be forthcoming, the FIS may seek to obtain a production order in serious or complex fraud cases from the Attorney General (Section 1 of the Fraud Investigation Law) or in other types of cases from a judge (Sections 45 and 46 of the POC Law, Sections 63 and 64 of the DT Law, and Section 36 and schedule 5 of the Terrorism Law). To obtain a production order there must be reasonable grounds for doing so and depending on the legislation other criteria may also need to be met prior to the order being granted. Finally, the Draft Miscellaneous Provisions Law (Clause 5(2) states that regulations made under the Law may provide that such regulations may include a request as part of the STR form to the submitter of an STR to provide additional information. 19. Real time searches are possible on the Customs and Police databases by virtue of the fact that the FIS is staffed by Police and Customs Officers. Immigration details are also available as the Immigration Department is under the same management structure as the Customs Department and has a common Chief Officer. The FIS is able to search using the Police National Computer. The FIS also has access to records such as vehicle registration, company records, court judgments, passport, land and property title documents, and many other government departments. In addition, the Draft Miscellaneous Provisions Law (Clause 21) provides that the States Income Tax Authority will be permitted to disclose information for the purpose of, for example, facilitating a determination of whether any criminal investigation should be initiated or terminate (Clause 21 2)(e). The FIS also subscribes to commercial databases through which credit reporting and other records can be obtained. The FIS can call for an individual’s credit records for a fee through the various commercial databases it subscribes to. In addition, the FIS liaises with the GFSC’s Fiduciary Services and Enforcement Division in order to obtain information from the GFSC. 20. Although the FIS is not authorized by law to order sanctions or penalties, the GFSC may do so under its broad administrative powers with respect to FSBs. See response to Criterion 5. With respect to criminal sanctions, failure to disclose knowledge or suspicion of ML connected with drug trafficking is an offense punishable with up to five years imprisonment (Section 60 of DT Law). Failure to disclose knowledge or suspicion of other crimes is not currently an offense but will become so in the near future (Sections 1 and 2 of Draft Miscellaneous Provisions Law). 21. The FIS is authorized to disseminate financial information and intelligence to domestic authorities for investigation when there are grounds to suspect ML or FT (Section 43 of the POC Law). The FIS routinely disseminates intelligence to various agencies within Guernsey for the purposes of the investigation of crime in Guernsey whether on its own initiative or upon request. 22. The FIS is authorized to share financial information, either on its own initiative or upon request, outside Guernsey with respect to all crimes other than drug trafficking and terrorism (Section 44(1) of the POC Law) and, according to the authorities, common law would so allow for other disclosures. The FIS primarily exchanges intelligence with other FIUs within the Egmont Group. The FIS also seeks to enter into memoranda of understandings with other FIUs should this be a requirement of their domestic legislation in order to facilitate an exchange of intelligence (although the FIS locally does not have any such pre-condition in order to cooperate with third parties), such as Belgium and France. There are adequate safeguards to protect any information disclosed outside Guernsey under the POC Law (Section 44(1) of the POC Law). Information may be exchanged outside Guernsey for the purposes of the investigation of crime or criminal proceedings to a ‘competent authority.’ In general, information exchanges by law enforcement authorities are governed by codes of practice, such as the Intelligence Material Code of Practice, and the DP Law. The codes of practice set out procedures for the recording and dissemination of information. In addition, the codes set out the principles that govern these functions, which, for example, require that where it is necessary to keep the source of intelligence confidential, a record will be kept separately of the source’s identity. Under the Data Protection Law, law officers are required to undertake risk assessments prior to intelligence being released externally. The risk assessment is required to consider issues such as the source, subject and content of the intelligence paying due regard to the human rights and security of all concerned, while taking into account the jurisdiction to which the material may be sent. For example, the eighth principle of the DP Law prohibits the transfer of personal data outside Guernsey unless that country “ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data” (para. 8, Part I, schedule I of DP Law). 23. Statistics are kept by FIS as part of its function relating to amounts of property frozen, seized and confiscated relating to proceeds of crime, drug trafficking, money laundering and financial terrorism.
	2000	2001	2002
Number of Disclosures	482	605	777
• STRs resulting in investigation, prosecution, or convictions; Statistics and records are kept. There is a number of ongoing money laundering investigations. However, no company or person has been convicted of Money Laundering in Guernsey. • Requests for assistance received by the FIS or other competent authorities, from both domestic and foreign authorities, as well as the number of responses provided to the requests received; The FIS maintains good records in relation to this information.
Example:
	2000	2001	2002 (Half Year)
Request for Assistance	154	170	139
Of which:
Internal	84	87	90
External	70	83	49
• Spontaneous referrals made by the FIU or other competent authorities to both domestic and foreign authorities; Records are kept on all referrals made by the FIS to other competent authorities. Following examination of STRs the FIS refers most of them (50-60 percent) to NCIS. If the STR referred to a resident of Ireland for example. The STR would be forwarded to the FIU in Ireland. • If the jurisdiction requires the reporting of large currency transactions, statistics should be kept on the number of reports filed. The Bailiwick of Guernsey has no legislation which requires reporting large currency transactions. However cash seizures occur under the Drug Trafficking (Bailiwick of Guernsey) Law 2000. This law covers the seizure and detention of cash both import and export. It empowers Law Enforcement/Customs and Excise to forfeit and confiscate cash on a civil standard of proof i.e. the balance of probability in respect of cash suspected to be involved in drug trafficking. A soon to be enacted Miscellaneous Provisions Law will provide for the seizure of cash on an ‘all crimes’ basis. 24. The FIS as currently structured and funded is capable of performing its functions, however it is not working at maximum capacity due to shortage of staff as outlined in Criteria 6 and a dramatic increase in work load (the number of STRs rose by 100 percent over last 5 years). The FIS requires two further Financial Investigators, to bring the unit to the recommended and approved strength and the support of a Financial Analyst and an administrative assistant. Following a review of the FIS’s first year of operations the Service Authority recommended to the Chief Officers (Police and Customs) that the resources allocated to it be increased. In addition, the Service Authority also sought additional increases in staff to their respective Commercial Fraud Departments. The Chief Officers supported the recommendations and subsequently obtained the necessary approval of the relevant Government departments to increase the FIS’s staff and that of the Custom & Excise Fraud and International team. In addition, the Chief Officer of Police secured a five year housing license for a former Metropolitan Police Financial Investigator who is now supplementing the established complement of the Police’s Fraud and External Affairs Department. The Director of FIS is accountable to the Chief Officers of Police and Customs and Excise through the Service Authority. The Director of FIS manages the operations/investigations and ensures that its functions are properly executed. All staff appointed to FIS from Police/Customs and Excise, are on a fixed tenure basis. The organizational structure is of high standard, with very good work practices. Where the FIS becomes aware of an institution’s failure to report suspicions, the FSC is informed. The Guernsey FIS/FIU unit has sufficient independence and autonomy to ensure its functions are performed without interference on its day to day activity as it is controlled and directed by a Director whose position allows a certain amount of independence for Police and Customs and Excise. The situation with all law enforcement FIS/FIU there are matters and decisions to be made from time to time that require advice from the law officers or senior personnel within the Police Authority and Customs Authority, which is readily available to the Director. The procedures used in recording analyzing and disseminating information ensures that the information and intelligence is properly protected and lawfully disseminated to investigation units or exchanged with international law enforcement authorities in accordance with the laws of the Bailiwick of Guernsey. The FIS/FIU publishes from time to time articles in the Compliance Officers Association Newsletter and on the Guernsey Financial Commission website on its role, statistics, typologies and trends. The unit submits periodic reports to the Egmont website. The FIS submits an annual report to the Bailiwick Financial Crime Committee. A less detailed version of the report was circulated to other external bodies and interested parties.
Analysis of Effectiveness
Arrangements for processing, receiving, analyzing, and disseminating financial information are generally adequate. The framework would be strengthened if the law required the reporting of suspicious transactions to the FIS, made failure to report, a crime and gave the FIS the power to require additional information from reporting parties without a production order. The general arrangements would also be strengthened if the staff complement of the FIS was increased by at least two persons.
Recommendations and Comments
Legislation should be adopted along the lines of the Draft 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. In addition, legislation should be considered along the lines of the Draft Miscellaneous Provisions Law (Section 5) to provide that STRs should be submitted to the FIS on a form to be prescribed by law, with appropriate penalties. This draft law is expected to be considered by the States Assembly by the end of 2003. Finally, consideration should be given to providing authority in law to the FIS to require additional information from reporting parties, without the need to meet the burden of proof required for a production order. The provision in the Draft Miscellaneous Provisions Law that such regulations may include a request as part of the STR form to the submitter of an STR to provide additional information does not appear to be sufficient for this purpose. Consideration should be given to amending the relevant laws to provide explicit legal authority for the GFSC to issue guidance notes. The Guernsey authorities should implement plans to increase the staff of the FIS by two intelligence officers as soon as is practicable.
Implications for compliance with FATF Recommendations 14, 28, 32
Compliant
IV—Law enforcement and prosecution authorities, powers and duties (compliance with criteria 25-33)
Description
25. The responsibility to ensure that ML and FT offenses are properly investigated rests with the Police and Customs and Excise. The FIS/FIU is also able to carry out this task as it is staffed with personnel from Police and Customs and Excise. Prior to obtaining/serving production orders or warrants, the consent/authority of a Law Officer is required. The structure of Law Enforcement ensures that all offenses are properly investigated. 26. The use of covert and investigative measures are permitted by common law and governed by codes of practice (internal guidelines) issued by the Police and Customs. Courts in Guernsey have accepted the use of a wide range of investigative techniques, such as controlled delivery, undercover operations and covert and intrusive surveillance. The States of Guernsey have agreed in principle to the enactment of a law based upon the UK’s Regulation of Investigatory Powers Act 2000. The proposed law will provide for the interception of communications, the carrying out of surveillance, and the use of covert intelligence sources. The UK Act does not contain provisions relating to controlled deliveries, and therefore such provisions are not contained in the Guernsey proposal. The Guernsey FIS/FIU and other law enforcement units tasked with enforcing ML and FT matters use all investigative techniques including covert, overt and intrusive measures that are legally at their disposal in the Bailiwick of Guernsey. These matters are dealt with on a case by case basis and the investigation teams consult regularly with their Attorney General for directions and advice. 27. Law enforcement authorities are able to compel production of bank records and other records maintained by FIs through lawful process (Sections 45 & 46 of the POC Law; Sections 43 & 44 of the Terrorism Law). Law enforcement authorities are also able to compel production of bank records and other records maintained by FIs through lawful process (Sections 45 & 46 of the POC Law; Sections 63 and 64 of DT law; Section 36 of the Terrorism Law and Section 1 of the Fraud Investigation Law). 28. The FIS/FIU is an inter-agency type unit, therefore “Task Force” style enquiry teams, are a regular feature of how Guernsey investigate/prosecute ML/FT and predicate offenders, where the need arises. There is a culture of partnership work and clear understanding that this style of enquiry team is necessary to achieve results in complex investigations of ML/FT. 29. This has been addressed at Criteria 24 and I am satisfied that the FIS/FIU Service Authority conduct reviews annually which has resulted in increased resources of FIS/FIU and commercial fraud departments of Police and Customs and Excise. Resources are in place to prosecute/enforce the legal means for effective implementation of the ML and FT laws. It is however clear that the number of STRs and external request for assistance in relation to ML and FT continue to increase annually. The Islands Authorities should therefore continue to review and support requests from the FIS’s Service Authority for any additional resources that are considered necessary to maintain current levels of effectiveness. The FIS/FIU have secured some funding and consultants to develop their IT needs, those being the need for a rationalization and introduction of a new computer system in order to enhance and streamline their capabilities of monitoring the receipt, analysis and dissemination of STRs which will benefit them in their overall investigations. 30. Statistics of the number of ML and FT investigations, prosecutions and convictions where the investigation was initiated on the basis of an STR are recorded, by FIS. Due to lack of feedback from Foreign Jurisdictions to the Bailiwick of Guernsey, the FIS/FIU is unable to give an accurate figure in respect of convictions for ML and FT investigations. Despite several money laundering investigations, no domestic prosecution has taken place in Guernsey. Following the arrest/charge of persons for predicate offenses, a preliminary financial investigation is carried out in every case where an offender is being tried on indictment. This investigation is conducted in order to aid the gathering of additional evidence to support the predicate offense and also to ascertain if the criminals concerned have benefited financially from criminal conduct and have assets that could be confiscated. 31. The Guernsey FIS and Law Enforcement units examine typologies and trends on regular reviews on an interagency basis in the financial crime group and terrorist financing team and new typologies or trends identified are then disseminated to the operational people at the coal face and in a limited number of cases new typologies may well be published via the Commissions website. 32. Members of the FIS are skilled in the administrative, investigative, prosecutorial and judicial aspects of enforcing the law on ML and FT. All law enforcement officers have undergone training that’s available to financial investigators in the UK. Additionally local training courses are conducted to increase the investigation/technical knowledge that is needed in Guernsey, e.g., areas relating to trust funds. The key personnel appear to have all the skills and technical knowledge to enable them to perform their functions adequately and are in a position to train and pass on their skills. Officers are encouraged to attend lectures given on the Bailiwick from the private sector. Law enforcement personnel in the Bailiwick of Guernsey are professional in their approach, to tracing property suspected of being the proceeds of crime or used in the finance of terrorism and they are skilled in obtaining seizure, freezing and confiscation orders to remove those assets. A number of officers in the Guernsey FIS/FIU units have undergone special training in financial investigations and have obtained accreditations on a level of the financial investigators provided by the Home Office Center of Excellence in the UK. 33. The Financial Crime Committee and the Financial Crime Group play an important role in providing advice and guidance on best practices to the FIS. This includes guidance that is based on evolving international standards and best practice. Additionally the Bailiwick of Guernsey law enforcement publish their financial crime strategy annually, which is circulated to all relevant parties including the Attorney General’s chambers and the Commission. This document identifies problems encountered and indicates how they were addressed. In order for the authorities and investigation units of the Bailiwick of Guernsey to be successful, the personnel involved attend international conferences to keep themselves abreast of current trends of combating money laundering and identifying methodologies used to finance terrorism, The law enforcement agents in the Bailiwick of Guernsey make use of the partnership approach, to identifying proceeds or property to finance terrorism.
Analysis of Effectiveness
The general framework for the powers and duties of law enforcement and prosecution authorities is considered to be adequate. The framework would be strengthened if sufficient funding were made available for technical support requirements of the FIS and if the planned legislation on investigatory powers included provision for controlled delivery.
Recommendations and Comments
Consideration should be given to including controlled delivery in the proposed legislation on investigatory powers. Funding should be made available for the development of the FIS’ IT resources. This technical support is essential for its future effectiveness and success especially in light of the continuing increase in STRs.
Implications for compliance with the FATF Recommendation 37
Compliant
V—International Cooperation (compliance with criteria 34-42)
Description
34. There are laws and procedures which provide for mutual legal assistance regarding the use of compulsory measures including the production of records, search of persons and premises (Sections 4 & 7 of the CJIC Law). The following laws allow for the widest possible range of mutual legal assistance in AML/CFT matters: The Fraud Investigation Law, Section 1; The POC Law, Sections 45 and 46; The DT Law, Sections 63 and 64; The Terrorism Law, Section 36 and schedule 5, paras. 1 and 4; The CJIC Law, Sections 4 and 7; The Terrorism Order, Article 10; and The Al-Qa’ida Order, Article 18. Production orders or warrants may be issued to obtain records from FIs or private individuals (section 1 of the Fraud Investigation Law, sections 45 and 46 of the POC Law, sections 63 and 64 of the DT Law and section 36 and schedule 5 of the Terrorism Law). If a warrant is issued searches may be made of business premises and private dwellings. These laws do not contain provisions which compel persons to make witness statements for use in court proceedings. However, in practice many financial services businesses permit their employees to make full witness statements. Testimony under oath for use in another jurisdiction can be obtained under section 4 of the CJIC Law in connection with all types of criminal investigations and prosecutions. Search warrants can be obtained under section 7 of the 2001 Law. The only restriction is that, before a warrant is issued, it must be shown that the conduct constituting the offense under investigation would have constituted a criminal offense punishable with imprisonment if it had occurred in Guernsey. There are appropriate laws and procedures relating to the following: (i) Production or seizure of information: Section 1 the Fraud Investigation Law; Sections 45 and 46 of the POC Law; Sections 63 and 64 of the DT Law; Section 36 and schedule 5 of the Terrorism Law; and Sections 4 and 7 of the CJIC Law. (ii) Taking of statements: Witnesses are required to provide information and documents (the Fraud Investigation Law (Section 1), POC Law (Section 45), DT Law (Section 63) and Terrorism Law (Section 36 and schedule 5 (para. 4). They cannot be required to make formal witness statements under the law of the requesting state. However, many FIs do allow their employees to make formal witness statements under the law of the requesting state. In cases where a formal witness statement is not made, evidence under oath which can be used in a foreign court can be obtained in connection with all types of criminal investigation under section 4 of the CJIC Law. (iii) Identification, seizure etc: The identification of assets can be achieved under the legislation referred to under (i) above. The freezing and confiscation of assets may be achieved under Part I of both the POC and DT Laws, and Section 18 and schedule 2 of the Terrorism Law. The provisions of section 8 of the CJIC Law may be used to freeze instrumentalities. Assistance may be provided in connection with criminal proceedings or criminal investigations (Section 4 of the CJIC). Assistance may also be provided in investigations and proceedings where persons have committed both the money laundering and the predicate offense under the provisions of sections 45 and 46 of the POC Law, sections 63 and 64 of the DT Law and sections 4 and 7 of the CJIC. 35. The Guernsey FIS has procedures and structures in place that use all available legislation to provide assistance to foreign authorities on the question of international investigation of ML/FT. The publication entitled “Mutual Legal Assistance” and the Bailiwick of Guernsey clearly sets out guidelines and notes, to obtain mutual legal assistance in Guernsey. In order that mutual assistance is achievable the FIS/FIU in Guernsey is capable of sharing information and intelligence with FIUs in other jurisdictions as they are members of the Egmont Group. There is no impediment within the Bailiwick of Guernsey and their legislation makes no distinction in the mental element of an offense and does not preclude assistance being given by the Bailiwick of Guernsey. Therefore dual criminality is not a precondition in mutual legal assistance. Arising from statistics produced, all appropriate efforts are taken by the investigation agencies in the Bailiwick of Guernsey to provide a uniform and effective response to requests. It is obvious from the statistics that the investigation units in Guernsey respond to follow-up requests in the most expeditious manner possible. Statistics on request are by the FIS and other relevant agencies. 36. On September 30, 2002, a letter was lodged with the Council of Europe by the United Kingdom’s representative to the Council indicating that the 1990 Convention on Money Laundering etc., will extend to Guernsey as from 1 January 2003. On 15 August 2002, Guernsey’s authorities asked by letter that the United Kingdom seek ratification on Guernsey’s behalf of the United Nations Convention for the Suppression of Terrorist Financing. Ratification will be sought for the Palermo Convention, the Council of Europe Convention on Corruption and the OECD Convention on Corruption as soon as the necessary legislation has been passed by the States of Guernsey. The FIS has MOUs with TRACFIN in France and CTIF in Belgium. Generally, however international cooperation is supported through informal mechanisms. The GFSC has entered into a number of MOUs. Please refer to the response to criterion 67 for further details. However, the GFSC does not require an MOU to have been executed with foreign supervisors/regulators or law enforcement bodies before exchanging information with them. 37. According to the authorities, the law enforcement authorities are permitted under common law to exchange information regarding the subjects of investigations with their international counterparts. No agreements or MOUs are needed for this purpose. Appropriate statistics are maintained, however information on the resolution of cases is not up to date. This is due in part to poor feedback from the requesting countries. 38. Law enforcement authorities in Guernsey are able freely to cooperate with investigations being conducted in other jurisdictions. Foreign investigators are able to come to Guernsey and accompany local officers when production orders and warrants are served. Although not expressly provided by statute, controlled deliveries, particularly in connection with drug trafficking, are used in connection with enquiries. Production orders in fraud investigations are issued by the Attorney General (section 1(2) of the Fraud Investigation Law). Production orders issued under section 45 of the POC Law, section 63 of the DT Law and section 36 and schedule 5, paragraph 4 of the Terrorism Law are issued by a judge. In all cases warrants are issued by judges (section 1(4) of the Fraud Investigation Law, section 46 of the POC Law, section 64 of the DT Law and section 36 and schedule 5, paragraph 1 of the Terrorism Law). 39. The authorities in the Bailiwick of Guernsey are more than anxious/capable to coordinate action locally and internationally to coincide with law enforcement action in any jurisdiction. On the question of sharing of confiscated assets there is no legislation in Guernsey for the sharing of assets, however, the Bailiwick of Guernsey has on a case by case basis entered into agreements to share assets with other jurisdictions, for example assets voluntarily repatriated to the USA where a proportion has been shared with the Bailiwick of Guernsey. Guernsey law enforcement authorities have partaken in joint investigation teams with other jurisdictions. This involved the execution of warrants in Guernsey simultaneously with law enforcement conducting operations elsewhere. 40. The Extradition Act 1989 (United Kingdom) as extended to Guernsey permits the extradition of those wanted in other jurisdictions for money laundering and terrorist financing offenses. All persons resident in Guernsey, if wanted in connection with criminal activity in another jurisdiction, are liable for extradition under the Extradition Act 1989. 41. Guernsey’s Immigration Act sets out certain requirements for non-European nationals wishing to take up residence in the Bailiwick. If immigration officials are satisfied that applicants are not conducive to the public good for permanent residency in Guernsey they are refused admission. Special Branch and customs officers monitor all persons arriving in Guernsey and are familiar with any wanted posters on criminals or on known terrorist or suspected terrorists. Therefore these persons are closely monitored and policed at points of entry to Guernsey. Any person identified with residence in Guernsey who is wanted in connection with a terrorist related crime is liable to extradition under the provisions of the Extradition Act 1989. Any foreign national from outside the EU area of common travel is required to seek permission to enter or leave the island and in a number of cases a visa is required by foreign nationals before permission is granted for them to enter the island. Prior to the granting of such visa all law enforcement data based on criminal/terrorism connections will be examined in order for the authorities to make a decision. 42. Guernsey has adequate resources that are committed to fully investigating and dealing with requests for assistance from other jurisdictions that are involved in the international fight of money laundering and financing terrorism.
Analysis of Effectiveness
There is an adequate framework for international cooperation.
Recommendations and Comments
Implications for compliance with FATF Recommendations 3, 32, 33, 34, 37, 38, 40, SR I, SR V
Compliant

Assessing preventive measures for financial institutions

30. In order to assess compliance with the following criteria assessors must verify that: (a) the legal and institutional framework are in place and (b) there are effective supervisory/regulatory measures in force that ensure that those criteria are being properly and effectively implemented by all financial institutions. Both aspects are of equal importance.

Table 5.

Detailed Assessment of the Legal and Institutional Framework for Financial Institutions and its Effective Implementation

Table 5.

Detailed Assessment of the Legal and Institutional Framework for Financial Institutions and its Effective Implementation

I—General Framework (compliance with criteria 43 and 44)
Description
43. There is no obligation of secrecy or confidence or other restriction on the disclosure of information related to money laundering or the proceeds of criminal activity (Section 1 of the 1995, 1998 & 2001 Laws). It is an implied term of the contract between a banker and his customer that the banker will not divulge to third persons, without the express or implied consent of the customer, either the state of the customer’s account, transactions made etc. unless the banker is compelled to do so: on order of a Court; the circumstances give rise to a public duty of disclosure; or the protection of the bank’s own interests requires it (Tournier v. National Provincial and Union Bank of England [1924] IKB461). Guernsey laws contain provisions which state that a person does not breach any confidentiality obligations when a disclosure is made to a police officer (Sections 39(3) (b) and 40(5) (b) of the POC Law; Sections 58(3) (a) and 59(5) (a) of the DT Law; Section 16 of the Terrorism Law; and Section 1 of the 1995 Law). 44. The Commission Law provides the GFSC with general powers to combat money laundering, the financing of terrorism and financial crime, as follows: 2. (2) The general functions of the Commission are: (d) the countering of financial crime and of the financing of terrorism; and in this paragraph “financial crime” includes any offense involving . . . (i) fraud or dishonesty; (ii) misconduct in, or misuse of information relating to, a financial market; or (iii) handling the proceeds of crime. . . . 4. In the exercise of its functions the Commission may take into account any matter which it considers appropriate, but it shall in particular have regard to - (a) the protection of the public interest, including protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons carrying on finance business; and (b) the protection and enhancement of the reputation of the Bailiwick as a financial center. The GFSC is the sole agency in Guernsey responsible for supervision of FSBs.
Analysis of Effectiveness
Guernsey has an adequate mechanism for the implementation of its AML/CFT framework. The GFSC has authority to ensure effective implementation of AML/CFT policies for all regulated FIs. While the GFSC has power under the Regulations to monitor compliance of businesses that engage in bureau de change activities, check cashing and money transmission services (“MSBs”). It does not currently have the authority to regulate MSBs, except to the extent that a bank or other regulated financial institution engages in such activities.
Recommendations and Comments
Consideration should be given to enacting a law to regulate MSBs.
Implications for compliance with FATF Recommendation 2
Compliant
II—Customer identification (compliance with criteria 45-48 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 68-83 for the banking sector, criteria 101-104 for the insurance sector and criterion 111 for the securities sector)
Description
45. The Regulations require FIs to establish and maintain procedures for customer identification (Article 3). However, the Regulations contain no explicit requirement that such procedures be followed by FIs, although such a requirement is clearly implied from the language of the Regulations. While there is no explicit requirement in law prohibiting anonymous accounts or accounts in fictitious names, Regulation 3(1) of the Regulations requires customer identification for the forming of a business relationship, a significant one-off transaction (over £10,000), or two or more linked transactions. Paragraph 67B of the Notes states that, FSBs must not open or operate financial services products held in obviously fictitious names. Anonymously operated financial services products should similarly not be allowed 46. FIs are required to identify their customers whether long term or occasional over a specified threshold, on the basis of evidence of identity which is reasonably capable of establishing that the applicant is who he claims to be and record the identity (Regulation 3 of the Regulations; see also Sections 38, 39 & 75 of the Notes). While legal entities are covered by the customer identification requirements of the Regulations as they are for any applicant for business (Regulation 3 and Section 2 of the Interpretation Law), there is no explicit provision in law relating to obtaining information on (a) the legal entity’s legal form and directors; (b) whenever it is necessary, in order to know the true identity of the customer, requiring FIs to request information from the customer concerning the principal owners and beneficiaries; and (c) provisions regulating the power to bind the entity, and requiring FIs to verify that any person purporting to act on behalf of the customer is so authorized, and to identify those persons. Paragraph 38 of the Notes states that: “A financial services business undertaking verification should establish to its reasonable satisfaction that every verification subject relevant to the application for business actually exists. All the verification subjects of joint applicants for business should normally be verified. However, where the guidance implies a large number of verification subjects it may be sufficient to carry out verification to the letter on a limited group only, such as the senior members of a family, the principal shareholders, the main directors of a company, etc.” Paragraph 75 indicates that valid passports, national and armed forces identity cards and drivers’ licenses with photographs are the best form of identification. The paragraph indicates that documents which can be easily obtained such as birth certificates, credit and business cards, national health or insurance cards, provisional drivers’ licenses and student union cards should not be accepted uncritically. Paragraphs 84 and 85A of the Notes indicate that the relevance and usefulness of the following documents should be carefully considered: certificate of incorporation; details and identification documentation of beneficial owners; Memorandum and Articles of Association; Powers of Attorney (including identification documentation); and resolution, bank mandate, signed application form or any valid account-opening authority, including full names of all directors and their specimen signatures. Paragraph 62 of the Notes stresses that, “the best time to undertake verification is not so much at entry as prior to entry.” Wherever possible, verification should be completed before any transaction is undertaken. Paragraph 30 of the OPP indicates that relationships should be reviewed for any deficiency in verification documentation following the occurrence of a trigger event. Appendix 2 lists a number of possible trigger events. There is no specific requirement to record the customer’s identity when undertaking transactions over a specified threshold. Paragraph 141C of the Notes deals with Powers of Attorney and states: “Verification should be made on the holders of Powers of Attorney as well as the client, and financial services businesses should ascertain the reason for the granting of the Power of Attorney.” Paragraph 39 indicates that a financial services business should primarily carry out verification in respect of the parties operating the financial services product. Where there are underlying principals, however, the true nature of the relationship between the principals and the signatories should be established and appropriate enquiries performed on the former, especially if the signatories are accustomed to act on their instruction. In this context principals should be understood in its widest sense to include, for example, beneficial owners, settlors, controlling shareholders, directors, major beneficiaries etc, but the standard of due diligence will depend on the exact nature of the relationship. Paragraphs 57-60 of the Notes outline practices to be followed where “reliable introductions” are used. Under the regime a reliable introducer may maintain introduction records but must undertake to supply copies of such records to the FSB on demand. The language “the relevance and usefulness …of the following documents… should be carefully considered” does not clearly indicate what standard the GFSC expects licensees to meet. The GFSC has issued draft revised Notes which will address this concern. Guernsey, the Isle of Man and Jersey have jointly issued a paper outlining the direction to be taken in the AML legal and regulatory frameworks in each jurisdiction. This paper which does not replace the existing Guidance Notes focuses on issues related to the verification of customer identity. Among the many aspects of identity verification addressed in the paper are the issues of introduced business and the verification of identity of customers whose relationship with financial institutions pre-dates the all-crimes anti-money laundering legislation (Progressive Program). Unlike the existing framework where an introducer can hold verification documents to be made available to the “accepting party” on request, the paper envisages that an “accepting party” will always hold either originals or copies of these documents. In terms of the Progressive Program the paper envisages that where FIs discover any deficiencies in existing verification documents they should seek to obtain necessary information to address the deficiency. It proposes that this work be undertaken on the basis of risk prioritization and trigger events. 47. FIs are required to take reasonable measures to obtain information about the true identity of applicants who appear to be acting otherwise than as principals (Regulations 3 and 4 of the Regulations; see also Section 48 of the Notes). With respect to “an applicant for business that is or appears to be acting otherwise than as principal” (Regulation 4(1), Regulation 4(2) states that “[i]dentification procedures maintained by financial services businesses in respect of applicants to whom this paragraph applies shall require reasonable measures to be taken (as prescribed in the Notes) for the purpose of establishing the identity of any person on whose behalf the applicant for business is acting.” Paragraph 38 of the Notes states that, a financial services business undertaking verification should establish to its reasonable satisfaction that every verification subject relevant to the application for business actually exists. Paragraph 48 of the Notes adds that: Where a financial services business suspects that there may be an undisclosed principal (whether individual or corporate), it should monitor the activities of the customer to ascertain whether the customer is in fact merely an intermediary. If a principal is found to exist, further enquiry should be made and that principal should be treated as a verification subject. A financial services business should also consider carefully whether the existence of an undisclosed principal raises suspicion that it is dealing with the proceeds of criminal conduct. 48. There is no provision of law that requires FIs to include accurate and meaningful originator information on funds transfers and related messages that should remain with the transfer or related message through the payment chain. Originator information should include name, address, and account number (when being transferred from an account). The Commission has issued draft revised Regulations and Notes for consultation which will incorporate provisions on funds transfers and other messages into legislation. The Notes do not explicitly provide for recording originator information, but Section 126 refers to the retention of records for electronic or wire transfers with sufficient detail to enable the identification of the remitting customer and “as far as possible” the identity of the ultimate recipient. The section also requires that in all cases wherever possible the originator’s details should remain with the transfer or related message throughout the payment chain. Full records of the originating customer and address should be retained by the financial services business. Institutions visited generally had comprehensive procedures for verification of customer identity. In most cases there were more stringent requirements in respect of persons from Non-Appendix C countries. All institutions required the verification of identity of beneficial owners. In general the procedures adopted by institutions complied with the requirements of the Notes. None of the procedures reviewed covered the “progressive programme” of verification (i.e. verification of identity for persons who were customers of financial institutions prior to the enactment of money laundering legislation. There were also varying approaches adopted by institutions in respect of the progressive programme.
Analysis of Effectiveness
Measures in place for the verification of the identity are generally adequate although there are some concerns. relating to instances in which the language of the Notes could be strengthened to better communicate the standard which the Commission expects of licensees, the program for introduced business and the variation in practices used by institutions in relation to the progressive program for verification of customer identity.
Recommendations and Comments
The relevant laws should be amended to explicitly require that customer identification procedures be followed. The language of paragraph 84 and 85A “the relevance and usefulness …should be carefully considered” as well as the language of paragraph 75 “documents that can be easily obtained …should not be accepted uncritically” should be amended to clearly communicate the standard that is expected of FSBs. The GFSC has issued draft revised Guidance Notes for consultation which will address this concern. Since the Notes require the originator details to remain with the transfer throughout the payment chain, it is recommended that they be clarified and strengthened to specifically require the inclusion of the information in the first place. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The GFSC should communicate to banks that decisions taken on establishing relationships with higher risk customers should be taken by senior management. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The exception provided in section 63 which provides that a senior staff member may give appropriate authority to open an account where identity has not been verified is vague and should be redrafted to clarify the kind of circumstances in which the GFSC expects this discretionary power to be used. The GFSC has issued draft revised Notes for consultation which will address this concern. The GFSC has already undertaken considerable work to direct FSBs towards the customer identification standards required by the Position Paper. It is nevertheless recommended that these efforts be redoubled to ensure a greater degree of consistency in the approach adopted by licensees.
Implications for compliance with FATF Recommendations 10, 11, SR VII
Full compliance will be achieved when FSBs have immediate access to all customer verification documents under the regime for introduced business.
III—Ongoing monitoring of accounts and transactions (compliance with Criteria 49-51 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 84-87 for the banking sector, and criterion 104 for the insurance sector)
Description
49. Although Regulation 6(2) of the Regulations requires an STR be filed if there is “knowledge or suspicion that another person is engaged in money laundering or that he is providing financial assistance for terrorism . . .” there is no explicit legal requirement that FIs should pay special attention to all complex, unusual large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose, to examine as far as possible the background and purpose of such transactions, to set forth their findings in writing, and to keep such findings available for competent authorities. The Commission has issued revised draft Regulations for consultation which will address this concern. Paragraph 22 of the Notes states that:
Vigilance systems should enable key staff to react effectively to suspicious occasions and circumstances (for example, complex, unusual, large transactions and all unusual patterns of transactions which have no apparent economic or visible lawful purpose) by reporting them to the relevant personnel in-house and to receive training from time to time from the FSBs to equip them to play their part in meeting their responsibilities. Paragraph 25 of the Notes indicates that “financial servive businesses may find it useful to delegate responsibility for maintaining vigilance policy to a prevention officer. Rather than reserve to the reporting officer all such day-to day responsibility.” Paragraph 92 and Appendix G of the Notes provide general examples of unusual or questionable patterns of activity which should give rise to suspicion. This is supplemented by industry-specific examples of suspicious transactions in Part 4 of the Notes. In addition, Appendices B and BB provide real life case studies of laundering schemes uncovered and examples of terrorist financing. There is no specific requirement for concerns to be put in writing, and kept available for competent authorities although draft revised regulations issued by the Commission for consultation, include such a requirement. However paragraph 97 indicates that key staff should be required to report suspicion of money laundering. An appendix to the Notes provides examples of reporting forms. 50. There is nothing in the law that requires FIs to give special attention to business relations and transactions with persons (including legal entities and other financial institutions) in jurisdictions that do not have adequate systems in place to prevent or deter ML or FT. If those transactions have no apparent economic or visible lawful purpose, the background and purpose of such transactions should, as far as possible, be examined, and written findings should be available to assist competent authorities such as supervisors, law enforcement agencies and the FIU, and auditors. The Commission has issued draft revised Regulations for consultation which will address this concern. Appendix C of the Notes refers to sensitive jurisdictions and states, that from time to time the Commission issues Business from Sensitive Sources Notices (BSSNs). Transactions to or from the jurisdictions specified in such Notices should be subject to a greater level of caution.” The Commission has issued four BSSNs which have dealt with terrorism, FATF Noncooperative Countries or Territories and other key issues. Business from Sensitive Sources Notice 4 was circulated to financial services businesses on August 22, 2002 and this highlights FATF’s work to identify noncooperative countries and territories (NCCT’s). It states that: The Commission encourages money laundering reporting officers and other interested parties to visit FATF’s website and apprise themselves of FATF’s work on NCCT’s. Financial services businesses should take particular account of the descriptions of the AML systems of all of the jurisdictions considered in the review and FATF’s current attitude to those jurisdictions. In the Commission’s Position Paper entitled ‘Overriding Principles for a Revised Know Your Customer Framework’ jointly issued by the three Crown Dependencies the importance of risk prioritization and monitoring was acknowledged. Appendix 2 of the Position Paper gives guidance on risk profiling and trigger events and indicates that issues such as the geographical origin of the customer or the customer’s activities should be taken into account. There is no specific requirement for concerns to be put in writing, and kept available for competent authorities. The authorities have issued draft revised Notes for consultation which will address this issue. 51. There is nothing in the law that requires FIs to give enhanced scrutiny to wire transfers that do not contain complete originator information. The GFSC has issued draft revised regulations for consultation which will address this concern. Paragraph 135 of the Notes states that vigilance should govern all stages of a bank’s dealings with its customers and this includes transactions into and out of accounts generally, including by way of electronic transfer (wire transfer). Paragraph 126 of the Notes states that: In the case of electronic transfers (or wire transfers), financial services businesses should retain records of payments made with sufficient detail to enable them to establish the identity of the remitting customer, and, as far as possible, the identity of the ultimate recipient. In all cases wherever possible the originator’s details should remain with the transfer or related message throughout the payment chain. Full records of the originating customer and address should be retained by the financial services business. While the procedures used by institutions visited addressed the issue of suspicious transaction reporting, in a number of instances the issue of first understanding a customer’s likely pattern of activity was not satisfactorily addressed. All procedures gave examples of suspicious transactions. Most institutions provided staff with information on jurisdictions considered to have weak AML/CFT frameworks.
Analysis of Effectiveness
There are generally satisfactory arrangements in place for the monitoring of transactions. However there are concerns with respect to enhanced scrutiny for wire transfers and the reporting of unusual or complex transactions. The GFSC has issued draft revised regulations for consultation which will address this concern.
Recommendations and Comments
Within the two-year period referred to by FATF, the relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer throughout the payment chain, and that FIs give enhance scrutiny to wire transfers that do not contain complete originator information. The GFSC has issued draft revised regulations for consultation which will address this concern. The language of paragraph 25 of the Notes “may find it useful … to delegate responsibility for maintaining vigilance policy” does not clearly indicate the standard that the Commission expects of licensees and should be amended. The GFSC has issued draft revised notes for consultation which will address this concern.
Implications for compliance with FATF Recommendations 14, 21, 28, SR VIII
Compliant re 14, 21 and 28. Compliance re SR VII will be determined at the end of the two year period established by FATF or at such time when required laws are in place.
IV—Record keeping (compliance with Criteria 52-54 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criterion 88 for the banking sector, criteria 106 and 107 for the insurance sector, and criterion 112 for the securities sector)
Description
52. FIs are required to retain each customer verification document in its original form for at least the minimum retention period (Regulation 5 of the Regulations). Regulation 10 defines ‘customer verification document’ as “a customer document obtained or created by a financial services business during a customer verification process,” and ‘minimum retention period’ as being six years. Regulation 5 of the Regulations imposes a requirement for all records to be maintained for such period. Paragraphs 122-129 of the Notes state what documents should be kept, for how long and cover records relating to verification. The Notes indicate that in order to facilitate any investigation it must be possible to follow the audit trail of the funds under question and this therefore necessitates adequate record keeping standards. The records must be in a readily retrievable form and must be able to be accessed without undue delay. The retention period for all records is the minimum retention period which is defined in the regulation as 6 years from the date of the last transaction. There is provision for the FIS to require an institution to keep a record until further notice. 53. The Regulations provide for retention of all customer documents, defined in Regulation 10 as any document “relating to a customer of a financial services business’ dealings with a customer or a person or entity acting on a customer’s behalf.” Although the term ‘dealings’ would appear to cover customer transactions, there is no explicit reference to customer transaction records in the definition. The GFSC has issued draft revised regulations for consultation which will address this concern. With respect to reconstruction of transaction records, the definition of ‘customer document’ in Regulation 10 states that “The retention of customer documents must ensure, in so far as it is practicable, that in any subsequent investigation a financial services business can provide the relevant authorities with its section of the audit trail.” Paragraphs 122-129 of the Notes state what documents should be kept, for how long and cover records relating to verification. The Notes indicate that in order to facilitate any investigation it must be possible to follow the audit trail of the funds under question and this therefore necessitates adequate record keeping standards. The records must be in a readily retrievable form and must be able to be accessed without undue delay. The retention period for all records is the minimum retention period which is defined in the regulation as 6 years from the date of the last transaction. There is provision for the FIS to require an institution to keep a record until further notice. Section 125 requires that the following information be maintained on transactions: Identity of the customer, beneficial owner, and any counterparty. Details of financial services product including the nature of the product, valuation, memoranda of sale and purchase, destination of funds and bearer securities, memoranda of instruction, book entries, custody of title documentation, nature and date of transaction, the forms in which funds are offered and paid. Section 127 indicates that FSBs should keep all relevant records in readily retrievable form and be able to access records without undue delay. There is no specific requirement for records to be maintained of the currency involved, and the type and identifying number of any account involved in the transaction. The draft revised regulations issued for consultation will address this concern. 54. Regulation 5(3) of the Regulations requires that “[d]ocuments retained under this Regulation shall be retained in a manner that makes their retrieval readily practicable.” The Notes do not specifically require that records be available to domestic competent authorities for AML/CFT investigations and prosecutions. The GFSC however has the power to request information and undertake on-site inspection of licensees other than investment business. Most institutions visited documented requirements for the retention of records in accordance with the requirements of the Notes. In some cases there was insufficient description of the types of information that should be maintained and in one instance the AML guidelines contained no reference to a record retention policy.
Analysis of Effectiveness
The framework for record keeping is generally adequate.
Recommendations and Comments
Consideration should be given to including a reference to customer transactions in the definition of customer documents in the Regulations. The Draft Law will be considered for approval by the States Assembly in September. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The Notes should be amended to require that records of the currency involved, and the type and identifying number of any account involved in the transaction be maintained. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern.
Implications for compliance with FATF Recommendation 12
Compliant
V—Suspicious transactions reporting (compliance with Criteria 55-57 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 101-104 for the insurance sector)
Description
55. With respect to drug-related crimes and terrorism related crimes FIs are required to report to a police officer (a defined term which includes customs officers) transactions suspected of stemming from a criminal activity or used to finance terrorism; Sections 58(3), 59(5) and 60(1) of the DT Law; Sections 12,13, 14 and 15 of the Terrorism Law). However, with respect to other serious crimes covered by the POC Law, there is no provision making failure to report a crime; Sections 39(3) and 40(5) of the POC Law. The Draft Miscellaneous Provisions Law is expected to be presented to the States Assembly for approval by the end of 2003. FIs are required to institute and maintain internal reporting procedures with respect to the filing of STRs (Regulations 6(1)-(4) of the Regulations). Paragraph 102 of the Notes indicates that if a reporting officer decides that information substantiates a suspicion of money laundering he should disclose this information promptly to the FIS. Paragraph 97 indicates that key staff should be required to report any suspicion of laundering of the proceeds of crime either directly to their reporting officer or if the FSB so decides to their line manager for preliminary investigation in case there are known facts which negate suspicion. The GFSC has issued guidelines to assist FIs in detecting suspicious patterns of behavior by their customers (Sections 90-93 of the Notes and Appendixes B & BB to the Notes). These are drafted with the assistance of the FIS and the Attorney General’s Chambers. The recognition of suspicious customers and transactions are acknowledged in paragraph 19 of the Notes as an essential part of the duty of vigilance which all financial services businesses are expected to exercise. Paragraph 92 and Appendix A of the Notes provide a general description of the relevant laws and Appendix G provides examples of unusual or questionable patterns of activity which should give rise to suspicion. This is supplemented by industry specific examples of suspicious transactions in Part 4 of the Notes. 56. FIs are protected from any liability for breach of any restriction on disclosure of information in good faith to the FIU (Sections 1 & 2 of the 1995, 1998 & 2001 Laws, sections 39 and 40 of the POC Law, sections 58 and 59 of the DT Law, section 16 of the Terrorism Law, Article 10 of the Al Qa’ida Order and Article 9 of the Terrorism Order). 57. FIs are prohibited from tipping off their customers when information relating to them is reported to competent authorities (Section 41 of the POC Law; Section 61 of the DT Law and Section 40 of the Terrorism Law). There is no explicit requirement in law that provides legal authority for the FIS or any other competent authority to give instructions to FIs or to require FIs to observe those instructions. All procedures reviewed at institutions included guidelines on the procedure for reporting suspicions to the MLRO and ultimately to the FIS.
Analysis of Effectiveness
The framework for the reporting of suspicious transactions is generally adequate except with respect to the criminalization of failure to submit a suspicious transaction report under the POC and Terrorism laws.
Recommendations and Comments
Legislation should be adopted along the lines of the Draft Law (Sections 1 and 2) to make it a crime to fail to report a suspicious transaction under the POC Law, as in the DT Law, rather than as a defense to the crime of money laundering. Consideration should be given to providing the FIS with the authority to give instructions to reporting entities or to require FIs to observe instructions of the FIS. The wording of Section 102 of the Notes should be amended to address suspicion that funds have been used to finance terrorism. The GFSC has issued draft revised Notes for consultation which will address this concern. The use of the term “key staff’ in paragraph 97 of the Notes in reference to the reporting of suspicions may suggest that only certain staff have a duty to report. The wording should be amended to make it clear that all staff have a duty to report suspicions. The GFSC has issued draft revised Notes for consultation which will address this concern..
Implications for compliance with FATF Recommendations 15, 16, 17, 28
Full compliance will be achieved when there is legislation along the lines of the Draft 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. It is expected that the draft law will be considered by the States Assembly by the end of 2003.
VI—Internal controls, Compliance and Audit (compliance with Criteria 58-61 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 89-92 for the banking sector, criteria 109 and 110 for the insurance sector, and criterion 113 for the securities sector)
Description
58. FIs are required to establish and maintain internal procedures and policies including employee training programs (Regulations 1(1) (a) and 7 of the Regulations). However there is no explicit reference in the law to an audit function to test the system. The GFSC has issued draft revised Regulations for consultation which, will include an explicit reference in law. Regulation 7 of the Regulations requires that FIs “ensure that key staff receive comprehensive training in (1) the relevant laws; (2) vigilance policy (including vigilance systems); (3) the recognition and handling of suspicious transactions; and (4) the personal obligations of all key staff under the relevant laws.” The Notes require FSBs to establish internal procedures to protect themselves from abuse through money laundering and the financing of terrorism. Paragraph 20 indicates that FSBs perform their duty of vigilance by having in place systems which enable them to ensure that internal audit and compliance departments regularly monitor the implementation and operation of vigilance systems. Section 131 indicates that FSBs are required to ensure that both existing and new employees receive comprehensive training in relevant laws, vigilance policy (including related systems, the recognition and handling of suspicious transactions and the personal obligations of all key staff under relevant laws. There is no specific requirement for staff to be informed of new developments, trends and techniques of money laundering and financing of terrorism. The GFSC has issued draft revised Guidance Notes for consultation which will address this concern. 59. FIs are required to institute and maintain procedures to identify a person to whom a suspicious report can be made (Article 6 of the Regulations). However, the Regulations contain no explicit requirement that such procedures be followed by FIs, although such a requirement is clearly implied from the language of the Regulations. FIs are required to “institute and maintain clear internal reporting procedures which . . . identify a person as the reporting officer and provide the name and title of that person” to the GFSC and FIS (Regulation 6(1) of the Regulations). The definition of a ‘reporting officer’ is “a senior manager . . . [with] responsibility for vigilance policy and vigilance systems, to decide whether suspicions should be reported and to report to the police if he so decides.” (Regulation 10 of the Regulations). As part of its licensing requirements the GFSC requires each licensed entity to have a designated Compliance Officer and a Money Laundering Reporting Officer. Paragraph 24 of the Notes states that: Financial services businesses must appoint a Reporting Officer. The designated person should be the point of contact with the FIS in the handling of cases of suspicious customers and transactions. The Reporting Officer should be a senior member of staff with the necessary authority to ensure compliance with these Guidance Notes. The name of the Reporting Officer must be communicated to the FIS and also to the Commission. The GFSC requires the prior notification of the appointment of a designated Compliance Officer and Reporting Officer and a Personal Questionnaire (Form PQ) must be completed and submitted to the Commission for approval. Any changes in the designated Compliance Officer/Reporting Officer must be notified to the Commission together with an explanation as to the reason for the changes. 60. Financial services businesses which carry on investment business licensed by the GFSC are covered by the Investment Licensees Rules which have been issued pursuant to Section 12 of the POI Law. Part 5.01(3) of the Rules states that: “A licensee should establish and maintain systems to ensure that its employees are suitable, adequately trained and properly supervised, and these systems should include arrangements - (a) to cover recruitment procedures, including the vetting of applicants for employment and the taking up of references. . . .” Financial services businesses other than investment business are not covered in this regard by the Rules or by any other law. However, a number of banks, insurance companies, insurance intermediaries, and fiduciaries are licensed to do investment business and therefore covered by the Rule. The GFSC has issued draft revised Regulations and Guidance Notes for consultation which will impose similar requirements for all financial services businesses. A personal questionnaire must be completed and submitted to the Commission with regards to any individual to be appointed as either a director or controller of an entity (which includes directors, relevant managers, compliance officers, reporting officers and company secretaries). This form asks for personal details, relationship with the institution (and with former employees and other third parties), experience, qualifications, other business interests and includes a requirement to provide details of any criminal convictions. The Form requires that any future changes to the answers provided are to be notified to the Commission. The GFSC reviews and assesses the quality of financial services business’ staff during its on-site visits. There is nothing in the law that requires FIs to ensure that their foreign branches and subsidiaries observe appropriate AML/CFT measures consistent with the home jurisdiction requirements, to the extent that local laws and regulations permit, or that FIs should inform their home jurisdiction supervisor/regulator when a foreign branch or subsidiary is unable to observe the appropriate AML/CFT measures of the home jurisdiction. The GFSC has issued draft revised Regulations for consultation which will address this concern. 61. There is nothing in the law requiring that where the minimum AML/CFT requirements of the home and host jurisdictions differ, branches and subsidiaries in host jurisdictions should be required to apply the higher standard. The draft revised Regulations issued for consultation by the GFSC will address this concern. Paragraph 6 of the Notes is entitled ‘Group Practice’ and states: Where a group whose headquarters are in Guernsey operates branches or controls subsidiaries in another jurisdiction, it should: Ensure that such branches or subsidiaries observe these Guidance Notes or adhere to local standards if those are at least equivalent; Keep all such branches and subsidiaries informed as to current group policy; and ensure that each such branch or subsidiary informs itself as to its own local reporting point equivalent to the FIS in Guernsey and that it is conversant with procedures for disclosure equivalent to Appendix I [Disclosure to the FIS]. Most institutions have adopted adequate internal AML/CFT procedures. A large percentage of the institutions have training programs for new staff and refresher course at least annually. In most instances staff such as the MLRO and compliance received more intensive training. FSBs appear to take full advantage of training available at the GFSC funded training facility. In most instances the anti-money laundering compliance function was a part of institution’s overall compliance function. While most institutions screened prospective employees to determine suitability for employment most of them did not apply specific test that would reveal past criminal activity. Most of the institutions had no policy for the application of AML/CFT standards on a global basis since in general they have no branches or subsidiaries outside of Guernsey.
Analysis of Effectiveness
The framework for internal controls and compliance is generally adequate. However there are some concerns with respect to issues related to consolidated supervision and the adequacy of screening of employees. The draft revised Regulations and Notes issued by the GFSC for consultation will address these concerns.
Recommendations and Comments
Consideration should be given to amending the appropriate laws to require FIs to appoint a person to receive suspicious reports, and to require FIs to notify the GFSC of any change in such position. Consideration should be given to amending the relevant laws to require all FIs to put in place adequate screening procedures to ensure high standards when hiring employees along the lines of Part 5.01(3) of the Investment Licensees Rules, which applies to investment business only. The GFSC has issued draft revised Regulations for consultation which will address this concern. Consideration should be given to a requirement that all Guernsey FIs apply Guernsey legal and regulatory requirements in respect of AML/CFT to their branches and subsidiaries outside of Guernsey. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The Notes should be amended to require that where the minimum AML/CFT requirements of the home and host jurisdictions differ, branches and subsidiaries in host jurisdictions should be required to apply the higher standard. The GFSC has issued draft revised Notes for consultation which will address this concern.
Implications for compliance with the FATF Recommendations 19, 20
Compliant
VII—Integrity standards (compliance with Criteria 62 and 63 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criterion 114 for the securities sector)
Description
62. Although there is no explicit provision of law prohibiting criminals from holding or controlling a significant investment in a FI, or from holding any qualified management functions therein, including in the executive or supervisory boards, councils, etc., the relevant supervisory laws require that such individuals be fit and proper, defined in all of the supervisory laws to include any evidence that such person has “committed any offense, and in particular any offense involving fraud or other dishonesty or violence” (Schedule 3(3) to the Banking Law; Schedule 1(3) to the Fiduciary Law; Schedule 7(3) to the Insurance Business Law; Schedule 4(3) to the Insurance Managers and Intermediaries Law). Promoters and all parties connected with open-ended funds (formed under the POI Law) and closed-ended funds (formed under the Control of Borrowing Ordinance) are similarly vetted. Under Section 8(1) of the Control of Borrowing Ordinance, the GFSC has the legal authority delegated by the Committee to review all applications to form Guernsey companies, even when they are not regulated by the GFSC, and equity and debt offerings over £500,000. In addition, Regulation 8(a) of the Regulations requires financial services businesses not regulated by the GFSC to notify the GFSC with information relating to directors, partners, senior officers, beneficial owners and controllers. Finally, according to the authorities, there is also scrutiny of each company by the Attorney General’s Chambers before it is allowed to be incorporated pursuant to an agreement with the United Kingdom. According to the authorities, individuals or legal entities attempting to operate, control or acquire a significant investment in a regulated financial institution cannot do so without formal vetting by the Commission. In conducting its review the Commission utilizes not only its own databases but also has access to information held by the Shared Intelligence System (SIS), Lexis/Nexis, the Financial Fraud Information Network (FFIN) and various websites such as those of the SEC and FBI. The Commission also utilizes, where appropriate, Guernsey Police and the databases and contacts to which the Guernsey Police have access. As a matter of policy, a Personal Questionnaire (Form PQ) must be completed and submitted to the Commission with regard to any individual to be appointed as either a director or relevant member of senior management of an entity (which includes compliance officers, money laundering reporting officers and company secretaries where they are not members of the Board of Directors). This form asks for personal details, relationship with the institution (and with former employees and other third parties), experience, qualifications, other business interests and questions to ascertain good reputation and character. The Form requires that any changes to the answers provided are to be notified to the Commission. The Commission uses these provisions to actively monitor the fitness and propriety of major shareholders and influencing parties on an ongoing basis. The Commission has the right to object to such a person where, in its opinion, such a person no longer meets the fit and proper criteria. Comprehensive due diligence checks are performed on the controllers of the financial services business and the institution. In licensing or approving new financial services businesses the Commission liaises with the home supervisor and other relevant regulators and bodies. This is a means of alerting the Commission to any issues of concern. Detailed checks of databases are also carried out as described above. The Commission holds meetings with the management of licensed entities as well as conducting on-site visits. During on-site visits the Commission assesses an entity’s key staff and directors to assess their fitness and propriety. 63. Although there is no explicit provision of law to prevent unlawful use of entities identified as vulnerable to use as conduits for criminal proceeds or FT, such as shell corporations or charitable or not-for-profit organisations, uunder Section 8(1) of the Control of Borrowing Ordinance, the GFSC has the legal authority delegated by the Committee to review all applications to form Guernsey companies, even when they are not regulated by the GFSC, and equity and debt offerings over £500,000. In addition, Regulation 8(a) of the Regulations requires financial services businesses not regulated by the GFSC to notify the GFSC with information relating to directors, partners, senior officers, beneficial owners and controllers, and to notify the GFSC with any such information prior to any changes. Finally, Section 96(b) of the Companies Law provides authority for the GFSC and the Committee to petition a court to wind up a company “for the protection of the public or of the reputation of the Bailiwick of Guernsey.” The Notes do not specifically address the use of entities such as shell companies. However in the context of correspondent banking relationships paragraph 139D indicates that Guernsey banks should not establish relationships with shell banks. Paragraph 85 of the Notes provides guidance for dealings with charities. The Notes provide guidance for the verification of corporations (including corporate trustees). Under paragraph 45 the Notes indicate that where an applicant for business is an institution but not a firm or company (such as an association or institute) all signatories should be treated as verification subjects. It further provides that in the case of clubs societies and charities all signatories on accounts should be treated as verification subjects.
Analysis of Effectiveness
The framework related to integrity standards is adequate.
Recommendations and Comments

Implications for compliance with FATF Recommendation 29
Compliant
VIII—Enforcement powers and sanctions (compliance with Criteria 64 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 93-96 for the banking sector and criteria 115-117 for the securities sector)
Description
With respect to explicit statutory authority to impose administrative or civil sanctions, the GFSC has the following powers relating to banks, investment business, fiduciaries, and insurance business (except as indicated): (i) issuance of a written directive or order, which does not apply to investment business and which may only be done as a last resort after the GFSC has decided to revoke or suspend (with respect to investment business) a license (although the functional equivalent of such authority is found in the placement of conditions on a license, see para. (iii) below)(Sections 12 of the Banking Law; 12 of the Fiduciary Law; 16 of the Insurance Business Law; 11 of the Insurance Managers and Intermediaries Law); (ii) issuance of a public statement, which is not available under Guernsey law; (iii) placing conditions on a license, which includes the authority “to require the institution to take certain steps . . .” (see, for example, Section 9(4)(a) of the Banking Law) and therefore is the functional equivalent of the issuance of a written directive r order (Sections 9 of the Banking Law; 9 of the Fiduciary Law; 5 of the POI Law; 12 of the Insurance Business Law; 7 of the Insurance Managers & Intermediaries Law); (iv) suspension or removal of directors and officers of any company, where the court considers that a person is unfit to be concerned in the management of a company on application by the Committee, the GFSC, the Attorney General, any corporate body of which the person in question is or has been an officer, a liquidator or creditor of the corporate body, or, with leave of the court, any other interested party. The person may be prohibited from being a director or officer of any company or any specified company, and from participating in, directly or indirectly, the management, formation or promotion of any company or any specified company (Section 67A of the Companies Law); in addition, conditions placed on a license may be used to remove a director as explicitly provided in the relevant laws (Sections 9(4)(e) of the Banking and Fiduciary Laws; 12(4)(e) of the Insurance Business Law; and 7(4)(e) of the Insurance Managers Law; (v) objections to controllers, defined as a managing director, chief executive, shareholder or shareholder group with 15 percent or more of voting power, and any person who exercises control over a director, which applies to all regulated sectors other than investment business (Sections 14 and 15 of the Banking and Fiduciary Laws; 25 and 26 of the Insurance Business Law; 36 and 37 of the Insurance Managers Law and sections 28A and 28B of the POI Law) (vi) appointment of a special auditor at the expense of the licensee, other than investment business (Sections 27 of the Banking Law; 24 of the Fiduciary Law; 69 of the Insurance Business Law and 46 of the Insurance Managers & Intermediaries Law); (vii) appointment for a defined period of a provisional or temporary administrator (typically with court approval), not applicable to any FSB; (viii) imposition of a range of civil penalties (administrative fines) on the licensee, its directors and senior managers, not applicable to any FSB; and (ix) revocation of license (Sections 8 of the Banking Law; 8 of the Fiduciary Law; 6 of the POI Law; 13 and 14 of the Insurance Business Law; and 8 and 9 of the Insurance Managers and Intermediaries Law). Paragraph 3 of the Notes state that “the Commission is entitled to take such failure to follow the Notes or an equivalent standard into consideration in the exercise of its judgment as to whether directors and managers are fit and proper persons.”
Analysis of Effectiveness
The framework for supervisory enforcement powers is generally adequate. It would be strengthened if the POI gave the GFSC the legal authority to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business
Recommendations and Comments
With respect to administrative sanctions, consideration should be given to amending the relevant laws to provide that all FSBs are subject to the same set of sanctions, particularly with respect to two powers available to the GFSC for all regulated sectors other than investment business: the issuance of a written directive or order and the appointment of a special auditor at the expense of the licensee. In addition, the relevant laws should be amended to provide for additional powers for the GFSC not currently in the law, in the areas of civil money penalties or administrative fines which may be imposed on companies and controllers and the ability to petition a court to appoint a provisional or temporary administrator or conservator for a defined period. Consideration should be given to amending the POI to provide the legal authority for the Commission to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business. The authorities have indicated that they will promote this change to the legislation.
IX—Cooperation between supervisors and other competent authorities (compliance with Criteria 65-67 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 97-100 for the banking sector and criteria 118-120 for the securities sector)
Description
65. The Policy and International Affairs Division acts as a core resource upon which the regulatory divisions can draw and it is also responsible for the drafting of relevant AML/CFT regulations and the Guidance Notes. The Deputy Director is assisted by a consultant at the level of Assistant Director who is devoted to AML/CFT issues on a full time basis. Subsequent to the mission this officer left the GFSC. A senior analyst has joined the staff of the Division and is devoted fully to matters related to AML/CFT. GFSC has retained the services of an external consultant. The regulatory staff includes several people with specialist expertise in the financial fraud and anti-money laundering field including 2 ex-police officers (both in the Department of Fiduciary Services and the Enforcement Division) and two Certified Fraud Examiners. The Banking Division commenced on-site assessments of licensees in 1999. The other divisions commenced reviews in 2000. Files were well documented and suggested that AML/CFT reviews were thorough. The current resources devoted to AML/CFT appear to be adequate. AML/CFT surveillance undertaken by the FSC may however have been at the expense of surveillance activity related to other areas of risk. However subsequent to the mission’s visit staff resources have been increased. The Regulations require the GFSC to train its staff on anti-money laundering issues. The GFSC has held formal in-house training for its staff, with the most recent training prior to the mission having taken place in July 2002. Follow-up training is scheduled for January 2003. The GFSC also makes use of a computer based training package which regulatory staff must undertake. This incorporates an accreditation module where key aspects are tested to ensure adequate comprehension. 66. Section 21 of the Commission Law permits the GFSC to cooperate under certain circumstances, including “to enable the Commission to carry out any of its functions” (Section 21(2)(a), one of which is “the countering of financial crime and of the financing of terrorism” (Section 2(2)(d), and “for the purposes of the investigation, prevention or detection of crime with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings” (sections 21(2)(b) and 21A(b). The GFSC also relies on broad disclosure powers contained in the various supervisory laws (Section 34B of the POI Law, Section 4 of the Banking Law, Section 44 of the Fiduciary Law, and Section 57 of the Insurance Managers and Intermediaries Law and Section 80 of the Insurance Business Law). According to the authorities, the GFSC routinely provides the FIS, Police and Customs with intelligence and equally as routinely responds to requests for information from them where relevant. For example, the FIS liaises with the GFSC’s Fiduciary Services and Enforcement Division in order to obtain information from the GFSC. In addition, the GFSC provides advice to the FIS with respect to intelligence-gathering and, more broadly, the operations and commercial activities of FSBs, including on issues raised in STRs. 67. There are laws and procedures allowing the provision of the widest possible range of international cooperation between supervisors/regulators. The GFSC relies on the provisions of the Commission Law, which provides that the GFSC may cooperate under certain circumstances, including “for the purposes of the investigation, prevention or detection of crime with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings” (section 21A (b) of the Commission Law). The GFSC also relies on broad disclosure powers contained in the various supervisory laws (Section 4 of the Banking Law, Section 34B of the POI Law, Section 44 of the Fiduciary Law, Section 57 of the Insurance Managers and Intermediaries Law and Section 80 of the Insurance Business Law). For supervisory/regulatory purposes, the GFSC has entered into Memoranda of Understanding with the following: Australian Securities Commission (1996); United States Commodity Futures Trading Commission (1994); De Nederlandsche Bank NV (1993); United States Federal Deposit Insurance Corporation (1999); International Association of Insurance Supervisors (1994); International Organization of Securities Commissions (1991 and 1996); Jersey Financial Services Commission (1998); Hong Kong Securities and Futures Commission (1992 and 1994); The London Stock Exchange (1998); Commissione Nazionale per le Società e la Borsa (an Information Exchange Agreement in 1994 replaced by an MOU in 2002); and Isle of Man Financial Supervision Commission (2002). The GFSC is currently negotiating memoranda of understanding with four European regulators. Two of these were finalized subsequent to the mission. According the authorities, however, the GFSC does not require a memorandum of understanding to have been executed with foreign supervisors/regulators or law enforcement bodies before exchanging information with them. The most frequent exchange of information takes place with the United Kingdom’s Financial Services Authority and the United States Securities and Exchange Commission, notwithstanding that there are no memoranda of understanding in place. Court authorization is not necessary for the exchange of information, nor is there any requirement that the exchange of information should be reciprocal or that the requesting authority should be subject to an obligation of secrecy. In addition, the Director General and the Directors of the various Divisions of the GFSC sit on international committees which involve them in the dissemination of information on economic crime and criminals to other bodies internationally. Particular examples of this include: The Director General and the Deputy Director (Policy and International Affairs) sit on the Crown Dependencies Anti-Money Laundering Group which is comprised of senior regulatory, legal and enforcement personnel from Guernsey, Jersey and the Isle of Man; The Director of Fiduciary Services sat on FATF working group B concerned with enhancing the transparency of trusts and other corporate vehicles; The Director of Banking has participated in the ongoing work of the joint Basel/Offshore Group of Banking Supervisors Working Group on Cross-border Banking; The Director of Insurance has been the Chairman of the Insurance Fraud Sub-Committee of the IAIS which issued ‘Anti-Money Laundering Guidance Notes for Insurance Supervisors and Insurance Entities” during his chairmanship.
Analysis of Effectiveness
The general framework in respect of international cooperation is generally adequate.
Recommendations and Comments
Implications for compliance with FATF Recommendation 26
Compliant

Table 5.

Detailed Assessment of the Legal and Institutional Framework for Financial Institutions and its Effective Implementation

I—General Framework (compliance with criteria 43 and 44)
Description
43. There is no obligation of secrecy or confidence or other restriction on the disclosure of information related to money laundering or the proceeds of criminal activity (Section 1 of the 1995, 1998 & 2001 Laws). It is an implied term of the contract between a banker and his customer that the banker will not divulge to third persons, without the express or implied consent of the customer, either the state of the customer’s account, transactions made etc. unless the banker is compelled to do so: on order of a Court; the circumstances give rise to a public duty of disclosure; or the protection of the bank’s own interests requires it (Tournier v. National Provincial and Union Bank of England [1924] IKB461). Guernsey laws contain provisions which state that a person does not breach any confidentiality obligations when a disclosure is made to a police officer (Sections 39(3) (b) and 40(5) (b) of the POC Law; Sections 58(3) (a) and 59(5) (a) of the DT Law; Section 16 of the Terrorism Law; and Section 1 of the 1995 Law). 44. The Commission Law provides the GFSC with general powers to combat money laundering, the financing of terrorism and financial crime, as follows: 2. (2) The general functions of the Commission are: (d) the countering of financial crime and of the financing of terrorism; and in this paragraph “financial crime” includes any offense involving . . . (i) fraud or dishonesty; (ii) misconduct in, or misuse of information relating to, a financial market; or (iii) handling the proceeds of crime. . . . 4. In the exercise of its functions the Commission may take into account any matter which it considers appropriate, but it shall in particular have regard to - (a) the protection of the public interest, including protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons carrying on finance business; and (b) the protection and enhancement of the reputation of the Bailiwick as a financial center. The GFSC is the sole agency in Guernsey responsible for supervision of FSBs.
Analysis of Effectiveness
Guernsey has an adequate mechanism for the implementation of its AML/CFT framework. The GFSC has authority to ensure effective implementation of AML/CFT policies for all regulated FIs. While the GFSC has power under the Regulations to monitor compliance of businesses that engage in bureau de change activities, check cashing and money transmission services (“MSBs”). It does not currently have the authority to regulate MSBs, except to the extent that a bank or other regulated financial institution engages in such activities.
Recommendations and Comments
Consideration should be given to enacting a law to regulate MSBs.
Implications for compliance with FATF Recommendation 2
Compliant
II—Customer identification (compliance with criteria 45-48 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 68-83 for the banking sector, criteria 101-104 for the insurance sector and criterion 111 for the securities sector)
Description
45. The Regulations require FIs to establish and maintain procedures for customer identification (Article 3). However, the Regulations contain no explicit requirement that such procedures be followed by FIs, although such a requirement is clearly implied from the language of the Regulations. While there is no explicit requirement in law prohibiting anonymous accounts or accounts in fictitious names, Regulation 3(1) of the Regulations requires customer identification for the forming of a business relationship, a significant one-off transaction (over £10,000), or two or more linked transactions. Paragraph 67B of the Notes states that, FSBs must not open or operate financial services products held in obviously fictitious names. Anonymously operated financial services products should similarly not be allowed 46. FIs are required to identify their customers whether long term or occasional over a specified threshold, on the basis of evidence of identity which is reasonably capable of establishing that the applicant is who he claims to be and record the identity (Regulation 3 of the Regulations; see also Sections 38, 39 & 75 of the Notes). While legal entities are covered by the customer identification requirements of the Regulations as they are for any applicant for business (Regulation 3 and Section 2 of the Interpretation Law), there is no explicit provision in law relating to obtaining information on (a) the legal entity’s legal form and directors; (b) whenever it is necessary, in order to know the true identity of the customer, requiring FIs to request information from the customer concerning the principal owners and beneficiaries; and (c) provisions regulating the power to bind the entity, and requiring FIs to verify that any person purporting to act on behalf of the customer is so authorized, and to identify those persons. Paragraph 38 of the Notes states that: “A financial services business undertaking verification should establish to its reasonable satisfaction that every verification subject relevant to the application for business actually exists. All the verification subjects of joint applicants for business should normally be verified. However, where the guidance implies a large number of verification subjects it may be sufficient to carry out verification to the letter on a limited group only, such as the senior members of a family, the principal shareholders, the main directors of a company, etc.” Paragraph 75 indicates that valid passports, national and armed forces identity cards and drivers’ licenses with photographs are the best form of identification. The paragraph indicates that documents which can be easily obtained such as birth certificates, credit and business cards, national health or insurance cards, provisional drivers’ licenses and student union cards should not be accepted uncritically. Paragraphs 84 and 85A of the Notes indicate that the relevance and usefulness of the following documents should be carefully considered: certificate of incorporation; details and identification documentation of beneficial owners; Memorandum and Articles of Association; Powers of Attorney (including identification documentation); and resolution, bank mandate, signed application form or any valid account-opening authority, including full names of all directors and their specimen signatures. Paragraph 62 of the Notes stresses that, “the best time to undertake verification is not so much at entry as prior to entry.” Wherever possible, verification should be completed before any transaction is undertaken. Paragraph 30 of the OPP indicates that relationships should be reviewed for any deficiency in verification documentation following the occurrence of a trigger event. Appendix 2 lists a number of possible trigger events. There is no specific requirement to record the customer’s identity when undertaking transactions over a specified threshold. Paragraph 141C of the Notes deals with Powers of Attorney and states: “Verification should be made on the holders of Powers of Attorney as well as the client, and financial services businesses should ascertain the reason for the granting of the Power of Attorney.” Paragraph 39 indicates that a financial services business should primarily carry out verification in respect of the parties operating the financial services product. Where there are underlying principals, however, the true nature of the relationship between the principals and the signatories should be established and appropriate enquiries performed on the former, especially if the signatories are accustomed to act on their instruction. In this context principals should be understood in its widest sense to include, for example, beneficial owners, settlors, controlling shareholders, directors, major beneficiaries etc, but the standard of due diligence will depend on the exact nature of the relationship. Paragraphs 57-60 of the Notes outline practices to be followed where “reliable introductions” are used. Under the regime a reliable introducer may maintain introduction records but must undertake to supply copies of such records to the FSB on demand. The language “the relevance and usefulness …of the following documents… should be carefully considered” does not clearly indicate what standard the GFSC expects licensees to meet. The GFSC has issued draft revised Notes which will address this concern. Guernsey, the Isle of Man and Jersey have jointly issued a paper outlining the direction to be taken in the AML legal and regulatory frameworks in each jurisdiction. This paper which does not replace the existing Guidance Notes focuses on issues related to the verification of customer identity. Among the many aspects of identity verification addressed in the paper are the issues of introduced business and the verification of identity of customers whose relationship with financial institutions pre-dates the all-crimes anti-money laundering legislation (Progressive Program). Unlike the existing framework where an introducer can hold verification documents to be made available to the “accepting party” on request, the paper envisages that an “accepting party” will always hold either originals or copies of these documents. In terms of the Progressive Program the paper envisages that where FIs discover any deficiencies in existing verification documents they should seek to obtain necessary information to address the deficiency. It proposes that this work be undertaken on the basis of risk prioritization and trigger events. 47. FIs are required to take reasonable measures to obtain information about the true identity of applicants who appear to be acting otherwise than as principals (Regulations 3 and 4 of the Regulations; see also Section 48 of the Notes). With respect to “an applicant for business that is or appears to be acting otherwise than as principal” (Regulation 4(1), Regulation 4(2) states that “[i]dentification procedures maintained by financial services businesses in respect of applicants to whom this paragraph applies shall require reasonable measures to be taken (as prescribed in the Notes) for the purpose of establishing the identity of any person on whose behalf the applicant for business is acting.” Paragraph 38 of the Notes states that, a financial services business undertaking verification should establish to its reasonable satisfaction that every verification subject relevant to the application for business actually exists. Paragraph 48 of the Notes adds that: Where a financial services business suspects that there may be an undisclosed principal (whether individual or corporate), it should monitor the activities of the customer to ascertain whether the customer is in fact merely an intermediary. If a principal is found to exist, further enquiry should be made and that principal should be treated as a verification subject. A financial services business should also consider carefully whether the existence of an undisclosed principal raises suspicion that it is dealing with the proceeds of criminal conduct. 48. There is no provision of law that requires FIs to include accurate and meaningful originator information on funds transfers and related messages that should remain with the transfer or related message through the payment chain. Originator information should include name, address, and account number (when being transferred from an account). The Commission has issued draft revised Regulations and Notes for consultation which will incorporate provisions on funds transfers and other messages into legislation. The Notes do not explicitly provide for recording originator information, but Section 126 refers to the retention of records for electronic or wire transfers with sufficient detail to enable the identification of the remitting customer and “as far as possible” the identity of the ultimate recipient. The section also requires that in all cases wherever possible the originator’s details should remain with the transfer or related message throughout the payment chain. Full records of the originating customer and address should be retained by the financial services business. Institutions visited generally had comprehensive procedures for verification of customer identity. In most cases there were more stringent requirements in respect of persons from Non-Appendix C countries. All institutions required the verification of identity of beneficial owners. In general the procedures adopted by institutions complied with the requirements of the Notes. None of the procedures reviewed covered the “progressive programme” of verification (i.e. verification of identity for persons who were customers of financial institutions prior to the enactment of money laundering legislation. There were also varying approaches adopted by institutions in respect of the progressive programme.
Analysis of Effectiveness
Measures in place for the verification of the identity are generally adequate although there are some concerns. relating to instances in which the language of the Notes could be strengthened to better communicate the standard which the Commission expects of licensees, the program for introduced business and the variation in practices used by institutions in relation to the progressive program for verification of customer identity.
Recommendations and Comments
The relevant laws should be amended to explicitly require that customer identification procedures be followed. The language of paragraph 84 and 85A “the relevance and usefulness …should be carefully considered” as well as the language of paragraph 75 “documents that can be easily obtained …should not be accepted uncritically” should be amended to clearly communicate the standard that is expected of FSBs. The GFSC has issued draft revised Guidance Notes for consultation which will address this concern. Since the Notes require the originator details to remain with the transfer throughout the payment chain, it is recommended that they be clarified and strengthened to specifically require the inclusion of the information in the first place. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The GFSC should communicate to banks that decisions taken on establishing relationships with higher risk customers should be taken by senior management. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The exception provided in section 63 which provides that a senior staff member may give appropriate authority to open an account where identity has not been verified is vague and should be redrafted to clarify the kind of circumstances in which the GFSC expects this discretionary power to be used. The GFSC has issued draft revised Notes for consultation which will address this concern. The GFSC has already undertaken considerable work to direct FSBs towards the customer identification standards required by the Position Paper. It is nevertheless recommended that these efforts be redoubled to ensure a greater degree of consistency in the approach adopted by licensees.
Implications for compliance with FATF Recommendations 10, 11, SR VII
Full compliance will be achieved when FSBs have immediate access to all customer verification documents under the regime for introduced business.
III—Ongoing monitoring of accounts and transactions (compliance with Criteria 49-51 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 84-87 for the banking sector, and criterion 104 for the insurance sector)
Description
49. Although Regulation 6(2) of the Regulations requires an STR be filed if there is “knowledge or suspicion that another person is engaged in money laundering or that he is providing financial assistance for terrorism . . .” there is no explicit legal requirement that FIs should pay special attention to all complex, unusual large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose, to examine as far as possible the background and purpose of such transactions, to set forth their findings in writing, and to keep such findings available for competent authorities. The Commission has issued revised draft Regulations for consultation which will address this concern. Paragraph 22 of the Notes states that:
Vigilance systems should enable key staff to react effectively to suspicious occasions and circumstances (for example, complex, unusual, large transactions and all unusual patterns of transactions which have no apparent economic or visible lawful purpose) by reporting them to the relevant personnel in-house and to receive training from time to time from the FSBs to equip them to play their part in meeting their responsibilities. Paragraph 25 of the Notes indicates that “financial servive businesses may find it useful to delegate responsibility for maintaining vigilance policy to a prevention officer. Rather than reserve to the reporting officer all such day-to day responsibility.” Paragraph 92 and Appendix G of the Notes provide general examples of unusual or questionable patterns of activity which should give rise to suspicion. This is supplemented by industry-specific examples of suspicious transactions in Part 4 of the Notes. In addition, Appendices B and BB provide real life case studies of laundering schemes uncovered and examples of terrorist financing. There is no specific requirement for concerns to be put in writing, and kept available for competent authorities although draft revised regulations issued by the Commission for consultation, include such a requirement. However paragraph 97 indicates that key staff should be required to report suspicion of money laundering. An appendix to the Notes provides examples of reporting forms. 50. There is nothing in the law that requires FIs to give special attention to business relations and transactions with persons (including legal entities and other financial institutions) in jurisdictions that do not have adequate systems in place to prevent or deter ML or FT. If those transactions have no apparent economic or visible lawful purpose, the background and purpose of such transactions should, as far as possible, be examined, and written findings should be available to assist competent authorities such as supervisors, law enforcement agencies and the FIU, and auditors. The Commission has issued draft revised Regulations for consultation which will address this concern. Appendix C of the Notes refers to sensitive jurisdictions and states, that from time to time the Commission issues Business from Sensitive Sources Notices (BSSNs). Transactions to or from the jurisdictions specified in such Notices should be subject to a greater level of caution.” The Commission has issued four BSSNs which have dealt with terrorism, FATF Noncooperative Countries or Territories and other key issues. Business from Sensitive Sources Notice 4 was circulated to financial services businesses on August 22, 2002 and this highlights FATF’s work to identify noncooperative countries and territories (NCCT’s). It states that: The Commission encourages money laundering reporting officers and other interested parties to visit FATF’s website and apprise themselves of FATF’s work on NCCT’s. Financial services businesses should take particular account of the descriptions of the AML systems of all of the jurisdictions considered in the review and FATF’s current attitude to those jurisdictions. In the Commission’s Position Paper entitled ‘Overriding Principles for a Revised Know Your Customer Framework’ jointly issued by the three Crown Dependencies the importance of risk prioritization and monitoring was acknowledged. Appendix 2 of the Position Paper gives guidance on risk profiling and trigger events and indicates that issues such as the geographical origin of the customer or the customer’s activities should be taken into account. There is no specific requirement for concerns to be put in writing, and kept available for competent authorities. The authorities have issued draft revised Notes for consultation which will address this issue. 51. There is nothing in the law that requires FIs to give enhanced scrutiny to wire transfers that do not contain complete originator information. The GFSC has issued draft revised regulations for consultation which will address this concern. Paragraph 135 of the Notes states that vigilance should govern all stages of a bank’s dealings with its customers and this includes transactions into and out of accounts generally, including by way of electronic transfer (wire transfer). Paragraph 126 of the Notes states that: In the case of electronic transfers (or wire transfers), financial services businesses should retain records of payments made with sufficient detail to enable them to establish the identity of the remitting customer, and, as far as possible, the identity of the ultimate recipient. In all cases wherever possible the originator’s details should remain with the transfer or related message throughout the payment chain. Full records of the originating customer and address should be retained by the financial services business. While the procedures used by institutions visited addressed the issue of suspicious transaction reporting, in a number of instances the issue of first understanding a customer’s likely pattern of activity was not satisfactorily addressed. All procedures gave examples of suspicious transactions. Most institutions provided staff with information on jurisdictions considered to have weak AML/CFT frameworks.
Analysis of Effectiveness
There are generally satisfactory arrangements in place for the monitoring of transactions. However there are concerns with respect to enhanced scrutiny for wire transfers and the reporting of unusual or complex transactions. The GFSC has issued draft revised regulations for consultation which will address this concern.
Recommendations and Comments
Within the two-year period referred to by FATF, the relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer throughout the payment chain, and that FIs give enhance scrutiny to wire transfers that do not contain complete originator information. The GFSC has issued draft revised regulations for consultation which will address this concern. The language of paragraph 25 of the Notes “may find it useful … to delegate responsibility for maintaining vigilance policy” does not clearly indicate the standard that the Commission expects of licensees and should be amended. The GFSC has issued draft revised notes for consultation which will address this concern.
Implications for compliance with FATF Recommendations 14, 21, 28, SR VIII
Compliant re 14, 21 and 28. Compliance re SR VII will be determined at the end of the two year period established by FATF or at such time when required laws are in place.
IV—Record keeping (compliance with Criteria 52-54 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criterion 88 for the banking sector, criteria 106 and 107 for the insurance sector, and criterion 112 for the securities sector)
Description
52. FIs are required to retain each customer verification document in its original form for at least the minimum retention period (Regulation 5 of the Regulations). Regulation 10 defines ‘customer verification document’ as “a customer document obtained or created by a financial services business during a customer verification process,” and ‘minimum retention period’ as being six years. Regulation 5 of the Regulations imposes a requirement for all records to be maintained for such period. Paragraphs 122-129 of the Notes state what documents should be kept, for how long and cover records relating to verification. The Notes indicate that in order to facilitate any investigation it must be possible to follow the audit trail of the funds under question and this therefore necessitates adequate record keeping standards. The records must be in a readily retrievable form and must be able to be accessed without undue delay. The retention period for all records is the minimum retention period which is defined in the regulation as 6 years from the date of the last transaction. There is provision for the FIS to require an institution to keep a record until further notice. 53. The Regulations provide for retention of all customer documents, defined in Regulation 10 as any document “relating to a customer of a financial services business’ dealings with a customer or a person or entity acting on a customer’s behalf.” Although the term ‘dealings’ would appear to cover customer transactions, there is no explicit reference to customer transaction records in the definition. The GFSC has issued draft revised regulations for consultation which will address this concern. With respect to reconstruction of transaction records, the definition of ‘customer document’ in Regulation 10 states that “The retention of customer documents must ensure, in so far as it is practicable, that in any subsequent investigation a financial services business can provide the relevant authorities with its section of the audit trail.” Paragraphs 122-129 of the Notes state what documents should be kept, for how long and cover records relating to verification. The Notes indicate that in order to facilitate any investigation it must be possible to follow the audit trail of the funds under question and this therefore necessitates adequate record keeping standards. The records must be in a readily retrievable form and must be able to be accessed without undue delay. The retention period for all records is the minimum retention period which is defined in the regulation as 6 years from the date of the last transaction. There is provision for the FIS to require an institution to keep a record until further notice. Section 125 requires that the following information be maintained on transactions: Identity of the customer, beneficial owner, and any counterparty. Details of financial services product including the nature of the product, valuation, memoranda of sale and purchase, destination of funds and bearer securities, memoranda of instruction, book entries, custody of title documentation, nature and date of transaction, the forms in which funds are offered and paid. Section 127 indicates that FSBs should keep all relevant records in readily retrievable form and be able to access records without undue delay. There is no specific requirement for records to be maintained of the currency involved, and the type and identifying number of any account involved in the transaction. The draft revised regulations issued for consultation will address this concern. 54. Regulation 5(3) of the Regulations requires that “[d]ocuments retained under this Regulation shall be retained in a manner that makes their retrieval readily practicable.” The Notes do not specifically require that records be available to domestic competent authorities for AML/CFT investigations and prosecutions. The GFSC however has the power to request information and undertake on-site inspection of licensees other than investment business. Most institutions visited documented requirements for the retention of records in accordance with the requirements of the Notes. In some cases there was insufficient description of the types of information that should be maintained and in one instance the AML guidelines contained no reference to a record retention policy.
Analysis of Effectiveness
The framework for record keeping is generally adequate.
Recommendations and Comments
Consideration should be given to including a reference to customer transactions in the definition of customer documents in the Regulations. The Draft Law will be considered for approval by the States Assembly in September. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The Notes should be amended to require that records of the currency involved, and the type and identifying number of any account involved in the transaction be maintained. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern.
Implications for compliance with FATF Recommendation 12
Compliant
V—Suspicious transactions reporting (compliance with Criteria 55-57 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 101-104 for the insurance sector)
Description
55. With respect to drug-related crimes and terrorism related crimes FIs are required to report to a police officer (a defined term which includes customs officers) transactions suspected of stemming from a criminal activity or used to finance terrorism; Sections 58(3), 59(5) and 60(1) of the DT Law; Sections 12,13, 14 and 15 of the Terrorism Law). However, with respect to other serious crimes covered by the POC Law, there is no provision making failure to report a crime; Sections 39(3) and 40(5) of the POC Law. The Draft Miscellaneous Provisions Law is expected to be presented to the States Assembly for approval by the end of 2003. FIs are required to institute and maintain internal reporting procedures with respect to the filing of STRs (Regulations 6(1)-(4) of the Regulations). Paragraph 102 of the Notes indicates that if a reporting officer decides that information substantiates a suspicion of money laundering he should disclose this information promptly to the FIS. Paragraph 97 indicates that key staff should be required to report any suspicion of laundering of the proceeds of crime either directly to their reporting officer or if the FSB so decides to their line manager for preliminary investigation in case there are known facts which negate suspicion. The GFSC has issued guidelines to assist FIs in detecting suspicious patterns of behavior by their customers (Sections 90-93 of the Notes and Appendixes B & BB to the Notes). These are drafted with the assistance of the FIS and the Attorney General’s Chambers. The recognition of suspicious customers and transactions are acknowledged in paragraph 19 of the Notes as an essential part of the duty of vigilance which all financial services businesses are expected to exercise. Paragraph 92 and Appendix A of the Notes provide a general description of the relevant laws and Appendix G provides examples of unusual or questionable patterns of activity which should give rise to suspicion. This is supplemented by industry specific examples of suspicious transactions in Part 4 of the Notes. 56. FIs are protected from any liability for breach of any restriction on disclosure of information in good faith to the FIU (Sections 1 & 2 of the 1995, 1998 & 2001 Laws, sections 39 and 40 of the POC Law, sections 58 and 59 of the DT Law, section 16 of the Terrorism Law, Article 10 of the Al Qa’ida Order and Article 9 of the Terrorism Order). 57. FIs are prohibited from tipping off their customers when information relating to them is reported to competent authorities (Section 41 of the POC Law; Section 61 of the DT Law and Section 40 of the Terrorism Law). There is no explicit requirement in law that provides legal authority for the FIS or any other competent authority to give instructions to FIs or to require FIs to observe those instructions. All procedures reviewed at institutions included guidelines on the procedure for reporting suspicions to the MLRO and ultimately to the FIS.
Analysis of Effectiveness
The framework for the reporting of suspicious transactions is generally adequate except with respect to the criminalization of failure to submit a suspicious transaction report under the POC and Terrorism laws.
Recommendations and Comments
Legislation should be adopted along the lines of the Draft Law (Sections 1 and 2) to make it a crime to fail to report a suspicious transaction under the POC Law, as in the DT Law, rather than as a defense to the crime of money laundering. Consideration should be given to providing the FIS with the authority to give instructions to reporting entities or to require FIs to observe instructions of the FIS. The wording of Section 102 of the Notes should be amended to address suspicion that funds have been used to finance terrorism. The GFSC has issued draft revised Notes for consultation which will address this concern. The use of the term “key staff’ in paragraph 97 of the Notes in reference to the reporting of suspicions may suggest that only certain staff have a duty to report. The wording should be amended to make it clear that all staff have a duty to report suspicions. The GFSC has issued draft revised Notes for consultation which will address this concern..
Implications for compliance with FATF Recommendations 15, 16, 17, 28
Full compliance will be achieved when there is legislation along the lines of the Draft 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. It is expected that the draft law will be considered by the States Assembly by the end of 2003.
VI—Internal controls, Compliance and Audit (compliance with Criteria 58-61 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 89-92 for the banking sector, criteria 109 and 110 for the insurance sector, and criterion 113 for the securities sector)
Description
58. FIs are required to establish and maintain internal procedures and policies including employee training programs (Regulations 1(1) (a) and 7 of the Regulations). However there is no explicit reference in the law to an audit function to test the system. The GFSC has issued draft revised Regulations for consultation which, will include an explicit reference in law. Regulation 7 of the Regulations requires that FIs “ensure that key staff receive comprehensive training in (1) the relevant laws; (2) vigilance policy (including vigilance systems); (3) the recognition and handling of suspicious transactions; and (4) the personal obligations of all key staff under the relevant laws.” The Notes require FSBs to establish internal procedures to protect themselves from abuse through money laundering and the financing of terrorism. Paragraph 20 indicates that FSBs perform their duty of vigilance by having in place systems which enable them to ensure that internal audit and compliance departments regularly monitor the implementation and operation of vigilance systems. Section 131 indicates that FSBs are required to ensure that both existing and new employees receive comprehensive training in relevant laws, vigilance policy (including related systems, the recognition and handling of suspicious transactions and the personal obligations of all key staff under relevant laws. There is no specific requirement for staff to be informed of new developments, trends and techniques of money laundering and financing of terrorism. The GFSC has issued draft revised Guidance Notes for consultation which will address this concern. 59. FIs are required to institute and maintain procedures to identify a person to whom a suspicious report can be made (Article 6 of the Regulations). However, the Regulations contain no explicit requirement that such procedures be followed by FIs, although such a requirement is clearly implied from the language of the Regulations. FIs are required to “institute and maintain clear internal reporting procedures which . . . identify a person as the reporting officer and provide the name and title of that person” to the GFSC and FIS (Regulation 6(1) of the Regulations). The definition of a ‘reporting officer’ is “a senior manager . . . [with] responsibility for vigilance policy and vigilance systems, to decide whether suspicions should be reported and to report to the police if he so decides.” (Regulation 10 of the Regulations). As part of its licensing requirements the GFSC requires each licensed entity to have a designated Compliance Officer and a Money Laundering Reporting Officer. Paragraph 24 of the Notes states that: Financial services businesses must appoint a Reporting Officer. The designated person should be the point of contact with the FIS in the handling of cases of suspicious customers and transactions. The Reporting Officer should be a senior member of staff with the necessary authority to ensure compliance with these Guidance Notes. The name of the Reporting Officer must be communicated to the FIS and also to the Commission. The GFSC requires the prior notification of the appointment of a designated Compliance Officer and Reporting Officer and a Personal Questionnaire (Form PQ) must be completed and submitted to the Commission for approval. Any changes in the designated Compliance Officer/Reporting Officer must be notified to the Commission together with an explanation as to the reason for the changes. 60. Financial services businesses which carry on investment business licensed by the GFSC are covered by the Investment Licensees Rules which have been issued pursuant to Section 12 of the POI Law. Part 5.01(3) of the Rules states that: “A licensee should establish and maintain systems to ensure that its employees are suitable, adequately trained and properly supervised, and these systems should include arrangements - (a) to cover recruitment procedures, including the vetting of applicants for employment and the taking up of references. . . .” Financial services businesses other than investment business are not covered in this regard by the Rules or by any other law. However, a number of banks, insurance companies, insurance intermediaries, and fiduciaries are licensed to do investment business and therefore covered by the Rule. The GFSC has issued draft revised Regulations and Guidance Notes for consultation which will impose similar requirements for all financial services businesses. A personal questionnaire must be completed and submitted to the Commission with regards to any individual to be appointed as either a director or controller of an entity (which includes directors, relevant managers, compliance officers, reporting officers and company secretaries). This form asks for personal details, relationship with the institution (and with former employees and other third parties), experience, qualifications, other business interests and includes a requirement to provide details of any criminal convictions. The Form requires that any future changes to the answers provided are to be notified to the Commission. The GFSC reviews and assesses the quality of financial services business’ staff during its on-site visits. There is nothing in the law that requires FIs to ensure that their foreign branches and subsidiaries observe appropriate AML/CFT measures consistent with the home jurisdiction requirements, to the extent that local laws and regulations permit, or that FIs should inform their home jurisdiction supervisor/regulator when a foreign branch or subsidiary is unable to observe the appropriate AML/CFT measures of the home jurisdiction. The GFSC has issued draft revised Regulations for consultation which will address this concern. 61. There is nothing in the law requiring that where the minimum AML/CFT requirements of the home and host jurisdictions differ, branches and subsidiaries in host jurisdictions should be required to apply the higher standard. The draft revised Regulations issued for consultation by the GFSC will address this concern. Paragraph 6 of the Notes is entitled ‘Group Practice’ and states: Where a group whose headquarters are in Guernsey operates branches or controls subsidiaries in another jurisdiction, it should: Ensure that such branches or subsidiaries observe these Guidance Notes or adhere to local standards if those are at least equivalent; Keep all such branches and subsidiaries informed as to current group policy; and ensure that each such branch or subsidiary informs itself as to its own local reporting point equivalent to the FIS in Guernsey and that it is conversant with procedures for disclosure equivalent to Appendix I [Disclosure to the FIS]. Most institutions have adopted adequate internal AML/CFT procedures. A large percentage of the institutions have training programs for new staff and refresher course at least annually. In most instances staff such as the MLRO and compliance received more intensive training. FSBs appear to take full advantage of training available at the GFSC funded training facility. In most instances the anti-money laundering compliance function was a part of institution’s overall compliance function. While most institutions screened prospective employees to determine suitability for employment most of them did not apply specific test that would reveal past criminal activity. Most of the institutions had no policy for the application of AML/CFT standards on a global basis since in general they have no branches or subsidiaries outside of Guernsey.
Analysis of Effectiveness
The framework for internal controls and compliance is generally adequate. However there are some concerns with respect to issues related to consolidated supervision and the adequacy of screening of employees. The draft revised Regulations and Notes issued by the GFSC for consultation will address these concerns.
Recommendations and Comments
Consideration should be given to amending the appropriate laws to require FIs to appoint a person to receive suspicious reports, and to require FIs to notify the GFSC of any change in such position. Consideration should be given to amending the relevant laws to require all FIs to put in place adequate screening procedures to ensure high standards when hiring employees along the lines of Part 5.01(3) of the Investment Licensees Rules, which applies to investment business only. The GFSC has issued draft revised Regulations for consultation which will address this concern. Consideration should be given to a requirement that all Guernsey FIs apply Guernsey legal and regulatory requirements in respect of AML/CFT to their branches and subsidiaries outside of Guernsey. The GFSC has issued draft revised regulations and Notes for consultation which will address this concern. The Notes should be amended to require that where the minimum AML/CFT requirements of the home and host jurisdictions differ, branches and subsidiaries in host jurisdictions should be required to apply the higher standard. The GFSC has issued draft revised Notes for consultation which will address this concern.
Implications for compliance with the FATF Recommendations 19, 20
Compliant
VII—Integrity standards (compliance with Criteria 62 and 63 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criterion 114 for the securities sector)
Description
62. Although there is no explicit provision of law prohibiting criminals from holding or controlling a significant investment in a FI, or from holding any qualified management functions therein, including in the executive or supervisory boards, councils, etc., the relevant supervisory laws require that such individuals be fit and proper, defined in all of the supervisory laws to include any evidence that such person has “committed any offense, and in particular any offense involving fraud or other dishonesty or violence” (Schedule 3(3) to the Banking Law; Schedule 1(3) to the Fiduciary Law; Schedule 7(3) to the Insurance Business Law; Schedule 4(3) to the Insurance Managers and Intermediaries Law). Promoters and all parties connected with open-ended funds (formed under the POI Law) and closed-ended funds (formed under the Control of Borrowing Ordinance) are similarly vetted. Under Section 8(1) of the Control of Borrowing Ordinance, the GFSC has the legal authority delegated by the Committee to review all applications to form Guernsey companies, even when they are not regulated by the GFSC, and equity and debt offerings over £500,000. In addition, Regulation 8(a) of the Regulations requires financial services businesses not regulated by the GFSC to notify the GFSC with information relating to directors, partners, senior officers, beneficial owners and controllers. Finally, according to the authorities, there is also scrutiny of each company by the Attorney General’s Chambers before it is allowed to be incorporated pursuant to an agreement with the United Kingdom. According to the authorities, individuals or legal entities attempting to operate, control or acquire a significant investment in a regulated financial institution cannot do so without formal vetting by the Commission. In conducting its review the Commission utilizes not only its own databases but also has access to information held by the Shared Intelligence System (SIS), Lexis/Nexis, the Financial Fraud Information Network (FFIN) and various websites such as those of the SEC and FBI. The Commission also utilizes, where appropriate, Guernsey Police and the databases and contacts to which the Guernsey Police have access. As a matter of policy, a Personal Questionnaire (Form PQ) must be completed and submitted to the Commission with regard to any individual to be appointed as either a director or relevant member of senior management of an entity (which includes compliance officers, money laundering reporting officers and company secretaries where they are not members of the Board of Directors). This form asks for personal details, relationship with the institution (and with former employees and other third parties), experience, qualifications, other business interests and questions to ascertain good reputation and character. The Form requires that any changes to the answers provided are to be notified to the Commission. The Commission uses these provisions to actively monitor the fitness and propriety of major shareholders and influencing parties on an ongoing basis. The Commission has the right to object to such a person where, in its opinion, such a person no longer meets the fit and proper criteria. Comprehensive due diligence checks are performed on the controllers of the financial services business and the institution. In licensing or approving new financial services businesses the Commission liaises with the home supervisor and other relevant regulators and bodies. This is a means of alerting the Commission to any issues of concern. Detailed checks of databases are also carried out as described above. The Commission holds meetings with the management of licensed entities as well as conducting on-site visits. During on-site visits the Commission assesses an entity’s key staff and directors to assess their fitness and propriety. 63. Although there is no explicit provision of law to prevent unlawful use of entities identified as vulnerable to use as conduits for criminal proceeds or FT, such as shell corporations or charitable or not-for-profit organisations, uunder Section 8(1) of the Control of Borrowing Ordinance, the GFSC has the legal authority delegated by the Committee to review all applications to form Guernsey companies, even when they are not regulated by the GFSC, and equity and debt offerings over £500,000. In addition, Regulation 8(a) of the Regulations requires financial services businesses not regulated by the GFSC to notify the GFSC with information relating to directors, partners, senior officers, beneficial owners and controllers, and to notify the GFSC with any such information prior to any changes. Finally, Section 96(b) of the Companies Law provides authority for the GFSC and the Committee to petition a court to wind up a company “for the protection of the public or of the reputation of the Bailiwick of Guernsey.” The Notes do not specifically address the use of entities such as shell companies. However in the context of correspondent banking relationships paragraph 139D indicates that Guernsey banks should not establish relationships with shell banks. Paragraph 85 of the Notes provides guidance for dealings with charities. The Notes provide guidance for the verification of corporations (including corporate trustees). Under paragraph 45 the Notes indicate that where an applicant for business is an institution but not a firm or company (such as an association or institute) all signatories should be treated as verification subjects. It further provides that in the case of clubs societies and charities all signatories on accounts should be treated as verification subjects.
Analysis of Effectiveness
The framework related to integrity standards is adequate.
Recommendations and Comments

Implications for compliance with FATF Recommendation 29
Compliant
VIII—Enforcement powers and sanctions (compliance with Criteria 64 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 93-96 for the banking sector and criteria 115-117 for the securities sector)
Description
With respect to explicit statutory authority to impose administrative or civil sanctions, the GFSC has the following powers relating to banks, investment business, fiduciaries, and insurance business (except as indicated): (i) issuance of a written directive or order, which does not apply to investment business and which may only be done as a last resort after the GFSC has decided to revoke or suspend (with respect to investment business) a license (although the functional equivalent of such authority is found in the placement of conditions on a license, see para. (iii) below)(Sections 12 of the Banking Law; 12 of the Fiduciary Law; 16 of the Insurance Business Law; 11 of the Insurance Managers and Intermediaries Law); (ii) issuance of a public statement, which is not available under Guernsey law; (iii) placing conditions on a license, which includes the authority “to require the institution to take certain steps . . .” (see, for example, Section 9(4)(a) of the Banking Law) and therefore is the functional equivalent of the issuance of a written directive r order (Sections 9 of the Banking Law; 9 of the Fiduciary Law; 5 of the POI Law; 12 of the Insurance Business Law; 7 of the Insurance Managers & Intermediaries Law); (iv) suspension or removal of directors and officers of any company, where the court considers that a person is unfit to be concerned in the management of a company on application by the Committee, the GFSC, the Attorney General, any corporate body of which the person in question is or has been an officer, a liquidator or creditor of the corporate body, or, with leave of the court, any other interested party. The person may be prohibited from being a director or officer of any company or any specified company, and from participating in, directly or indirectly, the management, formation or promotion of any company or any specified company (Section 67A of the Companies Law); in addition, conditions placed on a license may be used to remove a director as explicitly provided in the relevant laws (Sections 9(4)(e) of the Banking and Fiduciary Laws; 12(4)(e) of the Insurance Business Law; and 7(4)(e) of the Insurance Managers Law; (v) objections to controllers, defined as a managing director, chief executive, shareholder or shareholder group with 15 percent or more of voting power, and any person who exercises control over a director, which applies to all regulated sectors other than investment business (Sections 14 and 15 of the Banking and Fiduciary Laws; 25 and 26 of the Insurance Business Law; 36 and 37 of the Insurance Managers Law and sections 28A and 28B of the POI Law) (vi) appointment of a special auditor at the expense of the licensee, other than investment business (Sections 27 of the Banking Law; 24 of the Fiduciary Law; 69 of the Insurance Business Law and 46 of the Insurance Managers & Intermediaries Law); (vii) appointment for a defined period of a provisional or temporary administrator (typically with court approval), not applicable to any FSB; (viii) imposition of a range of civil penalties (administrative fines) on the licensee, its directors and senior managers, not applicable to any FSB; and (ix) revocation of license (Sections 8 of the Banking Law; 8 of the Fiduciary Law; 6 of the POI Law; 13 and 14 of the Insurance Business Law; and 8 and 9 of the Insurance Managers and Intermediaries Law). Paragraph 3 of the Notes state that “the Commission is entitled to take such failure to follow the Notes or an equivalent standard into consideration in the exercise of its judgment as to whether directors and managers are fit and proper persons.”
Analysis of Effectiveness
The framework for supervisory enforcement powers is generally adequate. It would be strengthened if the POI gave the GFSC the legal authority to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business
Recommendations and Comments
With respect to administrative sanctions, consideration should be given to amending the relevant laws to provide that all FSBs are subject to the same set of sanctions, particularly with respect to two powers available to the GFSC for all regulated sectors other than investment business: the issuance of a written directive or order and the appointment of a special auditor at the expense of the licensee. In addition, the relevant laws should be amended to provide for additional powers for the GFSC not currently in the law, in the areas of civil money penalties or administrative fines which may be imposed on companies and controllers and the ability to petition a court to appoint a provisional or temporary administrator or conservator for a defined period. Consideration should be given to amending the POI to provide the legal authority for the Commission to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business. The authorities have indicated that they will promote this change to the legislation.
IX—Cooperation between supervisors and other competent authorities (compliance with Criteria 65-67 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector-specific criteria 97-100 for the banking sector and criteria 118-120 for the securities sector)
Description
65. The Policy and International Affairs Division acts as a core resource upon which the regulatory divisions can draw and it is also responsible for the drafting of relevant AML/CFT regulations and the Guidance Notes. The Deputy Director is assisted by a consultant at the level of Assistant Director who is devoted to AML/CFT issues on a full time basis. Subsequent to the mission this officer left the GFSC. A senior analyst has joined the staff of the Division and is devoted fully to matters related to AML/CFT. GFSC has retained the services of an external consultant. The regulatory staff includes several people with specialist expertise in the financial fraud and anti-money laundering field including 2 ex-police officers (both in the Department of Fiduciary Services and the Enforcement Division) and two Certified Fraud Examiners. The Banking Division commenced on-site assessments of licensees in 1999. The other divisions commenced reviews in 2000. Files were well documented and suggested that AML/CFT reviews were thorough. The current resources devoted to AML/CFT appear to be adequate. AML/CFT surveillance undertaken by the FSC may however have been at the expense of surveillance activity related to other areas of risk. However subsequent to the mission’s visit staff resources have been increased. The Regulations require the GFSC to train its staff on anti-money laundering issues. The GFSC has held formal in-house training for its staff, with the most recent training prior to the mission having taken place in July 2002. Follow-up training is scheduled for January 2003. The GFSC also makes use of a computer based training package which regulatory staff must undertake. This incorporates an accreditation module where key aspects are tested to ensure adequate comprehension. 66. Section 21 of the Commission Law permits the GFSC to cooperate under certain circumstances, including “to enable the Commission to carry out any of its functions” (Section 21(2)(a), one of which is “the countering of financial crime and of the financing of terrorism” (Section 2(2)(d), and “for the purposes of the investigation, prevention or detection of crime with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings” (sections 21(2)(b) and 21A(b). The GFSC also relies on broad disclosure powers contained in the various supervisory laws (Section 34B of the POI Law, Section 4 of the Banking Law, Section 44 of the Fiduciary Law, and Section 57 of the Insurance Managers and Intermediaries Law and Section 80 of the Insurance Business Law). According to the authorities, the GFSC routinely provides the FIS, Police and Customs with intelligence and equally as routinely responds to requests for information from them where relevant. For example, the FIS liaises with the GFSC’s Fiduciary Services and Enforcement Division in order to obtain information from the GFSC. In addition, the GFSC provides advice to the FIS with respect to intelligence-gathering and, more broadly, the operations and commercial activities of FSBs, including on issues raised in STRs. 67. There are laws and procedures allowing the provision of the widest possible range of international cooperation between supervisors/regulators. The GFSC relies on the provisions of the Commission Law, which provides that the GFSC may cooperate under certain circumstances, including “for the purposes of the investigation, prevention or detection of crime with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings” (section 21A (b) of the Commission Law). The GFSC also relies on broad disclosure powers contained in the various supervisory laws (Section 4 of the Banking Law, Section 34B of the POI Law, Section 44 of the Fiduciary Law, Section 57 of the Insurance Managers and Intermediaries Law and Section 80 of the Insurance Business Law). For supervisory/regulatory purposes, the GFSC has entered into Memoranda of Understanding with the following: Australian Securities Commission (1996); United States Commodity Futures Trading Commission (1994); De Nederlandsche Bank NV (1993); United States Federal Deposit Insurance Corporation (1999); International Association of Insurance Supervisors (1994); International Organization of Securities Commissions (1991 and 1996); Jersey Financial Services Commission (1998); Hong Kong Securities and Futures Commission (1992 and 1994); The London Stock Exchange (1998); Commissione Nazionale per le Società e la Borsa (an Information Exchange Agreement in 1994 replaced by an MOU in 2002); and Isle of Man Financial Supervision Commission (2002). The GFSC is currently negotiating memoranda of understanding with four European regulators. Two of these were finalized subsequent to the mission. According the authorities, however, the GFSC does not require a memorandum of understanding to have been executed with foreign supervisors/regulators or law enforcement bodies before exchanging information with them. The most frequent exchange of information takes place with the United Kingdom’s Financial Services Authority and the United States Securities and Exchange Commission, notwithstanding that there are no memoranda of understanding in place. Court authorization is not necessary for the exchange of information, nor is there any requirement that the exchange of information should be reciprocal or that the requesting authority should be subject to an obligation of secrecy. In addition, the Director General and the Directors of the various Divisions of the GFSC sit on international committees which involve them in the dissemination of information on economic crime and criminals to other bodies internationally. Particular examples of this include: The Director General and the Deputy Director (Policy and International Affairs) sit on the Crown Dependencies Anti-Money Laundering Group which is comprised of senior regulatory, legal and enforcement personnel from Guernsey, Jersey and the Isle of Man; The Director of Fiduciary Services sat on FATF working group B concerned with enhancing the transparency of trusts and other corporate vehicles; The Director of Banking has participated in the ongoing work of the joint Basel/Offshore Group of Banking Supervisors Working Group on Cross-border Banking; The Director of Insurance has been the Chairman of the Insurance Fraud Sub-Committee of the IAIS which issued ‘Anti-Money Laundering Guidance Notes for Insurance Supervisors and Insurance Entities” during his chairmanship.
Analysis of Effectiveness
The general framework in respect of international cooperation is generally adequate.
Recommendations and Comments
Implications for compliance with FATF Recommendation 26
Compliant

Description of the Controls and Monitoring of Cash and Cross-Border Transactions

Table 6.

Description of the Controls and Monitoring of Cash and Cross-Border Transactions

Table 6.

Description of the Controls and Monitoring of Cash and Cross-Border Transactions

FATF Recommendation 22:
Description
At present, money above a prescribed sum (currently £10,000) that is suspected of being the proceeds of Drug Trafficking or intended for use in drug trafficking can be seized at the borders on import and export then detained for up to two years (section 52 of the DT Law). Forfeiture can then be sought under Section 53. Under the DT Law ‘money’ means cash (including coins and notes in any currency) or any negotiable instrument. By way of a recent example, in August 2002, one such seizure of cash was made under the current DTL, with regard to a convicted drug trafficker. This case is still pending. To enhance this, a comprehensive Guidance document has been issued to Customs Law Enforcement staff with regard to seizure of cash in the controls. Terrorism Similar provisions exist under Section 19 and Schedule 3 of the Terrorism Law. These provisions relate to ‘cash,’ which is defined as coins and notes of any currency, postal orders, checks of any kind including travelers checks, bankers drafts, bearer bonds or bearer shares, or any negotiable instrument found at any place in the Bailiwick (para. 1 of schedule 3). Terrorist cash anywhere in the jurisdiction can be seized as with the DT Law, the period of detention can be extended for up to two years pending forfeiture proceedings. Future Legislation Amendments to current AML legislation have been approved by the States of Guernsey to extend cash seizure and detention to cash believed to be the proceeds or represent the proceeds of crime or intended for use in criminal conduct (sections 6–19 of the draft Miscellaneous Provisions Law). The new law will provide for detection and forfeiture of cash which is over the prescribed amount of £10,000. Under the draft law it will be possible to seize cash anywhere in the jurisdiction. The law is expected to be approved by the States Assembly by the end of 2003.
FATF Recommendation 23:
Description
There is no requirement to report currency transactions beyond a specified threshold. Financial institutions are required by law to report suspicious transactions. In practice, the financial sector is encouraged to report suspicious cash transactions both through training that is given to them by Law Enforcement and paragraph 15B of the Notes states that: Interpretative Note to FATF Recommendation 22:
Description
From time to time Customs & Excise in partnership with their counterparts in the UK conduct exercises to assess the risk posed by the placement of cash in the Bailiwick. One such exercise was conducted in the last year and was initiated by HM Customs & Excise in the UK. This operation, which took place in April 2001, failed to identify passengers traveling to or from the Bailiwick carrying large quantities of cash. There is a requirement under the European Communities law 1973 for the Customs Department to cooperate with other Customs Services on matters of mutual concern. In addition, the Department exchanges intelligence world wide with Customs Authorities and have disseminated intelligence accordingly, when the need has arisen on matters of cash movements, and goods of high value.

Table 6.

Description of the Controls and Monitoring of Cash and Cross-Border Transactions

FATF Recommendation 22:
Description
At present, money above a prescribed sum (currently £10,000) that is suspected of being the proceeds of Drug Trafficking or intended for use in drug trafficking can be seized at the borders on import and export then detained for up to two years (section 52 of the DT Law). Forfeiture can then be sought under Section 53. Under the DT Law ‘money’ means cash (including coins and notes in any currency) or any negotiable instrument. By way of a recent example, in August 2002, one such seizure of cash was made under the current DTL, with regard to a convicted drug trafficker. This case is still pending. To enhance this, a comprehensive Guidance document has been issued to Customs Law Enforcement staff with regard to seizure of cash in the controls. Terrorism Similar provisions exist under Section 19 and Schedule 3 of the Terrorism Law. These provisions relate to ‘cash,’ which is defined as coins and notes of any currency, postal orders, checks of any kind including travelers checks, bankers drafts, bearer bonds or bearer shares, or any negotiable instrument found at any place in the Bailiwick (para. 1 of schedule 3). Terrorist cash anywhere in the jurisdiction can be seized as with the DT Law, the period of detention can be extended for up to two years pending forfeiture proceedings. Future Legislation Amendments to current AML legislation have been approved by the States of Guernsey to extend cash seizure and detention to cash believed to be the proceeds or represent the proceeds of crime or intended for use in criminal conduct (sections 6–19 of the draft Miscellaneous Provisions Law). The new law will provide for detection and forfeiture of cash which is over the prescribed amount of £10,000. Under the draft law it will be possible to seize cash anywhere in the jurisdiction. The law is expected to be approved by the States Assembly by the end of 2003.
FATF Recommendation 23:
Description
There is no requirement to report currency transactions beyond a specified threshold. Financial institutions are required by law to report suspicious transactions. In practice, the financial sector is encouraged to report suspicious cash transactions both through training that is given to them by Law Enforcement and paragraph 15B of the Notes states that: Interpretative Note to FATF Recommendation 22:
Description
From time to time Customs & Excise in partnership with their counterparts in the UK conduct exercises to assess the risk posed by the placement of cash in the Bailiwick. One such exercise was conducted in the last year and was initiated by HM Customs & Excise in the UK. This operation, which took place in April 2001, failed to identify passengers traveling to or from the Bailiwick carrying large quantities of cash. There is a requirement under the European Communities law 1973 for the Customs Department to cooperate with other Customs Services on matters of mutual concern. In addition, the Department exchanges intelligence world wide with Customs Authorities and have disseminated intelligence accordingly, when the need has arisen on matters of cash movements, and goods of high value.

Ratings of Compliance with FATF Recommendations, Summary of Effectiveness of AML/CFT efforts, Recommended Action Plan and Authorities’ Response to the Assessment

Table 7.

Ratings of Compliance with FATF Recommendations Requiring Specific Action

Table 7.

Ratings of Compliance with FATF Recommendations Requiring Specific Action

FATF Recommendation	Based on Criteria Rating	Rating
1 – Ratification and implementation of the Vienna Convention	1	Compliant
2 – Secrecy laws consistent with the 40 Recommendations	43	Compliant
3 – Multilateral cooperation and mutual legal assistance in combating ML	34, 36, 38, 40	Compliant
4 – ML a criminal offense (Vienna Convention) based on drug ML and other serious offenses.	2	Compliant
5 – Knowing ML activity a criminal offense (Vienna Convention)	4	Compliant
7 – Legal and administrative conditions for provisional measures, such as freezing, seizing, and confiscation (Vienna Convention)	7, 7.3, 8, 9, 10, 11	Compliant
8 – FATF Recommendations 10 to 29 applied to non-bank financial institutions; (e.g., foreign exchange houses)		Largely Compliant
10 – Prohibition of anonymous accounts and implementation of customer identification policies	45, 46, 46.1	Largely Compliant
11 – Obligation to take reasonable measures to obtain information about customer identity	46.1, 47	Largely Compliant
12 – Comprehensive record keeping for five years of transactions, accounts, correspondence, and customer identification documents	52, 53, 54	Compliant
14 – Detection and analysis of unusual large or otherwise suspicious transactions	17.2, 49	Compliant
15 -If financial institutions suspect that funds stem from a criminal activity, they should be required to report promptly their suspicions to the FIU	55	Largely Compliant
16 – Legal protection for financial institutions, their directors and staff if they report their suspicions in good faith to the FIU	56	Compliant
17 – Directors, officers and employees, should not warn customers when information relating to them is reported to the FIU	57	Compliant
18 – Compliance with instructions for suspicious transactions reporting	57	Compliant
19 – Internal policies, procedures, controls, audit, and training programs	58, 58.1, 59, 60	Compliant
20 – AML rules and procedures applied to branches and subsidiaries located abroad	61	Compliant
21 – Special attention given to transactions with higher risk countries	50, 50.1	Compliant
26 – Adequate AML programs in supervised banks, financial institutions or intermediaries; authority to cooperate with judicial and law enforcement	66	Compliant
28 – Guidelines for suspicious transactions’ detection	17.2, 50.1, 55.2	Compliant
29 – Preventing control of, or significant participation in financial institutions by criminals	62	Compliant
32 – International exchange of information relating to suspicious transactions, and to persons or corporations involved	22, 22.1, 34	Compliant
33 – Bilateral or multilateral agreement on information exchange when legal standards are different should not affect willingness to provide mutual assistance	34.2, 35.1	Compliant
34 – Bilateral and multilateral agreements and arrangements for widest possible range of mutual assistance	34, 34.1, 36, 37	Compliant
37 – Existence of procedures for mutual assistance in criminal matters for production of records, search of persons and premises, seizure and obtaining of evidence for ML investigations and prosecution	27, 34, 34.1, 35.2	Compliant
38 – Authority to take expeditious actions in response to foreign countries’ requests to identify, freeze, seize and confiscate proceeds or other property	11, 15, 16, 34, 34.1, 35.2, 39	Compliant
40 – ML an extraditable offense	34, 40	Compliant
SR I – Take steps to ratify and implement relevant United Nations instruments	1, 34	Largely Compliant
SR II – Criminalize the FT and terrorist organizations	2.3, 3, 3.1	Compliant
SR III – Freeze and confiscate terrorist assets	7, 7.3, 8, 13	Compliant
SR IV – Report suspicious transactions linked to terrorism	55	Compliant
SR V – provide assistance to other countries’ FT investigations	34, 34.1, 37, 40, 41	Compliant
SR VI – impose AML requirements on alternative remittance systems	45, 46, 46.1, 47, 49, 50, 50.1, 52, 53, 54, 55, 56, 57, 58, 58.1, 59, 60, 61, 62	Rated where applicable
SR VII – Strengthen customer identification measures for wire transfers	48, 51	Not being assessed in light of the two year compliance period provided by FATF.

Table 7.

Ratings of Compliance with FATF Recommendations Requiring Specific Action

FATF Recommendation	Based on Criteria Rating	Rating
1 – Ratification and implementation of the Vienna Convention	1	Compliant
2 – Secrecy laws consistent with the 40 Recommendations	43	Compliant
3 – Multilateral cooperation and mutual legal assistance in combating ML	34, 36, 38, 40	Compliant
4 – ML a criminal offense (Vienna Convention) based on drug ML and other serious offenses.	2	Compliant
5 – Knowing ML activity a criminal offense (Vienna Convention)	4	Compliant
7 – Legal and administrative conditions for provisional measures, such as freezing, seizing, and confiscation (Vienna Convention)	7, 7.3, 8, 9, 10, 11	Compliant
8 – FATF Recommendations 10 to 29 applied to non-bank financial institutions; (e.g., foreign exchange houses)		Largely Compliant
10 – Prohibition of anonymous accounts and implementation of customer identification policies	45, 46, 46.1	Largely Compliant
11 – Obligation to take reasonable measures to obtain information about customer identity	46.1, 47	Largely Compliant
12 – Comprehensive record keeping for five years of transactions, accounts, correspondence, and customer identification documents	52, 53, 54	Compliant
14 – Detection and analysis of unusual large or otherwise suspicious transactions	17.2, 49	Compliant
15 -If financial institutions suspect that funds stem from a criminal activity, they should be required to report promptly their suspicions to the FIU	55	Largely Compliant
16 – Legal protection for financial institutions, their directors and staff if they report their suspicions in good faith to the FIU	56	Compliant
17 – Directors, officers and employees, should not warn customers when information relating to them is reported to the FIU	57	Compliant
18 – Compliance with instructions for suspicious transactions reporting	57	Compliant
19 – Internal policies, procedures, controls, audit, and training programs	58, 58.1, 59, 60	Compliant
20 – AML rules and procedures applied to branches and subsidiaries located abroad	61	Compliant
21 – Special attention given to transactions with higher risk countries	50, 50.1	Compliant
26 – Adequate AML programs in supervised banks, financial institutions or intermediaries; authority to cooperate with judicial and law enforcement	66	Compliant
28 – Guidelines for suspicious transactions’ detection	17.2, 50.1, 55.2	Compliant
29 – Preventing control of, or significant participation in financial institutions by criminals	62	Compliant
32 – International exchange of information relating to suspicious transactions, and to persons or corporations involved	22, 22.1, 34	Compliant
33 – Bilateral or multilateral agreement on information exchange when legal standards are different should not affect willingness to provide mutual assistance	34.2, 35.1	Compliant
34 – Bilateral and multilateral agreements and arrangements for widest possible range of mutual assistance	34, 34.1, 36, 37	Compliant
37 – Existence of procedures for mutual assistance in criminal matters for production of records, search of persons and premises, seizure and obtaining of evidence for ML investigations and prosecution	27, 34, 34.1, 35.2	Compliant
38 – Authority to take expeditious actions in response to foreign countries’ requests to identify, freeze, seize and confiscate proceeds or other property	11, 15, 16, 34, 34.1, 35.2, 39	Compliant
40 – ML an extraditable offense	34, 40	Compliant
SR I – Take steps to ratify and implement relevant United Nations instruments	1, 34	Largely Compliant
SR II – Criminalize the FT and terrorist organizations	2.3, 3, 3.1	Compliant
SR III – Freeze and confiscate terrorist assets	7, 7.3, 8, 13	Compliant
SR IV – Report suspicious transactions linked to terrorism	55	Compliant
SR V – provide assistance to other countries’ FT investigations	34, 34.1, 37, 40, 41	Compliant
SR VI – impose AML requirements on alternative remittance systems	45, 46, 46.1, 47, 49, 50, 50.1, 52, 53, 54, 55, 56, 57, 58, 58.1, 59, 60, 61, 62	Rated where applicable
SR VII – Strengthen customer identification measures for wire transfers	48, 51	Not being assessed in light of the two year compliance period provided by FATF.

Table 8.

Summary of Effectiveness of AML/CFT Efforts for Each Heading

Table 8.

Summary of Effectiveness of AML/CFT Efforts for Each Heading

Heading	Assessment of Effectiveness
Criminal Justice Measures and International Cooperation
I—Criminalization of ML and FT	Measures taken to criminalize money laundering and terrorist financing are generally adequate. Present arrangements will be enhanced when Guernsey implements legislation to give effect to the Palermo Convention and the Convention for the Suppression of the Financing of Terrorism is extended to Guernsey.
II—Confiscation of proceeds of crime or property used to finance terrorism	The framework in place for the confiscation of the proceeds of crime or property used to finance terrorism is generally adequate. The framework would however be improved by the adoption of legislation to provide for an asset forfeiture fund and for asset sharing with other jurisdictions.
III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels	Arrangements for processing, receiving, analyzing, and disseminating financial information are generally adequate. The framework would be strengthened if the law required the reporting of suspicious transactions to the FIS, made failure to report, a crime and gave the FIS the power to require additional information from reporting parties without a production order. The general arrangements would also be strengthened if the staff complement of the FIS was increased by at least two persons.
IV—Law enforcement and prosecution authorities, powers and duties	The general framework for the powers and duties of law enforcement and prosecution authorities is considered to be adequate. The framework would be strengthened if sufficient funding were made available for technical support requirements of the FIS. Further, the planned legislation on investigatory powers included provision for controlled delivery would also strengthen the legal framework.
V—International cooperation	There is an adequate framework for international cooperation.
Legal and Institutional Framework for All Financial Institutions
I—General framework	Guernsey has an adequate mechanism for the implementation of its AML/CFT framework. The GFSC has authority to ensure effective implementation of AML/CFT policies for all regulated FIs. While the GFSC has power under the Regulations to monitor compliance of businesses that engage in bureau de change activities, check cashing and money transmission services (“MSBs”),. it does not currently have the authority to regulate MSBs, except to the extent that a bank or other regulated financial institution engages in such activities.
II—Customer identification	Measures in place for the verification of the identity are generally adequate although there are some concerns. relating to instances in which the language of the Notes could be strengthened to better communicate the standard which the Commission expects of licensees, the program for introduced business and the variation in practices used by institutions in relation to the progressive program for verification of customer identity.
III—Ongoing monitoring of accounts and transactions	There are generally satisfactory arrangements in place for the monitoring of transactions. However there are concerns with respect to enhanced scrutiny for wire transfers and the reporting of unusual or complex transactions,
IV—Record keeping	The framework for record keeping is generally adequate.
V—Suspicious transactions reporting	The framework for the reporting of suspicious transactions is generally adequate except with respect to the criminalization of failure to submit a suspicious transaction report under the POC and Terrorism laws.
VI—Internal controls, compliance and audit	The framework for internal controls and compliance is generally adequate. However there are some concerns with respect to issues related to consolidated supervision and the adequacy of screening of employees.
VII—Integrity standards	The framework related to integrity standards is generally adequate. However it would be strengthened if the POI law was amended to allow the GFSC to take into account the criminal history of applicants for licenses, directors and senior officers, as part of the definition of ‘fit and proper.”
VIII—Enforcement powers and sanctions	The framework for supervisory enforcement powers is generally adequate. It would be strengthened if the POI gave the GFSC the legal authority to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business.
IX—Cooperation between supervisors and other competent authorities	The general framework in respect of international cooperation is generally adequate.

Table 8.

Summary of Effectiveness of AML/CFT Efforts for Each Heading

Heading	Assessment of Effectiveness
Criminal Justice Measures and International Cooperation
I—Criminalization of ML and FT	Measures taken to criminalize money laundering and terrorist financing are generally adequate. Present arrangements will be enhanced when Guernsey implements legislation to give effect to the Palermo Convention and the Convention for the Suppression of the Financing of Terrorism is extended to Guernsey.
II—Confiscation of proceeds of crime or property used to finance terrorism	The framework in place for the confiscation of the proceeds of crime or property used to finance terrorism is generally adequate. The framework would however be improved by the adoption of legislation to provide for an asset forfeiture fund and for asset sharing with other jurisdictions.
III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels	Arrangements for processing, receiving, analyzing, and disseminating financial information are generally adequate. The framework would be strengthened if the law required the reporting of suspicious transactions to the FIS, made failure to report, a crime and gave the FIS the power to require additional information from reporting parties without a production order. The general arrangements would also be strengthened if the staff complement of the FIS was increased by at least two persons.
IV—Law enforcement and prosecution authorities, powers and duties	The general framework for the powers and duties of law enforcement and prosecution authorities is considered to be adequate. The framework would be strengthened if sufficient funding were made available for technical support requirements of the FIS. Further, the planned legislation on investigatory powers included provision for controlled delivery would also strengthen the legal framework.
V—International cooperation	There is an adequate framework for international cooperation.
Legal and Institutional Framework for All Financial Institutions
I—General framework	Guernsey has an adequate mechanism for the implementation of its AML/CFT framework. The GFSC has authority to ensure effective implementation of AML/CFT policies for all regulated FIs. While the GFSC has power under the Regulations to monitor compliance of businesses that engage in bureau de change activities, check cashing and money transmission services (“MSBs”),. it does not currently have the authority to regulate MSBs, except to the extent that a bank or other regulated financial institution engages in such activities.
II—Customer identification	Measures in place for the verification of the identity are generally adequate although there are some concerns. relating to instances in which the language of the Notes could be strengthened to better communicate the standard which the Commission expects of licensees, the program for introduced business and the variation in practices used by institutions in relation to the progressive program for verification of customer identity.
III—Ongoing monitoring of accounts and transactions	There are generally satisfactory arrangements in place for the monitoring of transactions. However there are concerns with respect to enhanced scrutiny for wire transfers and the reporting of unusual or complex transactions,
IV—Record keeping	The framework for record keeping is generally adequate.
V—Suspicious transactions reporting	The framework for the reporting of suspicious transactions is generally adequate except with respect to the criminalization of failure to submit a suspicious transaction report under the POC and Terrorism laws.
VI—Internal controls, compliance and audit	The framework for internal controls and compliance is generally adequate. However there are some concerns with respect to issues related to consolidated supervision and the adequacy of screening of employees.
VII—Integrity standards	The framework related to integrity standards is generally adequate. However it would be strengthened if the POI law was amended to allow the GFSC to take into account the criminal history of applicants for licenses, directors and senior officers, as part of the definition of ‘fit and proper.”
VIII—Enforcement powers and sanctions	The framework for supervisory enforcement powers is generally adequate. It would be strengthened if the POI gave the GFSC the legal authority to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business.
IX—Cooperation between supervisors and other competent authorities	The general framework in respect of international cooperation is generally adequate.

Table 9.

Recommended Action Plan to Improve the Legal and Institutional Framework and to Strengthen the Implementation of AML/CFT Measures in Banking, Insurance and Securities Sectors.

Table 9.

Recommended Action Plan to Improve the Legal and Institutional Framework and to Strengthen the Implementation of AML/CFT Measures in Banking, Insurance and Securities Sectors.

Criminal Justice Measures and International Cooperation	Recommended Action
I—Criminalization of ML and FT	Legislation will be required to implement the Palermo Convention as follows: iv) Guernsey’s current law concerning corruption is not wide enough to meet the Convention requirements. The States of Guernsey (the island’s parliament) have agreed in principle to enact a comprehensive anti-corruption law to be presented to the States Assembly for approval in September 2003. v) To meet the terms of Article 3 of the Protocol on Trafficking Persons, it will be necessary to enact provisions similar to sections 30 and 31 of the English Sexual Offenses Act 1956; vi) Legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings.
II—Confiscation of proceeds of crime or property used to finance terrorism	Consideration should be given to amending the Terrorism Law to provide for the appointment of a receiver for all property owned by a defendant to satisfy a confiscation order. Consideration should be given to adopting legislation that would provide for an asset forfeiture fund and for asset sharing with other jurisdictions.
III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels	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. In addition, legislation should be considered along the lines of the Draft Miscellaneous Provisions Law (Section 5) to provide that STRs should be submitted to the FIS on a form to be prescribed by law, with appropriate penalties. According to the authorities, this draft law is expected to presented to the States Assembly for approval in September 2003. Finally, consideration should be given to providing authority in law to the FIS to require additional information from reporting parties, without the need to meet the burden of proof required for a production order. The provision in the Draft Miscellaneous Provisions Law that such regulations may include a request as part of the STR form to the submitter of an STR to provide additional information does not appear to be sufficient for this purpose. Consideration should be given to amending the relevant laws to provide explicit legal authority for the GFSC to issue guidance notes. The Guernsey authorities should implement plans to increase the staff of the FIS by two intelligence officers as soon as is practicable.
IV—Law enforcement and prosecution authorities, powers and duties	Consideration should be given to including controlled delivery in the proposed legislation on investigatory powers. Funding should be made available for the development of the FIS’ IT resources. This technical support is essential for its future effectiveness and success especially in light of the continuing increase in STRs.
V—International cooperation
Legal and Institutional Framework for Financial Institutions
I—General framework	Consideration should be given to enacting a law to regulate MSBs.
II—Customer identification	The relevant laws should be amended to explicitly require that customer identification procedures be followed. The language of paragraphs 84 and 85A “the relevance and usefulness…should be carefully considered” as well as the language of paragraph 75 “documents that can be easily obtained…should not be accepted uncritically” should be amended to clearly communicate the standard that is expected of FSBs. The GFSC has issued draft revised Notes for consultation which address this issue. Since the Notes require the originator details to remain with the transfer throughout the payment chain, it is recommended that they be clarified and strengthened to specifically require the inclusion of the information in the first place. The GFSC has issued draft revised Notes for consultation which address this issue. The GFSC should communicate to banks that decisions taken on establishing relationships with higher risk customers should be taken by senior management. The GFSC has issued draft revised Notes for consultation which address this issue. The exception provided in section 63 which provides that a senior staff member may give appropriate authority to open an account where identity has not been verified is vague and should be redrafted to clarify the kind of circumstances in which the GFSC expects this discretionary power to be used. The GFSC has issued draft revised Notes for consultation which address this issue. The GFSC has already undertaken considerable work to direct FSBs towards the customer identification standards required by the Position Paper. It is nevertheless recommended that these efforts be redoubled to ensure a greater degree of consistency in the approach adopted by licensees.
III—Ongoing monitoring of accounts and transactions	Within the two-year period referred to by FATF, the relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer throughout the payment chain, and that FIs give enhance scrutiny to wire transfers that do not contain complete originator information. The GFSC has issued draft revised Notes for consultation which address this issue. The language of paragraph 25 of the Notes “may find it useful … to delegate responsibility for maintaining vigilance policy” does not clearly indicate the standard that the Commission expects of licensees and should be amended. The GFSC has issued draft revised Notes for consultation which address this issue.
IV—Record keeping	Consideration should be given to including a reference to customer transactions in the definition of customer documents in the Regulations. The GFSC has issued draft revised Notes for consultation which address this issue. The Notes should be amended to require that records of the currency involved, and the type and identifying number of any account involved in the transaction be maintained. The GFSC has issued draft revised Notes for consultation which address this issue.
V—Suspicious transactions reporting	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 under the POC Law, as in the DT Law, rather than as a defense to the crime of money laundering. The draft Miscellaneous Provisions law will be presented to the States Assembly for approval in September. Consideration should be given to providing the FIS with the authority to give instructions to reporting entities or to require FIs to observe instructions of the FIS. The wording of Section 102 of the Notes should be amended to address suspicion that funds have been used to finance terrorism. The GFSC has issued draft revised Notes for consultation which address this issue. The use of the term “key staff in paragraph 97 of the Notes in reference to the reporting of suspicions may suggest that only certain staff have a duty to report. The wording should be amended to make it clear that all staff have a duty to report suspicions.
VI—Internal controls, compliance and audit	Consideration should be given to amending the appropriate laws to require FIs to appoint a person to receive suspicious reports, and to require FIs to notify the GFSC of any change in such position. Consideration should be given to amending the relevant laws to require all FIs to put in place adequate screening procedures to ensure high standards when hiring employees along the lines of Part 5.01(3) of the Investment Licensees Rules, which applies to investment business only. The GFSC has issued draft revised Notes for consultation, which address this issue. Consideration should be given to a requirement that all Guernsey FIs apply Guernsey legal and regulatory requirements in respect of AML/CFT to their branches and subsidiaries outside of Guernsey. The GFSC has issued draft revised Notes for consultation that address this issue. The Notes should be amended to require that where the minimum AML/CFT requirements of the home and host jurisdictions differ, branches and subsidiaries in host jurisdictions should be required to apply the higher standard. The GFSC has issued draft revised regulations and Notes for consultation which address this issue.
VII—Integrity standards	Consideration should be given to amending the POI Law to allow the GFSC to take into account the criminal history of applicants for licenses, directors and senior officers, as part of the definition of ‘fit and proper’ along the lines of the Banking, Fiduciary and Insurance Laws. The authorities have indicated that such will receive royal assent the end of July 2003.
VIII—Enforcement powers and sanctions	With respect to administrative sanctions, consideration should be given to amending the relevant laws to provide that all FSBs are subject to the same set of sanctions, particularly with respect to two powers available to the GFSC for all regulated sectors other than investment business: the issuance of a written directive or order and the appointment of a special auditor at the expense of the licensee. In addition, the relevant laws should be amended to provide for additional powers for the GFSC not currently in the law, in the areas of civil money penalties or administrative fines which may be imposed on companies and controllers and the ability to petition a court to appoint a provisional or temporary administrator or conservator for a defined period. Consideration should be given to amending the POI to provide the legal authority for the GFSC to enter a licensees premises for the purpose of obtaining information and undertaking an assessment of its business. The authorities have indicated that an enabling provision has recently been added to the FSC Law and they intend to proceed with an Ordinance providing for a specific power to enter licensees’ premises at an early stage.
Banking Sector based on Sector-Specific Criteria
II—Customer identification
III—On-going monitoring of accounts and transactions	Banks should ensure that documented procedures stress the importance of staff understanding the nature of a clients’ business and the likely pattern of activity.
IV—Record keeping	Banks should ensure that their procedures provide detailed guidance on the type of customer transaction information that should be retained.
Securities Sector based on Sector-Specific Criteria
VII—Integrity standards
VIII—Enforcement powers and sanctions	The POI should be amended to provide for the Commission to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business.

Table 9.

Recommended Action Plan to Improve the Legal and Institutional Framework and to Strengthen the Implementation of AML/CFT Measures in Banking, Insurance and Securities Sectors.

Criminal Justice Measures and International Cooperation	Recommended Action
I—Criminalization of ML and FT	Legislation will be required to implement the Palermo Convention as follows: iv) Guernsey’s current law concerning corruption is not wide enough to meet the Convention requirements. The States of Guernsey (the island’s parliament) have agreed in principle to enact a comprehensive anti-corruption law to be presented to the States Assembly for approval in September 2003. v) To meet the terms of Article 3 of the Protocol on Trafficking Persons, it will be necessary to enact provisions similar to sections 30 and 31 of the English Sexual Offenses Act 1956; vi) Legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings.
II—Confiscation of proceeds of crime or property used to finance terrorism	Consideration should be given to amending the Terrorism Law to provide for the appointment of a receiver for all property owned by a defendant to satisfy a confiscation order. Consideration should be given to adopting legislation that would provide for an asset forfeiture fund and for asset sharing with other jurisdictions.
III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels	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. In addition, legislation should be considered along the lines of the Draft Miscellaneous Provisions Law (Section 5) to provide that STRs should be submitted to the FIS on a form to be prescribed by law, with appropriate penalties. According to the authorities, this draft law is expected to presented to the States Assembly for approval in September 2003. Finally, consideration should be given to providing authority in law to the FIS to require additional information from reporting parties, without the need to meet the burden of proof required for a production order. The provision in the Draft Miscellaneous Provisions Law that such regulations may include a request as part of the STR form to the submitter of an STR to provide additional information does not appear to be sufficient for this purpose. Consideration should be given to amending the relevant laws to provide explicit legal authority for the GFSC to issue guidance notes. The Guernsey authorities should implement plans to increase the staff of the FIS by two intelligence officers as soon as is practicable.
IV—Law enforcement and prosecution authorities, powers and duties	Consideration should be given to including controlled delivery in the proposed legislation on investigatory powers. Funding should be made available for the development of the FIS’ IT resources. This technical support is essential for its future effectiveness and success especially in light of the continuing increase in STRs.
V—International cooperation
Legal and Institutional Framework for Financial Institutions
I—General framework	Consideration should be given to enacting a law to regulate MSBs.
II—Customer identification	The relevant laws should be amended to explicitly require that customer identification procedures be followed. The language of paragraphs 84 and 85A “the relevance and usefulness…should be carefully considered” as well as the language of paragraph 75 “documents that can be easily obtained…should not be accepted uncritically” should be amended to clearly communicate the standard that is expected of FSBs. The GFSC has issued draft revised Notes for consultation which address this issue. Since the Notes require the originator details to remain with the transfer throughout the payment chain, it is recommended that they be clarified and strengthened to specifically require the inclusion of the information in the first place. The GFSC has issued draft revised Notes for consultation which address this issue. The GFSC should communicate to banks that decisions taken on establishing relationships with higher risk customers should be taken by senior management. The GFSC has issued draft revised Notes for consultation which address this issue. The exception provided in section 63 which provides that a senior staff member may give appropriate authority to open an account where identity has not been verified is vague and should be redrafted to clarify the kind of circumstances in which the GFSC expects this discretionary power to be used. The GFSC has issued draft revised Notes for consultation which address this issue. The GFSC has already undertaken considerable work to direct FSBs towards the customer identification standards required by the Position Paper. It is nevertheless recommended that these efforts be redoubled to ensure a greater degree of consistency in the approach adopted by licensees.
III—Ongoing monitoring of accounts and transactions	Within the two-year period referred to by FATF, the relevant laws should be amended to require that accurate and meaningful originator information on funds transfers remain with the transfer throughout the payment chain, and that FIs give enhance scrutiny to wire transfers that do not contain complete originator information. The GFSC has issued draft revised Notes for consultation which address this issue. The language of paragraph 25 of the Notes “may find it useful … to delegate responsibility for maintaining vigilance policy” does not clearly indicate the standard that the Commission expects of licensees and should be amended. The GFSC has issued draft revised Notes for consultation which address this issue.
IV—Record keeping	Consideration should be given to including a reference to customer transactions in the definition of customer documents in the Regulations. The GFSC has issued draft revised Notes for consultation which address this issue. The Notes should be amended to require that records of the currency involved, and the type and identifying number of any account involved in the transaction be maintained. The GFSC has issued draft revised Notes for consultation which address this issue.
V—Suspicious transactions reporting	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 under the POC Law, as in the DT Law, rather than as a defense to the crime of money laundering. The draft Miscellaneous Provisions law will be presented to the States Assembly for approval in September. Consideration should be given to providing the FIS with the authority to give instructions to reporting entities or to require FIs to observe instructions of the FIS. The wording of Section 102 of the Notes should be amended to address suspicion that funds have been used to finance terrorism. The GFSC has issued draft revised Notes for consultation which address this issue. The use of the term “key staff in paragraph 97 of the Notes in reference to the reporting of suspicions may suggest that only certain staff have a duty to report. The wording should be amended to make it clear that all staff have a duty to report suspicions.
VI—Internal controls, compliance and audit	Consideration should be given to amending the appropriate laws to require FIs to appoint a person to receive suspicious reports, and to require FIs to notify the GFSC of any change in such position. Consideration should be given to amending the relevant laws to require all FIs to put in place adequate screening procedures to ensure high standards when hiring employees along the lines of Part 5.01(3) of the Investment Licensees Rules, which applies to investment business only. The GFSC has issued draft revised Notes for consultation, which address this issue. Consideration should be given to a requirement that all Guernsey FIs apply Guernsey legal and regulatory requirements in respect of AML/CFT to their branches and subsidiaries outside of Guernsey. The GFSC has issued draft revised Notes for consultation that address this issue. The Notes should be amended to require that where the minimum AML/CFT requirements of the home and host jurisdictions differ, branches and subsidiaries in host jurisdictions should be required to apply the higher standard. The GFSC has issued draft revised regulations and Notes for consultation which address this issue.
VII—Integrity standards	Consideration should be given to amending the POI Law to allow the GFSC to take into account the criminal history of applicants for licenses, directors and senior officers, as part of the definition of ‘fit and proper’ along the lines of the Banking, Fiduciary and Insurance Laws. The authorities have indicated that such will receive royal assent the end of July 2003.
VIII—Enforcement powers and sanctions	With respect to administrative sanctions, consideration should be given to amending the relevant laws to provide that all FSBs are subject to the same set of sanctions, particularly with respect to two powers available to the GFSC for all regulated sectors other than investment business: the issuance of a written directive or order and the appointment of a special auditor at the expense of the licensee. In addition, the relevant laws should be amended to provide for additional powers for the GFSC not currently in the law, in the areas of civil money penalties or administrative fines which may be imposed on companies and controllers and the ability to petition a court to appoint a provisional or temporary administrator or conservator for a defined period. Consideration should be given to amending the POI to provide the legal authority for the GFSC to enter a licensees premises for the purpose of obtaining information and undertaking an assessment of its business. The authorities have indicated that an enabling provision has recently been added to the FSC Law and they intend to proceed with an Ordinance providing for a specific power to enter licensees’ premises at an early stage.
Banking Sector based on Sector-Specific Criteria
II—Customer identification
III—On-going monitoring of accounts and transactions	Banks should ensure that documented procedures stress the importance of staff understanding the nature of a clients’ business and the likely pattern of activity.
IV—Record keeping	Banks should ensure that their procedures provide detailed guidance on the type of customer transaction information that should be retained.
Securities Sector based on Sector-Specific Criteria
VII—Integrity standards
VIII—Enforcement powers and sanctions	The POI should be amended to provide for the Commission to enter a licensee’s premises for the purpose of obtaining information and undertaking an assessment of its business.

Authorities’ Response to the Recommended Action Plan to Improve Compliance with the FATF Recommendations

Overview

31. 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.

Criminalization of ML and FT

32. 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 will assist the Bailiwick to adopt the UN Convention Against Transnational Organized Crime (the Palermo Convention). The authorities will maintain their programme of legislation so that the Convention can be extended to Guernsey.

Confiscation of Proceeds of Crime or Property Used to Finance Terrorism

33. 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.

34. 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.

The FIU and Processes for Receiving, Analysing, and Disseminating Financial Information and Other Intelligence at the Domestic and International Levels

35. 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 to the Financial Intelligence Service. This will replace the existing legal provision whereby the reporting of a suspicion is a defence 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.

36. 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.

37. The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 provide that a court may take account of the Guidance Notes 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.

38. 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.

Law Enforcement and Prosecution Authorities, Powers and Duties

39. 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.

40. 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.

General Framework

41. 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.

Customer Identification

42. 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 comment 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).

43. With regard to the other comments made by the IMF, the GFSC has issued draft revised Guidance Notes to the finance sector for consultation.

44. The GFSC routinely communicates its policies to the finance sector and is consulting with the finance sector in connection with the publication of a statement on the FATF’s June 2003 Recommendation on introduced business.

Ongoing Monitoring of Accounts and Transactions

45. 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 enhancement to the framework on ongoing monitoring of accounts and transactions recommended by the IMF.

Record Keeping

46. 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.

Suspicious Transactions Reporting

47. See paragraph 35 for the response to the recommendation to introduce a new offence for failure to report a suspicious transaction.

48. 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.

49. The GFSC has issued draft revised Guidance Notes for consultation which address the issue of the use of the term “key staff”.

Internal Controls, Compliance and Audit

50. 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. They also include additional detail on the application of AML/CFT standards to the branches and subsidiaries of Guernsey financial services businesses.

51. With regard to the requirements for financial services businesses to appoint a person to receive suspicious transaction reports and to require financial services businesses to notify the GFSC of any change in such position, 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.

Integrity Standards

52. The Protection of Investors (Bailiwick of Guernsey)(Amendment No. 2) Law, 2003 requires the GFSC to take into account the criminal history of applicants for licences, directors and officers as part of the definition of “fit and proper”.

Enforcement Powers and Sanctions

53. 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.

54. It is intended 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.

55. The GFSC will report to the States of Guernsey Advisory and Finance Committee during 2004 in respect of civil money penalties and administrative fines.

56. 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 expected to be laid before the States Assembly for approval early in 2004.

Banking Sector based on Sector-Specific Criteria III – On-going Monitoring of Accounts and Transactions

57. 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 enhancement to the framework on ongoing monitoring of accounts and transactions recommended by the IMF.

Banking Sector based on Sector-Specific Criteria IV – Record Keeping

58. 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 specific recommendations on record keeping made by the IMF.

Securities Sector based on Sector-Specific Criteria VIII – Enforcement Powers and Sanctions

59. See paragraph 102 for the response to the recommendation to provide the GFSC with separate, explicit, statutory on-site inspection powers with regard to investment licensees.

III. Insurance Core Principles

A. General

60. This assessment of Guernsey’s compliance with the IAIS Core Principles has been completed as part of the IMF Offshore Financial Sector (OFC) assesment program. Completion of a formal assessment serves several purposes. First, it benchmarks the current state of insurance supervision, recognizing that there have been extensive changes in the last years. Second, it suggests a number of strengthening measures to aid in the development of an action plan to move toward full compliance with the Core Principles.

Information and methodology used for assessment

61. The review of the IAIS Core Principles involved comparison with the Core Principles and the Core Principles Methodology, the Standards and Principles already adopted, and a review of the necessary parts of the insurance laws.

Institutional and macroprudential setting—overview

Markets

62. Guernsey is the leading European insurance captive domicile with 382 captives and protected cell companies licensed for insurance purposes. It is number one in Europe before Luxembourg, Ireland, and the Isle of Man. The insurance sector employs nearly 1,000 persons. It has a strong and comprehensive legal framework, which is implemented by a supervisory authority, the Insurance Division of the GFSC. The legal framework is one of the most modern in the world. The Insurance Business (Bailiwick of Guernsey) Law, 2002 (IB Law) and the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law 2002 (IMII Law) came into effect on November 5, 2002.

63. The GFSC distinguishes between international and domestic insurance companies. International insurance companies are captive, life insurance companies or protected cell companies. Domestic companies are local domestic insurers or overseas insurers writing Guernsey risks.

64. Captive insurance companies were originally established to provide insurance coverage to all or some of the risks of its parent (industrial or commercial companies for instance). Broad captives occasionally cover more risks from third parties than from their parent and consequently become similar to commercial insurers.

65. A protected cell company (PCC) is a new form of company vehicle designed to make the advantages of captive insurance available to smaller companies by reducing costs and to also provide benefits for investment funds. The basic idea is that the PCC’s sponsor, instead of setting up separate captives for the businesses of each insured entity, sets up a single company vehicle and writes the various businesses into separate cells within the single vehicle. The assets of one cell are protected from the liabilities of another. The Protected Cell Companies’ Ordinance, 1997, allows the creation and the carrying of insurance business in Guernsey by these companies. The regulation provides segregation and protection of the individual cell assets. Two classes of assets are consequently identified: noncellular (attributable to the PCC or to the “Core”) and cellular (attributable to the cells). Creditors of any one cell shall have no entitlement to recourse to assets of any other cell, but, if the assets of that cell prove insufficient, they may have recourse to the PCC’s noncellular (core) assets. A formal process is provided in the regulation for liquidation, and for receivership or administration of any individual cell. The PCC may create both its own (core) shares and cell shares.

66. The capital and solvency requirements of the IB Law are applicable to insurance PCCs. If the core capital and net worth is intended to support the cell business, the usual solvency ratios will apply to the whole in a consolidated manner. Where each cell will be capitalized (with a minimum in the core) each cell will have to satisfy the ratio.

67. The GFSC supervises PCCs like all other insurers on a risk basis. The board of directors and management have to fulfill the requirements (fit and proper-test, accounting procedures, financial reporting, business plan, etc.) of the IB Law and its additional regulations regarding the special “cell nature” of these companies.

68. Guernsey was the first jurisdiction to introduce by law the concept of PCCs. It has proven extremely successful. It is, for instance, used by big industrial groups for their different subsidiaries or within a company for the different profit centers or by accountancy firms for the different professional liability coverage of their different partnerships, etc.

69. At the end of 2002 there were 50 licensed PCCs with 214 cells. The experiences with this new vehicle in the last five years since its introduction were good. There have not been any known negative reactions from courts outside Guernsey as at the date of this report. The structure seems to be recognized. Other countries like Bermuda (segregated account companies), Cayman Islands (segregated portfolio companies), and some jurisdictions in the United States have also introduced this concept.

70. International insurance companies (captives and PCCs) are mainly managed by 30 management firms. The biggest among them are managing between 50 and 140 companies (Aon Insurance Managers (Guernsey) Limited, Marsh Management Services Guernsey Limited, Willis Management Guernsey Limited). The management has to fulfill the directions of the board of directors of the insurance company. Tasks that need special knowledge (investment, auditing, actuarial duties, etc.) are usually outsourced by the board of directors. The managers need to be licensed by the GFSC under the IMII Law.

71. Domestic insurers are local insurance companies or overseas insurers writing Guernsey risks.

72. Local insurers are organizations incorporated in Guernsey writing, wholly or primarily business for the resident market. These include several mutuals, which date back as far as the early 1800s.

73. Overseas insurers are companies domiciled outside Guernsey (mostly from the United Kingdom) to write domestic insurance business. Where an overseas insurer advises or arranges contracts through a branch or its agent resident in Guernsey, the insurer is deemed to have a physical presence in Guernsey and is required to be licensed by the GFSC. Prudential supervision of these companies, including solvency, is the responsibility of the home supervisor. Where an insurer does not maintain a physical presence, the GFSC must be notified, and that insurer is classed as a recognized insurer. The GFSC relies on the home supervisor for supervision of the insurer. An insurer cannot be added to the recognized list without being licensed in its home jurisdiction.

General preconditions for effective insurance supervision

74. Within the GFSC supervision of insurance is carried out by the Insurance Division which is highly specialised and allows the GFSC to accumulate a deeper and broader knowledge and experience in the insurance business.

75. The bases of the insurance supervision are primarily the IB Law, IMII Law, and several regulations, ordinances, codes, and guidelines relating to insurance business (Box 1).

B. Detailed Assessment

Table 10.

Detailed Assessment of Observance of the IAIS Insurance Core Principles

Table 11.

Summary Observance of IAIS Insurance Core Principles

Table 11.

Summary Observance of IAIS Insurance Core Principles

Assessment Grade	Principles Grouped by Assessment Grade
Assessment Grade	Count	List
Observed	16	2-17
Largely observed	1	1
Materially nonobserved
Nonobserved
Not applicable

Table 11.

Summary Observance of IAIS Insurance Core Principles

Assessment Grade	Principles Grouped by Assessment Grade
Assessment Grade	Count	List
Observed	16	2-17
Largely observed	1	1
Materially nonobserved
Nonobserved
Not applicable

Table 12.

Recommended Actions to Improve Observance of IAIS Insurance Core Principles

Table 12.

Recommended Actions to Improve Observance of IAIS Insurance Core Principles

Reference Principle	Recommended Action
ICP 1	In order to strengthen the operational independence of the GFSC, the mission recommends that the GFSC Law be amended to remove the power of the Advisory and Finance Committee to provide guidance and direction to the GFSC. The GFSC Law should establish safety, soundness, and integrity of the financial system as the objectives of the GFSC, and eliminate “development” as one of the GFSC functions. Further, there should be no provisions in the Law that could potentially compromise the above stated objectives. This would provide a clear legal framework that would avoid potential conflicts in the functions of the GFSC. The attainment and sustainability of these objectives will enhance the reputation and contribute to the development of the financial system in Guernsey. Increase number of staff of the Insurance Division.
ICP 8	Increase the legally required solvency minimum.
ICP 14	Complete the range of sanctions by the power of the supervisor to impose penalties (administrative fines).

Table 12.

Recommended Actions to Improve Observance of IAIS Insurance Core Principles

Reference Principle	Recommended Action
ICP 1	In order to strengthen the operational independence of the GFSC, the mission recommends that the GFSC Law be amended to remove the power of the Advisory and Finance Committee to provide guidance and direction to the GFSC. The GFSC Law should establish safety, soundness, and integrity of the financial system as the objectives of the GFSC, and eliminate “development” as one of the GFSC functions. Further, there should be no provisions in the Law that could potentially compromise the above stated objectives. This would provide a clear legal framework that would avoid potential conflicts in the functions of the GFSC. The attainment and sustainability of these objectives will enhance the reputation and contribute to the development of the financial system in Guernsey. Increase number of staff of the Insurance Division.
ICP 8	Increase the legally required solvency minimum.
ICP 14	Complete the range of sanctions by the power of the supervisor to impose penalties (administrative fines).

Authorities’ Response to the Recommended Action Plan to Improve Observance of IAIS Core Principles

Overview

76. The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of Guernsey has achieved a high level of compliance with the IAIS Core Principles.

Organisation (ICP 1)

77. See paragraphs 12 and 13 for the response on the recommendations concerning the GFSC’s objectives and independence.

78. Since the IMF’s assessment the staff of the GFSC’s Insurance Division has increased to include an assistant actuary and two analysts, as recommended by the IMF.

Prudential Rules (ICP 8)

79. With regard to solvency requirements, provisions exist within the Insurance Business (Bailiwick of Guernsey) Law, 2002 for the GFSC to modify the solvency requirements of each insurer depending on the size, nature and complexity of the risks being written. Solvency levels for individual insurers are set on this basis. The GFSC’s requirements can be imposed at the licensing stage as well as on an ongoing basis. In practice, this means that solvency requirements are much higher than the minimum legal levels set under the law. The solvency of individual insurers is continually monitored by the GFSC.

Imposition of Penalties (ICP 14)

80. The GFSC will report to the States of Guernsey Advisory and Finance Committee in 2004 on the recommendation concerning the imposition of penalties.

IV. IOSCO Objectives and Principles of Securities Regulation

A. General

81. This assessment of Guernsey’s compliance with the IOSCO Objectives and Principles of Securities Regulation has been completed as part of the IMF Offshore Financial Sector (OFC) assesment program⁷. In the report the mission reviews the rules of law and practice about the regulation of securities and investments and, for this purpose, considers whether the Bailiwick has implemented the principles. The IOSCO, when adopting these Objectives and Principles, stated its commitment to high regulatory standards and effective international cooperation and these are central to the present assessment.

82. The GFSC is a statutory body responsible as a single regulator for the regulation and supervision of financial services business in the Bailiwick. It is a member of IOSCO and was a party to the IOSCO resolution adopting the statement of Objectives and Principles in September 1998. Company law is administered by the Law Officers. The Greffier maintains the register of companies.

Information and methodology used for assessment

83. The assessment has been undertaken by analyzing law and regulations, statements of best practice, and evidence of current practice in the Bailiwick and evaluating them against the 30 IOSCO Principles. Compliance with individual principles is rated according to the following; (i) implemented; (ii) broadly implemented; (iii) partially implemented; (iv) not implemented; or (v) not applicable.

84. In the course of this assessment the mission made a number of judgments. We report on these in Table 1 of the report.

85. The mission reviewed many background documents before or in the course of the assessment. These included the IMF’s own guidance notes on assessment process and procedures, various IOSCO reports and resolutions, relevant publications of OECD, selected Bailiwick legislation, regulations, ordinances, rules, codes and guidance statements, various documents on the GFSC website, the IOSCO self-assessments prepared by the GFSC, and various operational documents of the GFSC. In reviewing this material, the mission paid close attention to the explanatory notes accompanying the IOSCO statement of Objectives and Principles. It also considered the MFP Transparency Code. The mission had extensive discussions with representatives of the government, the FSC, professional bodies (including those representing independent auditors and legal advisers of firms licensed by the GFSC), industry associations, and a number of firms representative of the various categories of firms licensed to undertake securities and investment business. In the time available, the mission did not have the opportunity to confer with independent commentators.

86. There were no factors that impaired the assessment process. The mission received extensive briefings from GFSC staff on relevant matters and helpful answers to its many questions. The GFSC has a great deal of useful written material available, both on its website and in hard copy. The legislation, regulations, ordinances, rules, guidance statements and GFSC operational files were readily accessible. GFSC staff organized an extensive program of visits for team members. The mission is grateful for this.

Institutional and macroprudential setting, market structure

87. The core Bailiwick’s law for the regulation of securities and investments relate to:

the functions and powers of the GFSC;
the licensing and supervision of those who undertake controlled investment business, whether in relation to collective investment schemes (CISs) or to general securities and derivatives;
the authorization and supervision of CISs; and
the conduct of controlled investment business by licensees.

88. A person may not carry on a controlled investment business in or from within the Bailiwick unless licensed to do so. A “Bailiwick body” may not carry on controlled investment business outside the jurisdiction without a license. A person carries on controlled investment business if, by way of business, it engages in a restricted activity in connection with a controlled investment. The term “restricted activity” is defined to cover the various activities associated with the conduct of investment business including the issue of securities for subscription. The term “controlled investment” appears to cover the full range of securities and investment products; the most important of which for the Bailiwick are interests in CISs. In the most general terms and subject to a number of important exceptions a CIS is “any arrangement relating to property of any description (including money).” Life insurance policies that have the character of investments are excluded. They are regulated as insurance products. They are dealt with elsewhere in the mission’s overall report.

89. The most important types of investment business carried on in the Bailiwick are:

management, administration, and custody of collective investment funds (open and closed-ended);
discretionary asset management;
nondiscretionary asset management;
stock broking; and
provision of investment advice.

90. As at June 30, 2002, there were 428 entities licensed to carry on investment business, of which 403 were companies incorporated in the Bailiwick, one Bailiwick partnership and 24 branches of international institutions. Clients of investment businesses include local and overseas residents and local and overseas institutions and professional firms. The geographical spread of clients is diverse.

General preconditions for effective securities regulation

91. 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.”

92. Market access is determined by reference to the securities regulatory system and the decisions of the GFSC. The mission is not aware of any particular barriers to the entry or exit of market participants other than those which are incidental to the operation of the regulatory system. The Bailiwick does not have explicit rules of statute law about competition. It is nevertheless the team’s impression that there is a diversity of market participants engaged in investment business.

93. As noted above, the Bailiwick has a conventional framework of general business law including a common law system. Securities law is backstopped by rules of law about contract, tort and property, and about serious fraud and other crimes involving fraud and deceit. Securities law is also dependent on mature rules of law about the constitution of entities which issue securities for subscription, in particular, company law and partnership law. Guernsey and Alderney both have mature rules about the formation and administration of companies and partnerships.

94. Some industry representatives consider that the cost of compliance with securities regulation is higher in Guernsey (and in Jersey and the Isle of Man) than in competitor jurisdictions. In the main they appear to accept this. They do so on the basis that a key determinant of success for the Bailiwick as an international finance center is its reputation. We routinely encountered a general understanding in this context of the importance of the regulatory system and broad support for the regulatory policies of the Bailiwick authorities.

95. The Bailiwick depends for its ability to develop as an international finance center on the quality of its regulation, the expertise of its people, the cost of doing business there and its tax regime. It has encountered criticism in the past, particularly from neighboring countries, about its tax regime. The Bailiwick authorities consider it all the more important in the circumstances to have and to be seen to have soundly based law and procedures for the supervision and regulation of market participants and to cooperate and to be seen to cooperate with equivalent authorities in other jurisdictions.

96. The Bailiwick also depends for its ability to develop as a finance center on its willingness to cooperate more generally with others on regulatory matters. The GFSC has direct bilateral relations with a number of regulators in overseas jurisdictions under MOUs on cooperation in the regulation of financial markets and institutions.

97. It is against the background of these general comments that we proceed to examine the extent to which the Bailiwick has implemented the IOSCO Principles.

B. Detailed Assessment

Table 13

Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

Table 13

Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

Principles Relating to the Regulator
Principle 1.	The responsibilities of the regulator should be clear and objectively stated.
Description	The responsibilities of the GFSC are set out in the Financial Services Commission (Bailiwick of Guernsey) Law, 1987, and amendments (the GFSC Law) and are restated annually in Appendix 1 of the GFSC’s annual report. The responsibilities are divided into “general functions and statutory functions.” These are set out respectively in Sections 2 and 3 of the GFSC Law. The general functions of the GFSC include: to take such steps as it considers necessary or expedient for the development and effective supervision of finance business in the Bailiwick; to provide to the responsible Committee of the States, when requested, reports, advice and assistance on any matter connected with finance business; and to prepare and submit to the responsible committee recommendations for the statutory regulation of finance business and the revision of legislation about companies and other forms of business undertakings. The Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2002, adds to the GFSC’s general functions: “the countering of financial crime and of the financing of terrorism.” The GFSC’s statutory functions include administering the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the POI Law). The POI Law sets out the responsibilities and powers of the GFSC in connection with investment business. In addition the GFSC is responsible for the regulation of deposit taking, insurance business, the provision of fiduciary services, company administration, and acting as a company director by way of business. The GFSC is also responsible for administering the Borrowing (Control)(Bailiwick of Guernsey) Law, 1946 which applies in respect of the raising of money by the issue of shares; the issue of company shares and debentures; and the circulation of an offer of company shares or debentures. In the exercise of its functions the GFSC may take into account any matter which it considers appropriate but shall in particular have regard to: “(a) the protection of the public interest, including the protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons carrying on finance business; and (b) the protection and enhancement of the reputation of the Bailiwick as a financial center.” For the purposes of the GFSC’s function in relation to the development of finance business in the Bailiwick (see paragraph 2 above) the 2002 Amendment Law defines “development” to include, among other things, “without limitation”: “the establishment and ongoing support of bodies and organizations the functions of which include or are important or relevant to- the development of finance business in the Bailiwick and of that sector of the Bailiwick economy which carries on finance business; the improvement of the infrastructure of or serving that sector of the Bailiwick economy which carries on finance business; the protection of the public; or the protection and enhancement of the Bailiwick as a financial center.”
Assessment	Implemented.
Comments	We note that the IOSCO Principles are backed by the three IOSCO Objectives are: the protection of investors; ensuring markets are fair, efficient, and transparent; and reducing systemic risk. The Bailiwick may wish to consider in any review of its statement of responsibilities whether any aspect of its commitment to these objectives should be more explicitly recognized. We consider that the GFSC would be better placed to undertake work under the Borrowing (Control) Law if its powers were more up-to-date and better integrated with its other powers. The GFSC has informed us that it is proposing to review this Law, in the context of a more general review of Company Law. We recommend that the GFSC proceed to undertake this work. We have expressed concerns about the inclusion of development in the functions of the GFSC, particularly in the context of the enlarged definition of this term (see para 6 above). The GFSC has informed us that it will propose a change in the law to meet our concerns. The GFSC should be able to continue its support of the activities of the Training Agency that are consistent with the revised mandate.
Principle 2.	The regulator should be operationally independent and accountable in the exercise of its functions and powers.
Description	The GFSC has been established on the basis that it is operationally independent and fully accountable for its actions. The government is nevertheless responsible for the performance of a number of essential tasks: to secure the enactment of appropriate rules of law about its establishment and constitution and about the regulation of markets and institutions; to appoint and remove commissioners; to arrange appropriate sources and levels of funding; to afford the GFSC as an expert body which is continuously engaged with the private sector the opportunity to make recommendations on the laws which it administers and to receive and consider these recommendations; and as the primary stakeholder to be concerned for the reputation and good standing of the GFSC and for this purpose to ensure that the GFSC is able to maintain appropriate standards of independence and accountability and perform its statutory functions. In addition, the Bailiwick relies to a considerable extent on the finance sector and its professional advisers for people who are qualified to serve as commissioners. Appropriate arrangements need to be in place to ensure that the GFSC is able to act independently in its dealings with the finance sector. We consider that any question about the independence and accountability of the GFSC needs to be answered in the context of these matters and the transparency with which they are addressed. Operational independence The law There are extensive rules of law about the GFSC and its responsibilities. These are described elsewhere in this report. They are enacted by or under the authority of the States. The States also have a continuing role in respect of secondary legislation. The States have an active and commendably large program of law reform work. The GFSC consists of five members. The policies and procedures pursuant to which they are appointed and removed are described in the law. The members are elected by the States from persons nominated by the committee and “having knowledge, qualifications or experience appropriate to the development and supervision of finance business in the Bailiwick.” The members hold office for three years and are eligible for reelection. The Chairman is selected annually by the States from among the members. In the past the President of the Advisory and Finance Committee was required to be Chairman but this requirement ceased to apply with effect from February 1, 2003. We do not consider that the appointment of members under the law as amended raises questions for us on the independence of the GFSC. We consider, however, that difficult questions would arise on any proposal to appoint a person as a commissioner who was a member of the States. Both the States and the Advisory and Finance Committee have responsibilities under the laws which the GFSC administers and, to the extent practicable, need to be independently responsible and accountable in performing their respective functions. We think this might be all the more important where, as in the Bailiwick, there are close constitutional links between the legislature, the government, and the judiciary. We understand, however, that the present policy of the government is not to appoint a politician to the GFSC. A member may be removed from office for cause by the Chairman or by the States on the recommendation of the Advisory and Finance Committee. We query whether the Chairman of a statutory GFSC should have a personal discretion to remove other members from office. We think the Bailiwick should review this discretion. Funding The present institutional arrangements adopted by the States for the funding of the GFSC appear to work well and do not affect the GFSC’s capacity to perform its work independently. Comment on funding more generally is dealt with elsewhere in the mission’s report. Recommendations on the law—General policy The GFSC has explicit functions and responsibilities about advice and recommendations including those on the revision of legislation. It also has rule making powers. It is expected to consult with industry and others on much of its policy work. It is independently accountable for this work. This seems appropriate. However, a question arises for us under Section 7 of the GFSC Law which provides that the Advisory and Finance Committee may, “after consulting the Commission, give to the Commission written guidance of a general character; and written directions of a general character, concerning the policies to be followed by the Commission in relation to the development and supervision of finance business in the Bailiwick and the manner in which any function of the Commission is to be carried out.” In principle, in the context of optimum arrangements about accountability and transparency, the power to give guidance and directions to a securities regulator should not be necessary. The policy of the law should be clear and the responsibilities of the regulator clear and objectively stated. If there is to be a power, it should be crafted to apply squarely within the core functions and responsibilities of the regulator, to be of a general character and not to intrude on operational independence. In the present case we have three comments: the power applies not only to matters of policy but also to the manner in which the GFSC carries out its functions; the power applies in respect of the GFSC’s development function; and acknowledging that any exercise of this power would be profoundly important in the life of the GFSC and, potentially, the license holders and others, we consider that the power should be exercised publicly. Notwithstanding these comments, we conclude that broadly speaking the power of guidance and directions conforms with Principle 2. We record moreover as a practical matter that we have seen no evidence of a lack of independence on the part of the GFSC in its dealings with others. There is a code of conduct regulating the conflicts of interests of commissioners. This was formally approved at a meeting of the GFSC. There is an equivalent code in the Staff Handbook applying to all staff. There are procedures for ensuring adherence to these. Accountability The commissioners are elected by the States under the GFSC Law. The GFSC is required to report annually to the Advisory and Finance Committee on its activities and financial affairs. This report must include a review of: the adequacy and application of its systems of internal control; the effective, efficient and economical management of its assets and resources; and its compliance with such generally accepted principles of good corporate governance as it is reasonable to regard as being applicable to it. The report is published and is made available on the GFSC’s website. Important decisions must be made in accordance with prescribed procedures. Section 35 of the POI Law requires that on any decision of the GFSC: to refuse an application for a license; to impose a condition on a license; to cancel or suspend a license otherwise than at the request of the licensee; to refuse authorization to a collective investment scheme; to impose any condition on an authorization of a collective investment scheme; or to revoke or suspend the authorization of a collective investment scheme otherwise than at the request of the manager, trustee or custodian. The GFSC must notify the applicant in writing of a proposed decision, offer the applicant up to 28 days to make oral or written submissions and, on request, furnish written reasons why it is considering taking the decision. The applicant may appeal to the Court against the decision on the grounds that it was ultra vires or was an unreasonable exercise of the GFSC’s powers. The Court may quash or confirm the decision or may substitute any other decision which the GFSC could have made. In addition, the Court may review administrative decisions of the GFSC under its general power of judicial review. We query whether a court of law should have a general power to substitute its decisions for the decisions of an independent regulator which is bound by the rules of fairness, particularly where appeal rights are limited to ultra vires and unreasonable grounds. It might be better if the Court’s power were limited to referring the matter back for redetermination. In addition from the time of institution of an appeal, the decision ceases to operate against the appellant. This is subject to a direction to the contrary by the Court on the application of the GFSC. The interests of investors and potential investors may be seriously at risk and we consider that the GFSC decision should continue to operate subject to any order of the Court on the application of the appellant. We understand it to be an accepted principle of the Common Law and associated jurisdictions that the decision of a tribunal or court should remain effective subject to the exercise by the court of an explicit power to stay the decision for good reason by interim order. Otherwise, these procedures for appeal and judicial review seem appropriate. The Director General and his staff regularly exercise certain of the powers of the GFSC on behalf of the commissioners. The Director General reports back to the commissioners on the exercise of these delegated powers. This is appropriate. The commissioners have powers of delegation and they have exercised them. Conclusions We consider that the Bailiwick has broadly implemented Principle 2 as it relates to operational independence. We consider that the Bailiwick has implemented Principle 2 as it relates to Accountability.
Assessment	Broadly implemented.
Comments	We raise questions about the following matters: the discretion available to the Chairman of the GFSC to remove other members from office (para 7 above); the terms and conditions under which a direction or guidance may be given to the GFSC (para 10 above); and the consequences of an appeal to the Court against a decision of the GFSC on the grounds that it is ultra vires or unreasonable (para 15 above).
Principle 3.	The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.
Description	Powers The GFSC Law confers certain general powers which it describes as relating to the capacity of the GFSC as a corporate body. Section 8 of the Law provides that the GFSC may do anything which appears to it to be conducive to the carrying out of its functions. It may: obtain information on development and supervision; consult and seek advice; publish information relating to its functions; and provide advice, assistance and services with a view to securing the general well being of finance business in the Bailiwick. In addition to these general powers, the GFSC has power under the GFSC Law: to levy fees and charges (Section 13); to cooperate with foreign regulators including to share information which it may lawfully disclose (Section 21A); to disclose confidential information where necessary: to enable it to carry out a function under the GFSC Law; and to assist an authority in another jurisdiction with functions corresponding to its own. The GFSC has powers under the POI Law. These include: to grant or refuse a license to carry on a controlled investment business (Section 4); at any time on or after the issue of a license to impose such conditions as appear to the GFSC to be necessary or desirable (Section 5); to cancel or suspend a license (Section 6); to authorize a CIS (Section 8); to impose conditions on an authorization (Section 9); to revoke or suspend an authorization (Section 11); to make rules about controlled investment business and authorized CISs (Sections 12 to 20); to obtain information from licensees and those appearing to require a license (Sections 27 and 30); to report an auditor to a disciplinary body (Section 27B); to apply to the Court for an injunction (Section 33); to apply to the Court for a restitution order (Section 33); to request the Law Officers to apply to the Court to prohibit a company director or manager (Companies (Guernsey) Law, Section 67A); to request the Law Officers to bring criminal proceedings against any person. In addition, the Advisory and Finance Committee has power to regulate in particular cases. The GFSC exercises powers under the Borrowing (Control) (Bailiwick of Guernsey) Law, 1946 and the 1959 Control of Borrowing Ordinance (COBO) made under it, on transfer from the Advisory and Finance Committee. These include: consent to the raising of money by the issue of shares; consent to the issue of partly paid shares; consent to the issue of securities other than shares if the body corporate is incorporated under the laws of the Bailiwick or the securities are to be registered in the Bailiwick; consent to the circulation of a public offer of securities for sale or subscription; and authorize the registration of a limited partnership. The GFSC’s powers under the POI Law are extensive. It makes extensive use of the rule making powers in respect of CISs and those engaged in investment business. It makes extensive use of the operational powers in the ongoing regulation of licensees. The GFSC does not have power to issue directions to licensees. However, it has power to impose conditions on a license (section 5 POI Law). This power is expressed in the Law in terms that render it in substance, we consider, a power to give directions as well as a power to impose conditions. The power is described under Principle 9 paragraph 1 below and procedures relating to the exercise of the power under Principle 2 paragraph 14 above. The GFSC does not have power to impose administrative fines. However, we think the power to impose conditions on a license in the terms in which it is expressed in the Law can be an effective procedure for regulating licensees on a continuing basis. There are powers in the POI Law for dealing with a person who engages in investment business without a license. These are less effective than those which apply to a licensed person. One additional power which the GFSC might find useful, which is not provided in the present Law or in the proposed amendment law on misleading statements and practices, is the power to prohibit promotional statements by administrative process where in the opinion of the GFSC they are misleading or do not comply with the law. There are precedents for such a power in other jurisdictions. It would apply particularly to unlicensed persons but may also be a valuable supplementary procedure for dealing with uncooperative licensees. The GFSC does not have power to make rules under the Borrowing (Control) Law. It has power to consent to an issue of securities. This applies to investment products other than CISs, most importantly, interests in closed-ended investment schemes, interests in the cells of what are called protected-cell company and securities issued by trading companies, in the form of shares and debentures. The GFSC issues administrative guidance. It expects shortly to have explicit power under COBO to issue guidance on its COBO based policies. Moreover, the managers of an investment company based in the Bailiwick will need to hold an investment business license. The GFSC does not have an explicit power to review market practice and comment publicly on it. We refer to this matter under Principle 8. It does not have power to require a person, other than a licensee, to produce information for the purpose of communicating to an offshore regulator, merely to communicate the information which it has already acquired. We refer to this matter under Principle 13. The GFSC does not have full on-site inspection powers or the power of entry and search. We consider this under Principle 8. Resources The GFSC has the following divisions: banking, investment business, insurance, fiduciary business and enforcement, operations and personnel, and policy and international affairs. It also jointly funds a Training Agency the development of which it has taken responsibility for. The GFSC has a current complement of staff of 72. There are 19 people in the Investment Business Division including the director. The director expects to have an establishment of 24 people in the New Year. The present establishment is one secretary, 12 analysts, 4 senior analysts, a deputy director and a director. The division is subdivided into three teams, one for authorizations, one for off-site review and one for on-site inspections. The arrangements for the funding of the GFSC as described elsewhere in this report appear sound and reliable. The forward program of work for the Investment Business Division as described to the mission seems robust and the level of resources available for securities and investment work seem appropriate to the jurisdiction. The mission has met with a number of people in the financial services industry. It is our impression that the efforts of the GFSC are well supported in the community, reinforcing its capacity to perform its functions and exercise its powers effectively as an investment business regulator.
Assessment	Implemented.
Comments	The GFSC may find it useful to have statutory power to prohibit promotional statements which in its opinion are misleading or do not comply with the law (see para 8 above). We comment further on the powers of the GFSC under Principles 8 and 13 below in relation to on-site inspection and entry and search, GFSC public comment on investment business management and marketing practice, and obtaining information for the purpose of communicating to an overseas regulator.
Principle 4.	The regulator should adopt clear and consistent regulatory processes.
Description	As noted above the GFSC has wide power to issue rules about investment business and has made extensive use of this. It consults widely on all its proposals for new rules. Indeed, it is required to do so under the POI Law (Section 13). There appears to be a wide-spread support in the finance sector for this rule-making power. The GFSC may give advice on the operation of the law or its own functions. These include general circulars to the investment industry and the media, articles in its publication « Update » and the annual report. The GFSC also produces guidance notes which are available on its website or directly from the GFSC. These include: Investment Business in Guernsey—A Regulatory Overview; Guidance Note—Outsourcing of Administration Functions in respect of Authorized Collective Investment Schemes; Incorrect pricing of Authorized Collective Investment Schemes—Guidance Note on Correction and Compensation; Guidance Notes on UK Public Offers and Promotional Activities; and Guidance Notes on the Prevention of Money Laundering and the Countering of the Financing of Terrorism. It publishes general conclusions arising from investigations and, indeed, from routine monitoring. We have found a great deal of useful material on the website. In formulating its policies and processes, the GFSC has said that it aims to adhere to high regulatory standards following extensive industry consultation. Any person who is aggrieved by a decision of the GFSC on designated matters relating to the administration of the Law may appeal to the Court on the grounds that the decision was ultra vires or an unreasonable exercise of its powers. The GFSC is required under the POI Law to follow certain prescribed steps when taking various decisions about licensing or authorization matters. It must give notice that it is considering taking the decision and offer to state its reasons in writing on request. More generally, the staff handbook provides for GFSC staff to observe standards of fairness in performing the GFSC’s regulatory and supervisory work.
Assessment	Implemented.
Comments
Principle 5.	The staff of the regulator should observe the highest professional standards including appropriate standards of confidentiality.
Description	Section 18 of the GFSC Law requires the GFSC to review in each year, by the appointment of appropriately qualified and independent professional persons or otherwise, its “compliance with such generally-accepted principles of good corporate governance as it is reasonable to regard as being applicable to the Commission.” The commissioners are required to satisfy themselves about the conclusions of this review. The staff handbook sets standards for the staff including standards about the confidentiality of information. The GFSC is required to review annually its professional standards, including its standards of confidentiality. Avoidance of conflicts of interest The commissioners and GFSC staff are required to be aware of actual and perceived conflicts of interest arising from the use of confidential information in their possession or to which they have access. commissioners and GFSC staff are required to submit details of investment holdings to a designated officer of the GFSC and, if necessary, explain any transactions. A commissioner or member of staff who becomes aware of a conflict of interest must inform a Director or the Director General as soon as possible. Staff are not permitted to present themselves for election to any significant public office including that of States Deputy. The commissioners are also required at each meeting of the commissioners to disclose any potential conflicts of interest arising at the meeting. All potential conflicts of interest as disclosed are minuted. Observance of confidentiality and protection of data The GFSC maintains standards of confidentiality in accordance with its standing policies. The GFSC Law protects the name of an individual or body and certain other information. The GFSC is subject to the confidentiality provisions of the GFSC Law. In addition it is subject to the Data Protection (Bailiwick of Guernsey) Law, 2001 which specifies the framework for the holding and disclosure of personal data. Procedures on compliance with this law are contained in the Staff Handbook. Observance of procedural fairness We refer to the GFSC’s procedures under Principle 4 above.
Assessment	Implemented.
Comments
Principles of Self-Regulation
Principle 6.	The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, and to the extent appropriate to the size and complexity of the markets.
Description	There is one SRO in the Bailiwick, the Channel Islands Stock Exchange (CISX). The CISX was established in March 1998 as a company limited by guarantee (LBG), with shares, under the Companies (Guernsey) Law, 1994. The objects of the CISX as set out in its Memorandum of Association include: to carry on the business of an investment exchange and clearing house; to provide, manage and regulate markets in, and to provide clearing and settlement services with respect to transactions in, investments of all kinds, whether direct or derivative, including financial instruments and currencies; and to provide facilities for the transaction of the businesses of broking, dealing, market-making, stock lending, investment management and advice and other businesses in the field of financial services; to act as an authority for the admission of investments to be traded or dealt in on any exchange or market and to maintain any official list for the time being required or recognized by the law of any country; to provide information, depository and nominee services; to provide, maintain and operate, systems for and in connection with the evidencing and transfer of investments without a written instrument and to regulate the use thereof; to enter into arrangements of any kind and to cooperate and share information with governmental and nongovernmental authorities, bodies and persons in any part of the world, and in particular with those having responsibility for the supervision or regulation of financial services; to promote high standards in the financial services industry and in particular to make, administer, monitor and enforce rules governing access to and use of any services and facilities provided by the CISX and the qualification and conduct of persons engaging in the financial services industry or any part thereof, and to make arrangements for the investigation of complaints in respect of business transacted by means of the CISX’s services and facilities; to establish and maintain, by the levying of contributions, by insurance or otherwise, compensation schemes for the benefit or protection of the public or of any class of persons; and to carry on business as a general commercial company. The CISX is licensed by the GFSC under the POI Law to carry on the restricted activity of “operating an investment exchange” and is subject to GFSC regulation and supervision. The CISX has power under its Articles of Association to make Rules. It has made Membership Rules and Listing Rules. It monitors compliance with and enforces them. The rules require the members to be appropriately regulated. We consider this to be an appropriate use of an SRO.
Assessment	Implemented.
Comments
Principle 7.	SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.
Description	There is one SRO, the CISX. The GFSC reviewed the CISX’s constitution, structure, staffing plans, proposed rules and internal procedures before issuing a license and assessed them against equivalent arrangements in other jurisdictions, notably the United Kingdom. The CISX aims to ensure, among other things, that it observes standards of fairness and confidentiality. The GFSC maintains a program of on-site and off-site supervision and aims to verify this. The CISX has power, among other things, under its Articles of Association to make rules respecting: the admission of members; the conduct of disciplinary proceedings and the imposition of sanctions; appeals against refusal of membership, expulsion, exclusion or suspension and other disciplinary sanctions; and the admission of securities to the Official List. It has exercised this power in making Membership Rules and Listing Rules. The Articles establish a Market Authority “for the purposes of managing, operating and regulating the Company” and confer on it wide powers including the power “to apply and enforce Rules” and “to supervise compliance with the Rules.” If the Market Authority rejects an application the Rules provide for a right of appeal to the board of directors and prescribe the procedure for this. There is a Disciplinary Committee which is responsible for considering reports from the Market Authority on disciplinary matters and there is a right of appeal from its decisions to a Disciplinary Appeals Committee. The Market Authority is effectively a senior management team. It is responsible for both operational and compliance matters. There is no formal separation at the decision making level within management between these two broad functions. Similarly there is no formal separation at the Board level when it is acting as an appeal authority. There is a Disciplinary Committee and a Disciplinary Appeals Committee which, like the Market Authority, are required to act fairly. These committees are described as sub-committees of the Board. There is no further statement in the CISX Rules about the structure or composition of these committees. This procedure appears to work well in practice in the Bailiwick and to have the confidence of the finance sector. CISX Directors have established clear rules about conflicts of interests, the confidentiality of information and the need to act in good faith. Staff at the CISX has equivalent obligations. Pursuant to their contracts of employment they sign an annual employee code of conduct. The Investment Exchange (Notification) Rules 1998 provides that the CISX must, in the case of: the chairman, chief executive and board members; the persons responsible for compliance and for finance; the members of any body to which the CISX has delegated rule- making powers; the members of any disciplinary body; any arbitrator or member of an arbitration panel; and the members of any complaints body, notify the GFSC of any: change of name; conviction for any offense concerning fraud or other dishonesty; conviction for any offense under any legislation relating to finance business; initiation of bankruptcy or similar proceedings; refusal of any application for, or revocation or suspension of any license authorization or registration under any finance legislation; disciplinary measures or sanctions by a regulatory authority or professional body; and Court order disqualifying the person from acting as a director or manager of a company. The CISX is required to submit an annual regulatory plan in draft to the GFSC, the annual budget, any proposal to change the CISX rules, any proposal to change the Memorandum or Articles of Association and any proposal to delegate monitoring to a body outside the CISX. The GFSC monitors the operations of the CISX by off-site review and on-site inspections.
Assessment	Implemented.
Comments	We comment further on the structure and operations of the CISX under Principles 25 and 26.
Principles for the Enforcement of Securities Regulation
Principle 8.	The regulator should have comprehensive inspection, investigation and surveillance powers.
Description	The GFSC’s powers of inspection and investigation are set out in Section 27 of the POI Law. The GFSC may require a licensee and certain other persons: to attend before the GFSC and answer questions and otherwise furnish information; to furnish the GFSC with such information as it may reasonably require about any specified matter; and to produce books or papers. The obligation to comply extends to any person who appears to the GFSC to be carrying on controlled investment business (Section 30). It is an offense to provide a misleading response to an enquiry by the GFSC under Sections 27 and 30 of the POI Law. The GFSC conducts on-site visits for the purpose of ensuring that licensees comply with the POI Law and the rules and regulations made under it. All licensees are subject to on-site visits. The GFSC does not have statutory on-site inspection powers and powers of entry and search. These are particularly useful powers in dealing urgently with an investment business which should be licensed but is not or which is unwilling to respond to a license condition. We consider it may be difficult to deal efficiently with this type of situation under the present law. Under a 2003 amendment to the GFSC Law which received royal assent after the mission the States can by Ordinance provide for the making by the Commission of site visits in respect of licensees and any other class of person. While it may not be necessary for the GFSC itself to have a power of entry and search an associated regulator such as the Law Officers should be able to act on its behalf in appropriate circumstances. The GFSC has indicated that it expects to see the Ordinance made in early 2004. Section 27(A) of the POI Law requires audit firms to report to the GFSC on any matter relating to a licensee, to a fund or to a client which appears to the auditor to be of material significance for determining whether a person is fit and proper to carry on controlled investment business, or whether the GFSC should exercise its powers under the POI Law to protect investors from significant risk of loss. As observed under Principle 3 the GFSC does not have an explicit power to review investment business management and market practice and to comment publicly on it. It would afford statutory backing to its practice of publishing conclusions arising from its investigation and monitoring work (see Principle 4 para 2 above). It would empower the GFSC to undertake case studies and publish reports in circumstances where an intermediary has engaged in an undesirable practice less than a breach of the law or a license term. It is in the context of this wide power of review that any power of the GFSC to publicly report institutions or individuals that are found to be not in compliance with regulatory or legal requirements can be most effective. In the absence of statutory on-site inspection powers and powers of entry and search we do not consider that the Bailiwick has fully implemented Principle 8.
Assessment	Partially implemented.
Comments	We recommend that the Government review the GFSC’s powers and secure statutory powers of on-site inspection and entry and search. We also recommend that the GFSC consider whether to seek a general power to comment on investment business management and market practice.
Principle 9.	The regulator should have comprehensive enforcement powers.
Description	The GFSC has power under the POI Law to attach conditions to, suspend, cancel or revoke a license or authorization and to compel the production of information about a controlled investment business or a CIS. As we have noted elsewhere we consider that the power to impose conditions has very much the character of a power to issue a direction to licensees as well as a power to impose conditions (see Section 5 of the POI Law). For example, the GFSC may in the exercise of this power, prohibit a licensee from: entering into transactions; soliciting business; carrying on business in a specified manner; disposing of or otherwise dealing with any asset; or require a licensee; to transfer assets to a trustee; and to maintain assets in the Bailiwick. The GFSC Rules about investment business and CISs seem comprehensive and the GFSC has the power to enforce them as they apply to the individual licensee. It is a criminal offense to conduct a controlled investment business without a license, or to operate an unauthorized fund. It is also a criminal offense to provide misleading information to the GFSC in response to a statutory request. The GFSC may request the Law Officers to prosecute those who do not comply with the law. The GFSC inform us that they take into account a failure to respond to an information request when considering a licensee’s status as a fit and proper person. The GFSC may commence proceedings in the court for a restitution order where there has been a breach of named laws and profits have accrued to any person or an investor has suffered loss. The GFSC may request the Law Officers to apply to the Court to prohibit a person from acting as a company director or manager. The CISX has the power to investigate and discipline its own members, including the power to levy fines and administrative sanctions. It may also direct the suspension of trading in individual trading in securities.
Assessment	Implemented.
Comments
Principle 10.	The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
Description	The Investment Business Division has a staff of 19 people and is expected to increase to 24 in 2003. It plans and implements an annual supervision program in relation to investment business licensees and CISs. For this purpose it maintains a program of off-site and on-site supervision. It utilizes off-site supervision to monitor compliance with the rules made under the POI Law, namely: The Collective Investment Schemes Rules 1988; The Collective Investment Scheme (Class A) Rules 2002; The Collective Investment Schemes (Class B) Rules 1990; The Collective Investment Schemes (Designated Persons) Rules 1988; The Collective Investment Schemes (Qualifying Professional Investor Funds) (Class Q) Rules 1998; The Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998; The Licensees (Conduct of Business and Notification) (Non-Guernsey Schemes) Rules 1994; The Investment Exchange (Notification) Rules 1998; The Investor Protection (Designated Countries and Territories) Regulations 1989; The Investor Protection (Designated Countries and Territories) (Republic of Ireland) Regulations 1992. These rules impose extensive requirements on licensees, most importantly for the purposes of off-site inspections, the notification of information to the GFSC. Licensees must submit routine notifications, annual compliance reports, audited annual reports and analyses of investor complaints. A licensee is required to notify the GFSC if at any time its financial resources fall below the minimum prescribed level. The GFSC aims to monitor compliance with any conditions imposed on a license or a fund authorization. The GFSC undertakes both routine inspections and inspections initiated in response to specific matters brought to its attention. In 2001, a total of 21 inspection visits were undertaken. Of these 11 were to designated managers and 6 to designated custodians/trustees. The visits also included two follow-up visits to confirm remedial action had been undertaken and one special review in response to specific issues which had come to the GFSC’s attention. From January to mid-September 2002, the GFSC has made 18 on-site inspections to a range of licensees, including one inspection made to a firm in a foreign jurisdiction which is a subsidiary of a Guernsey financial institution. The GFSC is not obliged to give advance notice of an inspection, although it is normal practice to do so. It requests the licensee to provide standard information before the inspection and additional information during the visit. We are informed that the inspectors generally request copies of: minutes of board meetings; compliance reports; management accounts; procedures manuals; complaints procedure; disaster recovery plans; anti-money laundering and counter terrorist financing policy; and report on staff awareness. In addition there are categories of information which relate specifically to the type of business under review (e.g., stockbroker, designated custodian/trustee or designated manager). Following the receipt and assessment of this information and the assessment of other information in its possession, the GFSC holds a pre-visit meeting with the senior management of the licensee to discuss the key areas to be covered in the visit and any initial concerns the GFSC may have about the quality of the information provided. The GFSC aims to be open with the licensee about its areas of interest or concern, in order to reduce the risk of misunderstanding and to improve the effectiveness of the on-site review. There is a closing meeting after the inspection. Significant matters arising from an inspection visit are notified in writing to the board of directors of the institution concerned, while less significant procedural matters are referred to the senior management of the institution. The GFSC keeps detailed records of all matters covered during an inspection visit. The GFSC’s practice, where it identifies deficiencies in the course of an inspection is to require the licensee to take remedial action within a specified time and to report back to the GFSC when it has done so. The GFSC maintains a diary system to check that the firm is meeting the timetable. Where serious control failings are apparent, the GFSC may attach a condition to the license until the situation has been rectified. It has done so on a number of occasions in the recent past. Notice periods for non-routine inspections have tended to be short. In determining the prioritization of visits to an individual licensee and their frequency, the GFSC inform us that they take account of a range of criteria including the nature of the licensee’s business and its clients, the risks associated with the business, the quality and timeliness of statutory notifications, and the incidence of complaints.
Assessment	Implemented.
Comments
Principles for Cooperation in Regulation
Principle 11.	The regulator should have authority to share both public and nonpublic information with domestic and foreign counterparts.
Description	The Bailiwick does not have secrecy laws. Information held by the GFSC is subject to Section 21 of the GFSC Law. This states that “any information from which an individual or body can be identified” shall be regarded as confidential. The GFSC may disclose this information if it appears to the GFSC to be necessary: to enable the GFSC to carry out any of its functions; for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings; and in connection with the discharge of any international obligation to which the Bailiwick is subject; to assist in the interests of the public or otherwise, any authority which appears to the GFSC to exercise in a place outside the Bailiwick functions corresponding to any of the functions of the GFSC; or to comply with the directions of the Royal Court. In addition, Section 21A of the GFSC Law requires the GFSC to: “take such steps as it considers appropriate to cooperate with any person or body: (a) who or which appears to the Commission to exercise in a place outside the Bailiwick functions corresponding to any of the functions of the Commission; or (b) for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of, or otherwise for the purpose of, any criminal proceedings.” The GFSC clearly has wide powers to disclose information. In addition, it does not require the execution of an MOU with a foreign regulator to be able to share information. However, such a memorandum is an increasingly common feature of the GFSC’s arrangements (see Principle 12). In addition to the GFSC’s powers, the Law Officers have powers under the Insider Dealing Law to obtain information and to share it with other regulators. We consider that the Bailiwick has implemented Principle 11.
Assessment	Implemented.
Comments
Principle 12.	Regulators should establish information sharing mechanisms that set out when and how they will share both public and nonpublic information with their domestic and foreign counterparts.
Description	The GFSC has entered into the following MOUs in relation to investment business: Australian Securities Commission (1996); United States Commodity Futures Trading Commission (1994); De Nederlandsche Bank NV (1993); International Organization of Securities Commissions (1991 and 1996); Jersey Financial Services Commission (1998); Hong Kong Securities and Futures Commission (1992 and 1994); London Stock Exchange (1998); Commission Nazionale per le Societa e la Borsa (an Information Exchange Agreement in 1994 replaced by an MOU in 2002); and Isle of Man Financial Supervision Commission (2002). These MOUs typically 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.” The GFSC informs us that it is currently negotiating MOUs with four other regulatory bodies. Two of these were finalized subsequent to the mission. The GFSC is able to share information without an MOU. However, the MOU represents an important public statement on cooperation and sets out the understandings of the parties on such practical matters as the type of information to which it applies, the procedures for making a request, the uses to which the information may be put and the understandings on confidentiality. Under the Data Protection (Transfer in the Substantial Public Interest) Order 2002, the GFSC is required to obtain an undertaking that personal information will be kept confidential but, subject to that, is able to agree to the disclosure of personal information where it considers it is in the substantial public interest to do so.
Assessment	Implemented.
Comments
Principle 13.	The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.
Description	The GFSC did not at the time the mission visited Guernsey have explicit statutory powers to require the production of information for communication to an offshore regulator. We thought it should. The GFSC’s statutory powers were limited to the sharing of information already in its possession as described under Principle 12. Suitable powers are now contained in a 2003 amendment to the FSC Law. We are informed that this received royal assent in July 2003. We note that the Law Officers have power under the Company Securities (Insider Dealing) (Bailiwick of Guernsey) Law, 1996 to appoint inspectors where there are circumstances suggesting that an insider dealing offense under the laws of another country may have been committed and that a person in the Bailiwick may have been concerned or may have information or documents. The Law Officers have power to transmit material obtained under statutory authority to the prosecuting or supervisory authorities in the other country. We considered that the Bailiwick had partially implemented Principle 13 at the time of the mission visit. We consider that it has now fully implemented the principle with the coming into force of the 2003 amendment to the FSC Law.
Assessment	Implemented.
Comments
Principles for Issuers
Principle 14.	There should be full, accurate and timely disclosure of financial results and other information that is material to investors’ decisions.
Description	The disclosure requirements for public offerings arise in three ways: by GFSC discretion, through the exercise of its powers under COBO, in respect of offerings other than Guernsey open-ended funds; under the various POI Rules in respect of the offer of interests in Guernsey open-ended funds; and by the CISX under the listing rules about disclosure. Securities—other than Guernsey open-ended funds—offered in or from within the Bailiwick of Guernsey must have GFSC consent under COBO. The GFSC is, at present, conferring with the finance industry on the terms of a detailed guidance note on the disclosure of information in an offer by a closed-ended fund. The directors of the issuer take responsibility for the content of the prospectus or other offer document. For open-ended fund approvals, a lawyer’s certificate is also required, confirming that the relevant disclosure requirements have been met. Promotion to private investors must be carried out under the authority of a Guernsey licensee who must take responsibility for the content of any local presentation. In the case of an offer under COBO, the GFSC does not have power to supervise the issuer but may take action against the responsible licensee, for example, by imposing a condition on the license. The Companies (Guernsey) Law, 1994 provides for the keeping of accounting records, the appointment of auditors, the preparation of financial statements and distribution to shareholders. There are similar provisions in the Companies (Alderney) Law, 1994. The GFSC, as a matter of policy, will not permit a public offer to be made without an undertaking from the issuer in the prospectus to provide for the regular disclosure of information, including the preparation and timely distribution of audited financial statements. The disclosure requirements for open-ended funds are set out in the relevant class rules (the Collective Investment Schemes Rules 1988, and the Collective Investment Scheme (Class A) Rules 2002 (the Class A Rules), the Collective Investment Schemes (Class B) Rules 1990 (the Class B Rules) and the Collective Investment Schemes (Qualifying Professional Investors Funds) (Class Q) Rules 1998 (the Class Q Rules). No offering may proceed until the GFSC has issued its consent. The GFSC maintains an active compliance program in respect of these obligations of issuers. We have confirmed this by inspection of GFSC files and discussions with GFSC officers. The program is described under Principle 10 above. There is at present a Closed-Ended Fund Working Party comprising representatives of the GFSC and the finance sector which has prepared and published detailed proposals for ongoing reporting by closed-ended fund managers. The GFSC expects to formalize these shortly in a formal policy statement. Where a company is listed on the CISX, the listing rules require regular and timely reporting of financial information and of matters significant to the company. Listed companies are required to publish annual and semi-annual reports. This is backed by Guernsey company law where there is a requirement for the preparation and distribution of audited annual financial statements.
Assessment	Implemented.
Comments
Principle 15.	Holders of securities in a company should be treated in a fair and equitable manner.
Description	There are a number of provisions in the Companies Laws in force in the Bailiwick which aim to ensure that holders of securities are treated in a fair and equitable manner. While, as we understand the position, the GFSC is not responsible for enforcing company law, investment company managers based in the Bailiwick will hold an investment business license and will be subject to GFSC supervision. There is a very small number of trading companies with members of the general public as shareholders and the ongoing management of these will be regulated under the Companies Laws. In either case, the GFSC will have been involved under COBO at the time of issue of securities and the terms of the investment contract as contained in the offer document will have been settled before the COBO consents were issued. Investors benefit from this GFSC involvement. The Companies (Guernsey), Law 1994 contains a number of provisions which are material to the treatment of holders of securities. These relate largely to the constitution, corporate governance and reporting to shareholders. They are rather more for the benefit of shareholders than debenture holders. The debenture holders will particularly benefit, we think, from the GFSC review of the investment contract at the time the securities are first issued. There are rules of law about insider dealing which establish an offense of insider dealing and powers of investigation (see under Principle 28). In addition the London City Code on Takeovers and Mergers applies to listed companies which are resident in Guernsey, Jersey, the Isle of Man as well as the United Kingdom.
Assessment	Implemented
Comments
Principle 16.	Accounting and auditing standards should be of a high and internationally acceptable quality.
Description	Subject to exceptions, in particular in relation to ‘dormant companies’ and ‘asset holding companies’, all companies are required under the Companies (Guernsey) Law, 1994 and the Companies (Alderney) Law, 1994 to prepare, and deliver to their members annual financial statements audited by an external auditor. In addition, the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 (the FNCC Rules) require all licensees to maintain accounting records and to prepare audited annual financial statements. They regulate the appointment of qualified auditors and a change of auditors. The Collective Investment Schemes Rules 1988, the Collective Investment Scheme (Class A) Rules 2002, the Collective Investment Schemes (Class B) Rules, 1990 and the Collective Investment Schemes (Qualifying Professional Investors Funds) (Class Q) Rules 1998 also contain rules on the preparation of annual reports and financial statements and the auditing of accounting information by qualified auditors. The auditors’ report will state whether in their opinion the financial statements have been properly prepared in accordance with the law and whether they give a “true and fair” view. Bailiwick companies will normally adopt generally accepted accounting principles (GAAP) in the United Kingdom and the audit will be conducted on this basis. However under a Statement of Channel Islands Accounting Practice, it is recognized that the financial statements of companies incorporated other than in the Channel Islands may be drawn up to comply with the standards of the jurisdiction, e.g., United States GAAP, or International Accounting Standards. The accounting standards adopted will be identified in the audit report to the financial statements. A person is not qualified for appointment as an auditor unless a member of: the Institute of Chartered Accountants in England and Wales; the Institute of Chartered Accountants of Scotland; the Institute of Chartered Accountants in Ireland; or the Chartered Association of Certified Accountants, and eligible for appointment under the rules of the body as an auditor. Qualified auditors who are members of any one of the above bodies will be subject to its independence and audit rules and guidelines and subject to its disciplinary authority. There has been some consideration in the Bailiwick in recent times about the best source of authority for audit standards and the review of auditor performance, particularly in the context of evidence of unsatisfactory practice overseas. The GFSC should continue to review policy in this area. For the present the mission considers it appropriate for the Bailiwick to work to maintain satisfactory standards through the present institutional links between the profession and the offshore institutes and the links between some firms and their affiliates in the United Kingdom and elsewhere.
Assessment	Implemented.
Comments	The source of authority for financial reporting and audit standards and for the review of auditor performance is under careful review internationally. We consider that the GFSC, the accounting profession and others should continue their ongoing consideration of this matter.
Principles for Collective Investment Schemes
Principle 17.	The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.
Description	Any person who carries on restricted activities in connection with a collective investment scheme as defined by the POI Law must have a license. This includes the promoter, the administrator, the manager and the trustee or custodian of a collective investment scheme. Section 4 of the POI Law sets out the criteria which the GFSC must apply in considering an application. These include: the general nature and specific attributes of the controlled investment business to which the application relates; whether or not the applicant is a fit and proper person to carry on that business; the manner in which it is proposed to organize the carrying on of controlled investment business to which the application relates, the number of persons who will be responsible for carrying on each aspect of that business and the relationship between those persons; what, if any, economic benefit the Bailiwick is likely to derive from the carrying on of that business; and any other factors which the GFSC thinks it appropriate to consider. The GFSC may grant or refuse a license and may attach conditions to a license. The GFSC has made Rules relating to the conduct of investment business and the operation of the various classes of CISs. The Rules are supplemented by published guidance on certain aspects of fund operations, often based on matters which it has observed in the course of its monitoring programs. Licensees must have appropriate resources and experience to act and meet requirements under the Collective Investment Schemes (Designated Persons) Rules 1988 in connection with financial records, financial statements, financial resources, audit, financial notifications, best execution, arrangements for indirect payment for services, product bias, gifts, benefits in kind and reciprocal arrangements, the allocation of transactions, records relating to transactions, contract notes, the inspection of records, client money, compliance arrangements and complaints and other notifications. Licensees must also comply with equivalent requirements in connection with financial resources, notifications and records, fitness and properness, and compliance arrangements under the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998. In addition, section 8 of the POI Law requires that Bailiwick collective investment schemes must be authorized by the GFSC. The GFSC has made rules - the Class A Rules, the Class B Rules and the Class Q Rules - which regulate the operation of funds. The Class A Rules are the most detailed, with less detailed arrangements applying to the Class B and Class Q funds which are normally offered to more sophisticated or institutional investors. These scheme-based Rules do not apply to closed-ended funds which are promoted under the authority of COBO. The GFSC maintains an active compliance program in respect of those who market or operate a CIS. We have confirmed this by inspection of files and discussions with GFSC officers. The program is described under Principle 10 above. In December 1988 the Bailiwick was granted “designated territory status” under Section 87 of the United Kingdom Financial Services Act. Class A funds are therefore freely marketable in the United Kingdom. Similar arrangements are in place with Australia, Belgium, Hong Kong, Isle of Man, Japan, Jersey, the Netherlands, the Republic of Ireland, South Africa and Switzerland.
Assessment	Implemented.
Comments
Principle 18.	The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.
Description	Collective investment schemes may be formed as trusts, bodies corporate, or as limited partnerships. The Trusts (Guernsey) Law, 1989, the Companies (Guernsey) Law, 1994 and the Limited Partnerships (Guernsey) Law, 1995 provide the basic framework for the establishment of the scheme structures. The POI Law and the rules made under it establish additional controls on the legal form and structure of schemes. The Rules provide for the segregation and protection of client assets. The Bailiwick also promotes the PCC. The GFSC attributes the following characteristics to this type of company: is one legal entity; provides, for each cell, legal segregation and protection of assets and liabilities; may create its own core shares and cell shares, providing two classes of assets—core (or noncellular), attributable to the PCC directly, and cellular attributable to the cells; can provide an unlimited number of cells; can be converted from an existing company; offers flexibility in the allocation of capital between the core and individual cells; and offers a wide range of potential applications. We are informed that creditors of an individual cell of a PCC have no recourse to the assets of another cell, but will have recourse to the core assets. Provision is made in the Protected Cell Companies Ordinance, 1997 for the incorporation of such a company, or the conversion of an existing company into such a company, with the consent of the GFSC. The Ordinance allows for the PCC to be a CIS. The vehicle was originally developed, we understand, for captive insurance business within a group of companies. The GFSC also allows for the use of umbrella funds, subject to the Rules. It considers the PCC a more secure investment vehicle than the umbrella fund. For all CISs client assets must be held in a segregated pool under the control of a separate custodian. In the case of Class A schemes the custodian must not only be separate but also independent from the manager’s group. The Collective Investment Schemes (Designated Persons) Rules 1988 also require subscription monies received from investors and redemption monies due to investors to be segregated from the assets of the fund. In addition to the custody function, the custodian’s duties under the Class A and Class B Rules but not the Class Q Rules extend to overseeing the operation of the fund by the manager and administrator and satisfying itself that the manager and administrator operate the fund in accordance with the POI Rules and with the objectives disclosed to investors. In this sense, the custodian’s role is akin to that of a trustee. This trustee function applies irrespective of the legal form of the fund. The segregation and protection of client assets are evaluated by the GFSC during on-site visits to the administrators, managers and custodian/trustees of collective investment schemes.
Assessment	Implemented.
Comments
Principle 19.	Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.
Description	Every fund authorized under the POI Law must offer to investors a prospectus or statement of scheme particulars or equivalent document setting out prescribed information, including the objectives and policies of the fund; the names of the manager, custodian, registrar, auditor and any other functionaries appointed to operate the fund; the manner and frequency of valuations; subscription and redemption arrangements; the fees and charges to be paid by investors; the level of fees and charges which will be met by the fund; and other information - such as suitable risk warnings. The detailed requirements are specified at Schedule 4 to the Class A Rules, the Schedule to the Class B Rules and the Schedule to the Class Q Rules. The GFSC is required to approve the Scheme Particulars. The manager must revise the Scheme Particulars annually and any changes must be submitted to the GFSC for consideration before they are implemented. The manager (and, in the case of a company based scheme, the directors) have a responsibility to ensure that the prospectus/scheme particulars do not contain any untrue or misleading statements. The CIS Rules also require scheme annual reports and financial statements (and, additionally, interim reports for Class A schemes) to be prepared and distributed to investors. The rules prescribe detailed contents for the reports and accounts, which must be published within six months of the end of the period to which they relate. For Class A and B schemes, the designated custodian/trustee must report on the management of the scheme. The CIS Rules provide for the periodic valuation of property, to be carried out on both offer and bid basis, and for the pricing of units. The Scheme Particulars must describe the arrangements for this. The GFSC maintains an active compliance program in respect of those who market or operate a CIS. We have confirmed this by inspection of files and discussions with GFSC officers. The program is described under Principle 10 above.
Assessment	Implemented.
Comments
Principle 20.	Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme
Description	The CIS Rules set out the requirements for the valuation of CISs and the arrangements for pricing, subscription and redemption of units in a scheme. As noted under Principle 19, the pricing basis must be disclosed in the Scheme Particulars or equivalent document. The GFSC has also issued guidance on the steps to be taken by operators and custodians to ensure that valuation and pricing is conducted in an efficient and controlled manner so as to minimize the risk of error. Compliance with the rules and guidance notes on asset valuation and pricing are monitored by the GFSC during on-site visits (see also under Principle 10 above). The CIS Rules set out the requirements for the redemption of units. The Scheme Particulars must describe the procedures for redemption and the circumstances in which the redemption of units may be suspended. The GFSC must be informed of the suspension of redemption rights. Fund administrators’ policies, in connection with the redemption of units are monitored by the GFSC during on-site visits.
Assessment	Implemented.
Comments
Principles for Market Intermediaries
Principle 21.	Regulation should provide for minimum entry standards for market intermediaries.
Description	All market intermediaries and investment advisers require a license under the POI Law. The minimum entry standards are set out in the Law as noted under Principle 17. The GFSC requires as a matter of policy that new entrants demonstrate that they have an already established track record in their sphere of activity, that they are persons of integrity, honesty and competence, and that they have adequate financial resources. They must also have an appropriate business plan. Section 4(3) of the POI Law states: “In considering whether to grant an application made under Section 3 the Commission shall have regard to the need to protect the public and the reputation of the Bailiwick as a financial center; and to that end the Commission shall consider: the general nature and specific attributes of the controlled investment business to which the application relates; whether or not the applicant is a fit and proper person to carry on that business; the manner in which it is proposed to organize the carrying on of the controlled investment business to which the application relates, the number of persons who will be responsible for carrying on each aspect of that business and the relationship between those persons; what, if any, economic benefit the Bailiwick is likely to derive from the carrying on of that business; if the applicant has stated that he proposes to carry on controlled investment business in, or from within, Alderney or Sark, any opinion expressed, in response to a notice given under subsection (2), by the Policy and Finance Committee of the States of Alderney or by the Greffier (registrar of companies) of Sark as the case may be; and any other factors which the Commission thinks it appropriate to consider.” Licensees must be “fit and proper,” that is, in accordance with a GFSC policy paper on the website, they must have: integrity; solvency; and competence. The GFSC describe their more detailed expectations of a licensee in the policy paper. To meet the competence requirement the business must among other things be directed by at least two individual people (the “four eyes” policy). The Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 (the FNCC Rules) apply to market intermediaries and investment advisers. Among other matters, these rules require the appointment of a qualified independent auditor and the production of annual audited financial statements. These must include a statement of financial resources certified by the auditor. The GFSC maintains an active compliance program in respect of CIS disclosure. We have confirmed this by inspection of files and discussion with GFSC officers. The program is described under Principle 10 above.
Assessment	Implemented.
Comments
Principle 22.	There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.
Description	Paragraph 8 of Schedule 2 to the FNCC Rules states “A licensee should ensure that it maintains adequate financial resources to meet its investment business commitments and to withstand the risks to which its business is subject.” Part 2 of the FNCC Rules sets out minimum capital requirements for the various categories of investment business including market intermediaries and investment advisers. Client money and client assets must be segregated from a firm’s assets at all times. Most market intermediaries are branches or subsidiaries of firms regulated in other jurisdictions-particularly the United Kingdom—and subject to capital adequacy standards in those jurisdictions. As described under Principles 11 and 12, the GFSC is able to share information with the relevant foreign regulator. The GFSC reviews and evaluates the capital and other prudential standards as maintained by market intermediaries during on-site visits.
Assessment	Implemented.
Comments
Principle 23.	Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.
Description	Market intermediaries and investment advisers must comply with the FNCC Rules. They must observe the following 10 Principles set out in Schedule 2: integrity (principle 1); skill, care and diligence (principle 2); conflicts of interest (principle 3); information about customers objectives (principle 4); information for customers (principle 5); segregation of customer assets (principle 6); high standards of market conduct (principle 7); adequacy of financial resources (principle 8); internal organization (principle 9); and relations with GFSC. (principle 10). The FNCC Rules contain obligations relating to a licensee’s conduct of business. These obligations include requirements relating to: (a) customer relations: customer agreements; suitability of investment; disclosure of risks and charges; inducements; and complaints, (b) dealing, managing, and advising: order priority; best execution; timely and fair allocation; churning and switching; and the content of contract notes, (c) and safekeeping of customer assets and client money. The licensee must undertake an annual review to determine the effectiveness of its compliance and monitoring procedures. It must have a written procedure for the handling of complaints and must submit an annual report to the GFSC on significant complaints received, settled andoutstanding. The GFSC informs us that in its monitoring work, it emphasizes the responsibility of senior management for the quality of the internal control environment and the importance of proper segregation and reconciliation of customer asset holdings and client money holdings. The GFSC undertakes off-site monitoring and on-site inspections of all licensees. These are described under Principle 10 above.
Assessment	Implemented.
Comments
Principle 24.	There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.
Description	Where the GFSC considers that a licensed investment business has insufficient financial resources it may impose a condition on the license. Such a condition may have important consequences. It may have the character of a direction to the licensee, for example, that the licensee should not dispose of any asset or class of assets or that it should transfer assets into a trust account (see Section 5 of the POI Law). There is an investor compensation scheme in place in respect of Class A CISs (that is, schemes which are for offer to the general public), to mitigate the effect of a failure. Moreover the GFSC is at present conferring with the Law Officers on possible amendments to the Companies Law on corporate rescue provisions. Nevertheless the GFSC does not have special powers to intervene to deal with a failure.
Assessment	Partially implemented.
Comments	We recommend that the Bailiwick consider the powers which should be available to the GFSC to deal with the failure of an intermediary.
Principles for the Secondary Market
Principle 25.	The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.
Description	The operation of an investment exchange is a restricted activity requiring a license from the GFSC under the POI Law. The expression “operating an investment exchange” applies both to an exchange and to an alternative trading system. There is one exchange currently established in Guernsey, the CISX. The CISX was established in March 1998 as a company limited by guarantee, with shares. It is licensed by the GFSC. The GFSC monitors the CISX through on-site and off-site supervision. The number of securities admitted to the CISX Official List as at October 31, 2002 was 280. The market capitalization as at 31 October 2002 was U.S.$17 billion. Prior calendar year figures were:
	YTD		31 Oct. 2002	2001	2000	1999
	Trading companies			2	-	1
	Closed-ended investment funds
		Primary	3	5	4	-
		Secondary	11	22	27	8
	Open-ended investment funds		16	28	60	54
	Specialist debt securities (Bonds)		2	14	6	4
	SPVs		1	-	3	-
	Warrants		2	7	10	-
	Total:		35	93	110	67
	Trading figures were:
	(In pounds sterling)
	YTD		08 Nov 2002	2001	2000	1999
	Shares traded		76,955,496	75,327,426	31,676,148	32,598,695
	Value		72,102,762	76,262,293	47,032,605	52,420,553
	Transactions		672	620	367	267
	The trading system The key features of the trading system are: an electronic bulletin board is maintained by Reuters on which market makers may input two-way prices and other brokers may enter orders in real time; all trading is done by telephone; trades are reported to the exchange using the bulletin board and must be published within three minutes of execution; information on corporate actions, net asset value, historical price information (12 month period), recent trade history and current background information on listed securities is available on Reuters; information about listed entities is reported to the CISX and disseminated by Reuters on a continuous basis; and information on all quotes, orders and trades is stored at the exchange, both to facilitate market surveillance and to provide a historical record. The market is screen-based with no trading floor. The trading hours are from 8.00 am until 4.30 pm, Monday to Friday. All Trading Members have access to the trading platform as a condition of their membership. All securities transactions must be reported to the Market Authority within three minutes of the trade. The CISX requires information on trades, counter-party ID, security, price, date, time and size. The price of all deals reported is distributed immediately by the CISX via Reuters. The Market Authority sets and publishes the normal market size for each security within the CISX pages on Reuters. The GFSC and any user of Reuters have access to the CISX pages (CISXINDEX). The CISX does not provide clearance and settlement facilities. The Market Authority in consultation with the issuer’s sponsor designates an approved clearance system for each security (see Principle 30). Supervision The CISX must, under the Investment Exchange (Notification) Rules 1998, notify the GFSC of information relating to: key individuals; regulatory plans and rules; auditors; fees and charges; annual report, accounts and budgets; directors’ annual statement of opinion on sufficiency of financial resources; quarterly management accounts; the constitution; delegation of monitoring; complaints; trading hours; force majeure; listings; membership; investigations; defaults; and insolvency and legal proceedings. The CISX has a continuing requirement under the law to maintain: sufficient financial, human and technical resources; monitoring and enforcement; investigation of complaints; and promotion and maintenance of standards. The CISX rulebook contains rules about trading and settlement, admission of products to trading, admission of participants to the trading system, the provision of trading information, the routing of orders, trade execution, past trade reporting and publication, supervision of system and participants, dispute resolution and appeals procedures, operational failure and trading disruptions. The GFSC’s on-site inspection procedures are generally as described under Principle 10. The members A member may be a Trading Member or a Listing Member. A member must: be a corporate, partnership or legal entity which is regulated by the CISX or a regulatory body in a recognized jurisdiction approved by the CISX or, in the case of a Listing Member that is not licensed, by a member of a professional body approved by the CISX; satisfy the board that it is of good financial standing and integrity; satisfy the Board it is fit and proper to be a member; not carry on any business inconsistent with its membership of the exchange; and comply with the rules of the exchange. As at September 30, 2002 there were 32 Members, three of which were Trading Members, Collins Stewart (CI) Ltd (regulated by the GFSC), and Dresdner Kleinwort Wasserstein Securities Ltd and Winterflood Securities Ltd (regulated by the UK Financial Services Authority), and 29 were listing members. The Membership Rules contain a Code of Conduct which includes Principles of Best Practice, and rules about Conduct of Business and Forbidden Market Practices. These apply to all members. In addition the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 contain detailed conduct of business rules which also apply to members who are licensed. A Trading Member may register as a market maker in listed securities specified by the Trading Member, and will be required to comply with the CISX’s obligations of a market maker. Trading Members are subject to visits by the CISX and Reuters to confirm the necessary systems are in place to enable trading to occur. A Listing Member must be established as an entity in the Channel Islands and must have suitably qualified staff. An issuer wishing to have its securities listed on the exchange is required to engage the services of a Listing Member who will act as a sponsor. There are two categories of sponsors, those who may sponsor all types of securities to listing and those who may only sponsor the listing of investment funds. There are currently 29 Listing Members, of which one third are law firms providing corporate services, one Member is an accountancy firm, and the balance are investment fund managers or administrators. A listing member is required to: confirm to the exchange that it has satisfied itself as to compliance with the relevant requirements of the listing rules; communicate and deal with the exchange on all matters arising in connection with the application for listing and the continuing obligations of the issuer; prepare and lodge with the exchange a formal application for listing together with all supporting documentation; and seek the approval of the exchange for the listing prospectus or other disclosure document. Listings Listings are covered by the Listing Rules. The Rules cover: general requirements and market authority; compliance and market enforcement; sponsors and authorized representatives; application procedures and special categories of procedures; and the rules are subject to review by the members and by the GFSC before they are adopted. A listing member of the CISX sponsors applications. The listing member is required to carry out a program of due diligence on the issuer and its directors before submitting an application for listing. Directors’ declarations are provided. The CISX may at its discretion confer with the GFSC and ask it to carry out further search. All listed funds are regulated in a jurisdiction recognized by the CISX. There are a number of securities that are seldom if ever traded. The open-ended funds are a case in point. The primary purpose of the listing appears to be for the issuer to establish a respected and independent source of information on the affairs of the fund which is available to investors and to those who promote or advise on the fund. The objective is achieved by entering into continuous disclosure obligations with a stock exchange of good standing. There may be circumstances in which the listing of interests in a closed-ended fund not otherwise traded may be important for trading purposes, in particular, to provide an exit mechanism to interest holders. Nevertheless that appears to be a lesser consideration. Financial resources The available clearance and settlement systems are in other jurisdictions. Both the CISX and the GFSC, in supervising the CISX, are expected to satisfy themselves that the systems are subject to adequate regulation in the home jurisdictions. The GFSC is responsible for monitoring the financial resources of both the CISX and the members who are its license holders. An approved offshore regulator is responsible for monitoring the financial resources of the system operators and the CISX members who are based offshore. The CISX is not responsible for monitoring the resources of its members. The present scheme of regulation may be appropriate for the size, level of activity and exposure of the CISX and those who trade on it but the board of directors of the company and the GFSC will need to keep its systems and activities under continuing review. As at December 31, 2001, the CISX had net assets of GBP869,167. Operating expenditure for the year was GBP612,286. All elected members of the company have undertaken to contribute up to GBP10,000 each in the event of a winding up. The maximum aggregate value of the present undertakings is GBP320,000.
Assessment	Implemented.
Comments
Principle 26.	There should be ongoing regulatory supervision of exchanges and trading systems, which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.
Description	We have reviewed the material relevant to this Principle under Principle 25. We consider that the Bailiwick has implemented Principle 26.
Assessment	Implemented.
Comments
Principle 27.	Regulation should promote transparency of trading.
Description	The CISX market is established as a public market (see Principle 26) and it is operated and supervised on this basis. The Membership Rules impose obligations on those undertaking transactions including obligations about the reporting of information. They also impose a Code of Conduct including provision for such matters as Client Order Priority, Timely Execution and Best Execution. The Listing Rules impose Continuing Obligations on the Listed Issuers including the fundamental obligation to keep the public, the CISX and the holders of securities informed of material information. The FNCC Rules, which apply to all licensees, contain provisions about dealing, managing, and advising, in particular: customer order priority; timely execution; best execution; timely and fair allocation; churning and switching; and dealing ahead of published research or analysis.
Assessment	Implemented.
Comments
Principle 28.	Regulation should be designed to detect and deter manipulation and other unfair trading practices.
Description	Insider dealing is a criminal offense under the Company Securities (Insider Dealing) (Bailiwick of Guernsey) Law, 1996. It applies to transactions on the CISX but also on any of a lengthy list of overseas exchanges. It confers investigation powers on the Law Officers. It does not impose transaction reporting obligations on insiders who engage in transactions. It does not apply generally to manipulation and unfair dealing and is not in itself sufficient to meet the needs of Principle 28. The Law Officers administer this Law. They may appoint inspectors to investigate a suspected offense. GFSC officers may be appointed as inspectors. These powers may not be used for the purpose of assisting a prosecuting or supervisory authority in another jurisdiction in respect of a contravention or suspected contravention of insider trading law in that jurisdiction. They may nevertheless be used by the Law Officers for communicating information which the Law Officers have already acquired in the course of their work. The City Code on Takeovers and Mergers and the Rules Governing Substantial Acquisitions of Shares also apply to listed companies resident in Guernsey, Jersey and the Isle of Man as well as the United Kingdom. The Protection of Investors (Bailiwick of Guernsey) (Amendment) Law, 2003, extended the law by establishing new offenses relating to misleading statements and practices and a new offense of market abuse. It extended the GFSC’s power to obtain information to apply to the circumstances of a suspected offense although it did not appear to extend it to apply to a person who was not a licensee or associate or was otherwise engaged in investment business as defined. Market manipulation is difficult to detect and difficult to prove in a court. Clear powers to obtain information are essential to the process of detecting and deterring manipulation and unfair trading as contemplated by Principle 28. A clear power to share information with other regulators is equally important and is dealt with under Principle 11. A 2003 amendment law now covers manipulation and unfair trading, although it does not prescribe procedures for obtaining information from those people who are not carrying on investment business as defined such as professional investors or intermediaries. The GFSC inform us that it will rely on the Law Officers to take enforcement action in these cases. The 2003 amendment has received royal assent and we consider that the Bailiwick has now fully implemented Principle 28.
Assessment	Implemented
Comments	Should there be a significant increase in turnover on the CISX, particularly in equities, the Government may need to consider whether there should be transaction reporting requirements for directors and other insiders under the law. In the meantime there are reporting provisions in the Listing Rules which bind listed issuers but not directors or other insiders personally.
Principle 29.	Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.
Description	As noted under Principle 22, all licensees, including the CISX and its members, are subject to the FNCC rules, which include minimum solvency requirements. Those solvency requirements are supplemented by the requirement that all client assets and money be segregated from the licensees’ own assets. The FNCC rules are being reviewed by a joint commission/industry working party and public consultation is expected to commence shortly on a planned revision to the FNCC rules in a number of areas including solvency and client money/asset segregation issues. At present, of the three broker/dealers domiciled in Guernsey two are branches of UK firms and subject to United Kingdom FSA capital adequacy requirements. The third provides the GFSC with monthly statements, on the UKFSA basis, on solvency and the control of large exposures. In the meantime, the GFSC is at present preparing a consultation document on these matters. It intends to issue new rules during 2004. In the meantime the present procedures for the regulation and supervision of the exchange appear to provide a solid if incomplete coverage.
Assessment	Partially implemented.
Comments
Principle 30.	Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.
Description	The Investment Exchange (Notification) Rules 1998 require the CISX to “either itself provide satisfactory procedures (including default procedures) for the settlement of transactions on the exchange or ensure such provision by means of services provided under clearance systems approved by it.” The Rules relating to the settlement of transactions are set out in Chapter 6 of the CISX Rules. They deal among other things with: trade confirmation; the method of settlement including designation of clearance system; timing of settlement; responsibility for settlement; partial settlement; late settlement; buying-in; and the appointment of settlement agents. Trading in the shares of local companies may be settled via Crest or Crest Residual International. Debt securities and other eligible securities may be settled through either Cedel Bank or EuroClear. The Rules state this is unless otherwise agreed by the parties to the transaction at the time of transaction. The CISX must consent to any such non-standard settlement. Under the CISX Rules the Market Authority determines the standard settlement period for each security, in general following London market practice for the type of security concerned. Current market practice is for the settlement of domestic and foreign equities on a T+3 basis. The CISX and the GFSC must reassure themselves that these systems are subject to satisfactory regulatory oversight in their home jurisdiction. In addition the GFSC’s oversight responsibilities apply on a continuing basis.
Assesment	Implemented
Comments

Table 13

Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

Principles Relating to the Regulator
Principle 1.	The responsibilities of the regulator should be clear and objectively stated.
Description	The responsibilities of the GFSC are set out in the Financial Services Commission (Bailiwick of Guernsey) Law, 1987, and amendments (the GFSC Law) and are restated annually in Appendix 1 of the GFSC’s annual report. The responsibilities are divided into “general functions and statutory functions.” These are set out respectively in Sections 2 and 3 of the GFSC Law. The general functions of the GFSC include: to take such steps as it considers necessary or expedient for the development and effective supervision of finance business in the Bailiwick; to provide to the responsible Committee of the States, when requested, reports, advice and assistance on any matter connected with finance business; and to prepare and submit to the responsible committee recommendations for the statutory regulation of finance business and the revision of legislation about companies and other forms of business undertakings. The Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2002, adds to the GFSC’s general functions: “the countering of financial crime and of the financing of terrorism.” The GFSC’s statutory functions include administering the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the POI Law). The POI Law sets out the responsibilities and powers of the GFSC in connection with investment business. In addition the GFSC is responsible for the regulation of deposit taking, insurance business, the provision of fiduciary services, company administration, and acting as a company director by way of business. The GFSC is also responsible for administering the Borrowing (Control)(Bailiwick of Guernsey) Law, 1946 which applies in respect of the raising of money by the issue of shares; the issue of company shares and debentures; and the circulation of an offer of company shares or debentures. In the exercise of its functions the GFSC may take into account any matter which it considers appropriate but shall in particular have regard to: “(a) the protection of the public interest, including the protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons carrying on finance business; and (b) the protection and enhancement of the reputation of the Bailiwick as a financial center.” For the purposes of the GFSC’s function in relation to the development of finance business in the Bailiwick (see paragraph 2 above) the 2002 Amendment Law defines “development” to include, among other things, “without limitation”: “the establishment and ongoing support of bodies and organizations the functions of which include or are important or relevant to- the development of finance business in the Bailiwick and of that sector of the Bailiwick economy which carries on finance business; the improvement of the infrastructure of or serving that sector of the Bailiwick economy which carries on finance business; the protection of the public; or the protection and enhancement of the Bailiwick as a financial center.”
Assessment	Implemented.
Comments	We note that the IOSCO Principles are backed by the three IOSCO Objectives are: the protection of investors; ensuring markets are fair, efficient, and transparent; and reducing systemic risk. The Bailiwick may wish to consider in any review of its statement of responsibilities whether any aspect of its commitment to these objectives should be more explicitly recognized. We consider that the GFSC would be better placed to undertake work under the Borrowing (Control) Law if its powers were more up-to-date and better integrated with its other powers. The GFSC has informed us that it is proposing to review this Law, in the context of a more general review of Company Law. We recommend that the GFSC proceed to undertake this work. We have expressed concerns about the inclusion of development in the functions of the GFSC, particularly in the context of the enlarged definition of this term (see para 6 above). The GFSC has informed us that it will propose a change in the law to meet our concerns. The GFSC should be able to continue its support of the activities of the Training Agency that are consistent with the revised mandate.
Principle 2.	The regulator should be operationally independent and accountable in the exercise of its functions and powers.
Description	The GFSC has been established on the basis that it is operationally independent and fully accountable for its actions. The government is nevertheless responsible for the performance of a number of essential tasks: to secure the enactment of appropriate rules of law about its establishment and constitution and about the regulation of markets and institutions; to appoint and remove commissioners; to arrange appropriate sources and levels of funding; to afford the GFSC as an expert body which is continuously engaged with the private sector the opportunity to make recommendations on the laws which it administers and to receive and consider these recommendations; and as the primary stakeholder to be concerned for the reputation and good standing of the GFSC and for this purpose to ensure that the GFSC is able to maintain appropriate standards of independence and accountability and perform its statutory functions. In addition, the Bailiwick relies to a considerable extent on the finance sector and its professional advisers for people who are qualified to serve as commissioners. Appropriate arrangements need to be in place to ensure that the GFSC is able to act independently in its dealings with the finance sector. We consider that any question about the independence and accountability of the GFSC needs to be answered in the context of these matters and the transparency with which they are addressed. Operational independence The law There are extensive rules of law about the GFSC and its responsibilities. These are described elsewhere in this report. They are enacted by or under the authority of the States. The States also have a continuing role in respect of secondary legislation. The States have an active and commendably large program of law reform work. The GFSC consists of five members. The policies and procedures pursuant to which they are appointed and removed are described in the law. The members are elected by the States from persons nominated by the committee and “having knowledge, qualifications or experience appropriate to the development and supervision of finance business in the Bailiwick.” The members hold office for three years and are eligible for reelection. The Chairman is selected annually by the States from among the members. In the past the President of the Advisory and Finance Committee was required to be Chairman but this requirement ceased to apply with effect from February 1, 2003. We do not consider that the appointment of members under the law as amended raises questions for us on the independence of the GFSC. We consider, however, that difficult questions would arise on any proposal to appoint a person as a commissioner who was a member of the States. Both the States and the Advisory and Finance Committee have responsibilities under the laws which the GFSC administers and, to the extent practicable, need to be independently responsible and accountable in performing their respective functions. We think this might be all the more important where, as in the Bailiwick, there are close constitutional links between the legislature, the government, and the judiciary. We understand, however, that the present policy of the government is not to appoint a politician to the GFSC. A member may be removed from office for cause by the Chairman or by the States on the recommendation of the Advisory and Finance Committee. We query whether the Chairman of a statutory GFSC should have a personal discretion to remove other members from office. We think the Bailiwick should review this discretion. Funding The present institutional arrangements adopted by the States for the funding of the GFSC appear to work well and do not affect the GFSC’s capacity to perform its work independently. Comment on funding more generally is dealt with elsewhere in the mission’s report. Recommendations on the law—General policy The GFSC has explicit functions and responsibilities about advice and recommendations including those on the revision of legislation. It also has rule making powers. It is expected to consult with industry and others on much of its policy work. It is independently accountable for this work. This seems appropriate. However, a question arises for us under Section 7 of the GFSC Law which provides that the Advisory and Finance Committee may, “after consulting the Commission, give to the Commission written guidance of a general character; and written directions of a general character, concerning the policies to be followed by the Commission in relation to the development and supervision of finance business in the Bailiwick and the manner in which any function of the Commission is to be carried out.” In principle, in the context of optimum arrangements about accountability and transparency, the power to give guidance and directions to a securities regulator should not be necessary. The policy of the law should be clear and the responsibilities of the regulator clear and objectively stated. If there is to be a power, it should be crafted to apply squarely within the core functions and responsibilities of the regulator, to be of a general character and not to intrude on operational independence. In the present case we have three comments: the power applies not only to matters of policy but also to the manner in which the GFSC carries out its functions; the power applies in respect of the GFSC’s development function; and acknowledging that any exercise of this power would be profoundly important in the life of the GFSC and, potentially, the license holders and others, we consider that the power should be exercised publicly. Notwithstanding these comments, we conclude that broadly speaking the power of guidance and directions conforms with Principle 2. We record moreover as a practical matter that we have seen no evidence of a lack of independence on the part of the GFSC in its dealings with others. There is a code of conduct regulating the conflicts of interests of commissioners. This was formally approved at a meeting of the GFSC. There is an equivalent code in the Staff Handbook applying to all staff. There are procedures for ensuring adherence to these. Accountability The commissioners are elected by the States under the GFSC Law. The GFSC is required to report annually to the Advisory and Finance Committee on its activities and financial affairs. This report must include a review of: the adequacy and application of its systems of internal control; the effective, efficient and economical management of its assets and resources; and its compliance with such generally accepted principles of good corporate governance as it is reasonable to regard as being applicable to it. The report is published and is made available on the GFSC’s website. Important decisions must be made in accordance with prescribed procedures. Section 35 of the POI Law requires that on any decision of the GFSC: to refuse an application for a license; to impose a condition on a license; to cancel or suspend a license otherwise than at the request of the licensee; to refuse authorization to a collective investment scheme; to impose any condition on an authorization of a collective investment scheme; or to revoke or suspend the authorization of a collective investment scheme otherwise than at the request of the manager, trustee or custodian. The GFSC must notify the applicant in writing of a proposed decision, offer the applicant up to 28 days to make oral or written submissions and, on request, furnish written reasons why it is considering taking the decision. The applicant may appeal to the Court against the decision on the grounds that it was ultra vires or was an unreasonable exercise of the GFSC’s powers. The Court may quash or confirm the decision or may substitute any other decision which the GFSC could have made. In addition, the Court may review administrative decisions of the GFSC under its general power of judicial review. We query whether a court of law should have a general power to substitute its decisions for the decisions of an independent regulator which is bound by the rules of fairness, particularly where appeal rights are limited to ultra vires and unreasonable grounds. It might be better if the Court’s power were limited to referring the matter back for redetermination. In addition from the time of institution of an appeal, the decision ceases to operate against the appellant. This is subject to a direction to the contrary by the Court on the application of the GFSC. The interests of investors and potential investors may be seriously at risk and we consider that the GFSC decision should continue to operate subject to any order of the Court on the application of the appellant. We understand it to be an accepted principle of the Common Law and associated jurisdictions that the decision of a tribunal or court should remain effective subject to the exercise by the court of an explicit power to stay the decision for good reason by interim order. Otherwise, these procedures for appeal and judicial review seem appropriate. The Director General and his staff regularly exercise certain of the powers of the GFSC on behalf of the commissioners. The Director General reports back to the commissioners on the exercise of these delegated powers. This is appropriate. The commissioners have powers of delegation and they have exercised them. Conclusions We consider that the Bailiwick has broadly implemented Principle 2 as it relates to operational independence. We consider that the Bailiwick has implemented Principle 2 as it relates to Accountability.
Assessment	Broadly implemented.
Comments	We raise questions about the following matters: the discretion available to the Chairman of the GFSC to remove other members from office (para 7 above); the terms and conditions under which a direction or guidance may be given to the GFSC (para 10 above); and the consequences of an appeal to the Court against a decision of the GFSC on the grounds that it is ultra vires or unreasonable (para 15 above).
Principle 3.	The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.
Description	Powers The GFSC Law confers certain general powers which it describes as relating to the capacity of the GFSC as a corporate body. Section 8 of the Law provides that the GFSC may do anything which appears to it to be conducive to the carrying out of its functions. It may: obtain information on development and supervision; consult and seek advice; publish information relating to its functions; and provide advice, assistance and services with a view to securing the general well being of finance business in the Bailiwick. In addition to these general powers, the GFSC has power under the GFSC Law: to levy fees and charges (Section 13); to cooperate with foreign regulators including to share information which it may lawfully disclose (Section 21A); to disclose confidential information where necessary: to enable it to carry out a function under the GFSC Law; and to assist an authority in another jurisdiction with functions corresponding to its own. The GFSC has powers under the POI Law. These include: to grant or refuse a license to carry on a controlled investment business (Section 4); at any time on or after the issue of a license to impose such conditions as appear to the GFSC to be necessary or desirable (Section 5); to cancel or suspend a license (Section 6); to authorize a CIS (Section 8); to impose conditions on an authorization (Section 9); to revoke or suspend an authorization (Section 11); to make rules about controlled investment business and authorized CISs (Sections 12 to 20); to obtain information from licensees and those appearing to require a license (Sections 27 and 30); to report an auditor to a disciplinary body (Section 27B); to apply to the Court for an injunction (Section 33); to apply to the Court for a restitution order (Section 33); to request the Law Officers to apply to the Court to prohibit a company director or manager (Companies (Guernsey) Law, Section 67A); to request the Law Officers to bring criminal proceedings against any person. In addition, the Advisory and Finance Committee has power to regulate in particular cases. The GFSC exercises powers under the Borrowing (Control) (Bailiwick of Guernsey) Law, 1946 and the 1959 Control of Borrowing Ordinance (COBO) made under it, on transfer from the Advisory and Finance Committee. These include: consent to the raising of money by the issue of shares; consent to the issue of partly paid shares; consent to the issue of securities other than shares if the body corporate is incorporated under the laws of the Bailiwick or the securities are to be registered in the Bailiwick; consent to the circulation of a public offer of securities for sale or subscription; and authorize the registration of a limited partnership. The GFSC’s powers under the POI Law are extensive. It makes extensive use of the rule making powers in respect of CISs and those engaged in investment business. It makes extensive use of the operational powers in the ongoing regulation of licensees. The GFSC does not have power to issue directions to licensees. However, it has power to impose conditions on a license (section 5 POI Law). This power is expressed in the Law in terms that render it in substance, we consider, a power to give directions as well as a power to impose conditions. The power is described under Principle 9 paragraph 1 below and procedures relating to the exercise of the power under Principle 2 paragraph 14 above. The GFSC does not have power to impose administrative fines. However, we think the power to impose conditions on a license in the terms in which it is expressed in the Law can be an effective procedure for regulating licensees on a continuing basis. There are powers in the POI Law for dealing with a person who engages in investment business without a license. These are less effective than those which apply to a licensed person. One additional power which the GFSC might find useful, which is not provided in the present Law or in the proposed amendment law on misleading statements and practices, is the power to prohibit promotional statements by administrative process where in the opinion of the GFSC they are misleading or do not comply with the law. There are precedents for such a power in other jurisdictions. It would apply particularly to unlicensed persons but may also be a valuable supplementary procedure for dealing with uncooperative licensees. The GFSC does not have power to make rules under the Borrowing (Control) Law. It has power to consent to an issue of securities. This applies to investment products other than CISs, most importantly, interests in closed-ended investment schemes, interests in the cells of what are called protected-cell company and securities issued by trading companies, in the form of shares and debentures. The GFSC issues administrative guidance. It expects shortly to have explicit power under COBO to issue guidance on its COBO based policies. Moreover, the managers of an investment company based in the Bailiwick will need to hold an investment business license. The GFSC does not have an explicit power to review market practice and comment publicly on it. We refer to this matter under Principle 8. It does not have power to require a person, other than a licensee, to produce information for the purpose of communicating to an offshore regulator, merely to communicate the information which it has already acquired. We refer to this matter under Principle 13. The GFSC does not have full on-site inspection powers or the power of entry and search. We consider this under Principle 8. Resources The GFSC has the following divisions: banking, investment business, insurance, fiduciary business and enforcement, operations and personnel, and policy and international affairs. It also jointly funds a Training Agency the development of which it has taken responsibility for. The GFSC has a current complement of staff of 72. There are 19 people in the Investment Business Division including the director. The director expects to have an establishment of 24 people in the New Year. The present establishment is one secretary, 12 analysts, 4 senior analysts, a deputy director and a director. The division is subdivided into three teams, one for authorizations, one for off-site review and one for on-site inspections. The arrangements for the funding of the GFSC as described elsewhere in this report appear sound and reliable. The forward program of work for the Investment Business Division as described to the mission seems robust and the level of resources available for securities and investment work seem appropriate to the jurisdiction. The mission has met with a number of people in the financial services industry. It is our impression that the efforts of the GFSC are well supported in the community, reinforcing its capacity to perform its functions and exercise its powers effectively as an investment business regulator.
Assessment	Implemented.
Comments	The GFSC may find it useful to have statutory power to prohibit promotional statements which in its opinion are misleading or do not comply with the law (see para 8 above). We comment further on the powers of the GFSC under Principles 8 and 13 below in relation to on-site inspection and entry and search, GFSC public comment on investment business management and marketing practice, and obtaining information for the purpose of communicating to an overseas regulator.
Principle 4.	The regulator should adopt clear and consistent regulatory processes.
Description	As noted above the GFSC has wide power to issue rules about investment business and has made extensive use of this. It consults widely on all its proposals for new rules. Indeed, it is required to do so under the POI Law (Section 13). There appears to be a wide-spread support in the finance sector for this rule-making power. The GFSC may give advice on the operation of the law or its own functions. These include general circulars to the investment industry and the media, articles in its publication « Update » and the annual report. The GFSC also produces guidance notes which are available on its website or directly from the GFSC. These include: Investment Business in Guernsey—A Regulatory Overview; Guidance Note—Outsourcing of Administration Functions in respect of Authorized Collective Investment Schemes; Incorrect pricing of Authorized Collective Investment Schemes—Guidance Note on Correction and Compensation; Guidance Notes on UK Public Offers and Promotional Activities; and Guidance Notes on the Prevention of Money Laundering and the Countering of the Financing of Terrorism. It publishes general conclusions arising from investigations and, indeed, from routine monitoring. We have found a great deal of useful material on the website. In formulating its policies and processes, the GFSC has said that it aims to adhere to high regulatory standards following extensive industry consultation. Any person who is aggrieved by a decision of the GFSC on designated matters relating to the administration of the Law may appeal to the Court on the grounds that the decision was ultra vires or an unreasonable exercise of its powers. The GFSC is required under the POI Law to follow certain prescribed steps when taking various decisions about licensing or authorization matters. It must give notice that it is considering taking the decision and offer to state its reasons in writing on request. More generally, the staff handbook provides for GFSC staff to observe standards of fairness in performing the GFSC’s regulatory and supervisory work.
Assessment	Implemented.
Comments
Principle 5.	The staff of the regulator should observe the highest professional standards including appropriate standards of confidentiality.
Description	Section 18 of the GFSC Law requires the GFSC to review in each year, by the appointment of appropriately qualified and independent professional persons or otherwise, its “compliance with such generally-accepted principles of good corporate governance as it is reasonable to regard as being applicable to the Commission.” The commissioners are required to satisfy themselves about the conclusions of this review. The staff handbook sets standards for the staff including standards about the confidentiality of information. The GFSC is required to review annually its professional standards, including its standards of confidentiality. Avoidance of conflicts of interest The commissioners and GFSC staff are required to be aware of actual and perceived conflicts of interest arising from the use of confidential information in their possession or to which they have access. commissioners and GFSC staff are required to submit details of investment holdings to a designated officer of the GFSC and, if necessary, explain any transactions. A commissioner or member of staff who becomes aware of a conflict of interest must inform a Director or the Director General as soon as possible. Staff are not permitted to present themselves for election to any significant public office including that of States Deputy. The commissioners are also required at each meeting of the commissioners to disclose any potential conflicts of interest arising at the meeting. All potential conflicts of interest as disclosed are minuted. Observance of confidentiality and protection of data The GFSC maintains standards of confidentiality in accordance with its standing policies. The GFSC Law protects the name of an individual or body and certain other information. The GFSC is subject to the confidentiality provisions of the GFSC Law. In addition it is subject to the Data Protection (Bailiwick of Guernsey) Law, 2001 which specifies the framework for the holding and disclosure of personal data. Procedures on compliance with this law are contained in the Staff Handbook. Observance of procedural fairness We refer to the GFSC’s procedures under Principle 4 above.
Assessment	Implemented.
Comments
Principles of Self-Regulation
Principle 6.	The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, and to the extent appropriate to the size and complexity of the markets.
Description	There is one SRO in the Bailiwick, the Channel Islands Stock Exchange (CISX). The CISX was established in March 1998 as a company limited by guarantee (LBG), with shares, under the Companies (Guernsey) Law, 1994. The objects of the CISX as set out in its Memorandum of Association include: to carry on the business of an investment exchange and clearing house; to provide, manage and regulate markets in, and to provide clearing and settlement services with respect to transactions in, investments of all kinds, whether direct or derivative, including financial instruments and currencies; and to provide facilities for the transaction of the businesses of broking, dealing, market-making, stock lending, investment management and advice and other businesses in the field of financial services; to act as an authority for the admission of investments to be traded or dealt in on any exchange or market and to maintain any official list for the time being required or recognized by the law of any country; to provide information, depository and nominee services; to provide, maintain and operate, systems for and in connection with the evidencing and transfer of investments without a written instrument and to regulate the use thereof; to enter into arrangements of any kind and to cooperate and share information with governmental and nongovernmental authorities, bodies and persons in any part of the world, and in particular with those having responsibility for the supervision or regulation of financial services; to promote high standards in the financial services industry and in particular to make, administer, monitor and enforce rules governing access to and use of any services and facilities provided by the CISX and the qualification and conduct of persons engaging in the financial services industry or any part thereof, and to make arrangements for the investigation of complaints in respect of business transacted by means of the CISX’s services and facilities; to establish and maintain, by the levying of contributions, by insurance or otherwise, compensation schemes for the benefit or protection of the public or of any class of persons; and to carry on business as a general commercial company. The CISX is licensed by the GFSC under the POI Law to carry on the restricted activity of “operating an investment exchange” and is subject to GFSC regulation and supervision. The CISX has power under its Articles of Association to make Rules. It has made Membership Rules and Listing Rules. It monitors compliance with and enforces them. The rules require the members to be appropriately regulated. We consider this to be an appropriate use of an SRO.
Assessment	Implemented.
Comments
Principle 7.	SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.
Description	There is one SRO, the CISX. The GFSC reviewed the CISX’s constitution, structure, staffing plans, proposed rules and internal procedures before issuing a license and assessed them against equivalent arrangements in other jurisdictions, notably the United Kingdom. The CISX aims to ensure, among other things, that it observes standards of fairness and confidentiality. The GFSC maintains a program of on-site and off-site supervision and aims to verify this. The CISX has power, among other things, under its Articles of Association to make rules respecting: the admission of members; the conduct of disciplinary proceedings and the imposition of sanctions; appeals against refusal of membership, expulsion, exclusion or suspension and other disciplinary sanctions; and the admission of securities to the Official List. It has exercised this power in making Membership Rules and Listing Rules. The Articles establish a Market Authority “for the purposes of managing, operating and regulating the Company” and confer on it wide powers including the power “to apply and enforce Rules” and “to supervise compliance with the Rules.” If the Market Authority rejects an application the Rules provide for a right of appeal to the board of directors and prescribe the procedure for this. There is a Disciplinary Committee which is responsible for considering reports from the Market Authority on disciplinary matters and there is a right of appeal from its decisions to a Disciplinary Appeals Committee. The Market Authority is effectively a senior management team. It is responsible for both operational and compliance matters. There is no formal separation at the decision making level within management between these two broad functions. Similarly there is no formal separation at the Board level when it is acting as an appeal authority. There is a Disciplinary Committee and a Disciplinary Appeals Committee which, like the Market Authority, are required to act fairly. These committees are described as sub-committees of the Board. There is no further statement in the CISX Rules about the structure or composition of these committees. This procedure appears to work well in practice in the Bailiwick and to have the confidence of the finance sector. CISX Directors have established clear rules about conflicts of interests, the confidentiality of information and the need to act in good faith. Staff at the CISX has equivalent obligations. Pursuant to their contracts of employment they sign an annual employee code of conduct. The Investment Exchange (Notification) Rules 1998 provides that the CISX must, in the case of: the chairman, chief executive and board members; the persons responsible for compliance and for finance; the members of any body to which the CISX has delegated rule- making powers; the members of any disciplinary body; any arbitrator or member of an arbitration panel; and the members of any complaints body, notify the GFSC of any: change of name; conviction for any offense concerning fraud or other dishonesty; conviction for any offense under any legislation relating to finance business; initiation of bankruptcy or similar proceedings; refusal of any application for, or revocation or suspension of any license authorization or registration under any finance legislation; disciplinary measures or sanctions by a regulatory authority or professional body; and Court order disqualifying the person from acting as a director or manager of a company. The CISX is required to submit an annual regulatory plan in draft to the GFSC, the annual budget, any proposal to change the CISX rules, any proposal to change the Memorandum or Articles of Association and any proposal to delegate monitoring to a body outside the CISX. The GFSC monitors the operations of the CISX by off-site review and on-site inspections.
Assessment	Implemented.
Comments	We comment further on the structure and operations of the CISX under Principles 25 and 26.
Principles for the Enforcement of Securities Regulation
Principle 8.	The regulator should have comprehensive inspection, investigation and surveillance powers.
Description	The GFSC’s powers of inspection and investigation are set out in Section 27 of the POI Law. The GFSC may require a licensee and certain other persons: to attend before the GFSC and answer questions and otherwise furnish information; to furnish the GFSC with such information as it may reasonably require about any specified matter; and to produce books or papers. The obligation to comply extends to any person who appears to the GFSC to be carrying on controlled investment business (Section 30). It is an offense to provide a misleading response to an enquiry by the GFSC under Sections 27 and 30 of the POI Law. The GFSC conducts on-site visits for the purpose of ensuring that licensees comply with the POI Law and the rules and regulations made under it. All licensees are subject to on-site visits. The GFSC does not have statutory on-site inspection powers and powers of entry and search. These are particularly useful powers in dealing urgently with an investment business which should be licensed but is not or which is unwilling to respond to a license condition. We consider it may be difficult to deal efficiently with this type of situation under the present law. Under a 2003 amendment to the GFSC Law which received royal assent after the mission the States can by Ordinance provide for the making by the Commission of site visits in respect of licensees and any other class of person. While it may not be necessary for the GFSC itself to have a power of entry and search an associated regulator such as the Law Officers should be able to act on its behalf in appropriate circumstances. The GFSC has indicated that it expects to see the Ordinance made in early 2004. Section 27(A) of the POI Law requires audit firms to report to the GFSC on any matter relating to a licensee, to a fund or to a client which appears to the auditor to be of material significance for determining whether a person is fit and proper to carry on controlled investment business, or whether the GFSC should exercise its powers under the POI Law to protect investors from significant risk of loss. As observed under Principle 3 the GFSC does not have an explicit power to review investment business management and market practice and to comment publicly on it. It would afford statutory backing to its practice of publishing conclusions arising from its investigation and monitoring work (see Principle 4 para 2 above). It would empower the GFSC to undertake case studies and publish reports in circumstances where an intermediary has engaged in an undesirable practice less than a breach of the law or a license term. It is in the context of this wide power of review that any power of the GFSC to publicly report institutions or individuals that are found to be not in compliance with regulatory or legal requirements can be most effective. In the absence of statutory on-site inspection powers and powers of entry and search we do not consider that the Bailiwick has fully implemented Principle 8.
Assessment	Partially implemented.
Comments	We recommend that the Government review the GFSC’s powers and secure statutory powers of on-site inspection and entry and search. We also recommend that the GFSC consider whether to seek a general power to comment on investment business management and market practice.
Principle 9.	The regulator should have comprehensive enforcement powers.
Description	The GFSC has power under the POI Law to attach conditions to, suspend, cancel or revoke a license or authorization and to compel the production of information about a controlled investment business or a CIS. As we have noted elsewhere we consider that the power to impose conditions has very much the character of a power to issue a direction to licensees as well as a power to impose conditions (see Section 5 of the POI Law). For example, the GFSC may in the exercise of this power, prohibit a licensee from: entering into transactions; soliciting business; carrying on business in a specified manner; disposing of or otherwise dealing with any asset; or require a licensee; to transfer assets to a trustee; and to maintain assets in the Bailiwick. The GFSC Rules about investment business and CISs seem comprehensive and the GFSC has the power to enforce them as they apply to the individual licensee. It is a criminal offense to conduct a controlled investment business without a license, or to operate an unauthorized fund. It is also a criminal offense to provide misleading information to the GFSC in response to a statutory request. The GFSC may request the Law Officers to prosecute those who do not comply with the law. The GFSC inform us that they take into account a failure to respond to an information request when considering a licensee’s status as a fit and proper person. The GFSC may commence proceedings in the court for a restitution order where there has been a breach of named laws and profits have accrued to any person or an investor has suffered loss. The GFSC may request the Law Officers to apply to the Court to prohibit a person from acting as a company director or manager. The CISX has the power to investigate and discipline its own members, including the power to levy fines and administrative sanctions. It may also direct the suspension of trading in individual trading in securities.
Assessment	Implemented.
Comments
Principle 10.	The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
Description	The Investment Business Division has a staff of 19 people and is expected to increase to 24 in 2003. It plans and implements an annual supervision program in relation to investment business licensees and CISs. For this purpose it maintains a program of off-site and on-site supervision. It utilizes off-site supervision to monitor compliance with the rules made under the POI Law, namely: The Collective Investment Schemes Rules 1988; The Collective Investment Scheme (Class A) Rules 2002; The Collective Investment Schemes (Class B) Rules 1990; The Collective Investment Schemes (Designated Persons) Rules 1988; The Collective Investment Schemes (Qualifying Professional Investor Funds) (Class Q) Rules 1998; The Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998; The Licensees (Conduct of Business and Notification) (Non-Guernsey Schemes) Rules 1994; The Investment Exchange (Notification) Rules 1998; The Investor Protection (Designated Countries and Territories) Regulations 1989; The Investor Protection (Designated Countries and Territories) (Republic of Ireland) Regulations 1992. These rules impose extensive requirements on licensees, most importantly for the purposes of off-site inspections, the notification of information to the GFSC. Licensees must submit routine notifications, annual compliance reports, audited annual reports and analyses of investor complaints. A licensee is required to notify the GFSC if at any time its financial resources fall below the minimum prescribed level. The GFSC aims to monitor compliance with any conditions imposed on a license or a fund authorization. The GFSC undertakes both routine inspections and inspections initiated in response to specific matters brought to its attention. In 2001, a total of 21 inspection visits were undertaken. Of these 11 were to designated managers and 6 to designated custodians/trustees. The visits also included two follow-up visits to confirm remedial action had been undertaken and one special review in response to specific issues which had come to the GFSC’s attention. From January to mid-September 2002, the GFSC has made 18 on-site inspections to a range of licensees, including one inspection made to a firm in a foreign jurisdiction which is a subsidiary of a Guernsey financial institution. The GFSC is not obliged to give advance notice of an inspection, although it is normal practice to do so. It requests the licensee to provide standard information before the inspection and additional information during the visit. We are informed that the inspectors generally request copies of: minutes of board meetings; compliance reports; management accounts; procedures manuals; complaints procedure; disaster recovery plans; anti-money laundering and counter terrorist financing policy; and report on staff awareness. In addition there are categories of information which relate specifically to the type of business under review (e.g., stockbroker, designated custodian/trustee or designated manager). Following the receipt and assessment of this information and the assessment of other information in its possession, the GFSC holds a pre-visit meeting with the senior management of the licensee to discuss the key areas to be covered in the visit and any initial concerns the GFSC may have about the quality of the information provided. The GFSC aims to be open with the licensee about its areas of interest or concern, in order to reduce the risk of misunderstanding and to improve the effectiveness of the on-site review. There is a closing meeting after the inspection. Significant matters arising from an inspection visit are notified in writing to the board of directors of the institution concerned, while less significant procedural matters are referred to the senior management of the institution. The GFSC keeps detailed records of all matters covered during an inspection visit. The GFSC’s practice, where it identifies deficiencies in the course of an inspection is to require the licensee to take remedial action within a specified time and to report back to the GFSC when it has done so. The GFSC maintains a diary system to check that the firm is meeting the timetable. Where serious control failings are apparent, the GFSC may attach a condition to the license until the situation has been rectified. It has done so on a number of occasions in the recent past. Notice periods for non-routine inspections have tended to be short. In determining the prioritization of visits to an individual licensee and their frequency, the GFSC inform us that they take account of a range of criteria including the nature of the licensee’s business and its clients, the risks associated with the business, the quality and timeliness of statutory notifications, and the incidence of complaints.
Assessment	Implemented.
Comments
Principles for Cooperation in Regulation
Principle 11.	The regulator should have authority to share both public and nonpublic information with domestic and foreign counterparts.
Description	The Bailiwick does not have secrecy laws. Information held by the GFSC is subject to Section 21 of the GFSC Law. This states that “any information from which an individual or body can be identified” shall be regarded as confidential. The GFSC may disclose this information if it appears to the GFSC to be necessary: to enable the GFSC to carry out any of its functions; for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings; and in connection with the discharge of any international obligation to which the Bailiwick is subject; to assist in the interests of the public or otherwise, any authority which appears to the GFSC to exercise in a place outside the Bailiwick functions corresponding to any of the functions of the GFSC; or to comply with the directions of the Royal Court. In addition, Section 21A of the GFSC Law requires the GFSC to: “take such steps as it considers appropriate to cooperate with any person or body: (a) who or which appears to the Commission to exercise in a place outside the Bailiwick functions corresponding to any of the functions of the Commission; or (b) for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of, or otherwise for the purpose of, any criminal proceedings.” The GFSC clearly has wide powers to disclose information. In addition, it does not require the execution of an MOU with a foreign regulator to be able to share information. However, such a memorandum is an increasingly common feature of the GFSC’s arrangements (see Principle 12). In addition to the GFSC’s powers, the Law Officers have powers under the Insider Dealing Law to obtain information and to share it with other regulators. We consider that the Bailiwick has implemented Principle 11.
Assessment	Implemented.
Comments
Principle 12.	Regulators should establish information sharing mechanisms that set out when and how they will share both public and nonpublic information with their domestic and foreign counterparts.
Description	The GFSC has entered into the following MOUs in relation to investment business: Australian Securities Commission (1996); United States Commodity Futures Trading Commission (1994); De Nederlandsche Bank NV (1993); International Organization of Securities Commissions (1991 and 1996); Jersey Financial Services Commission (1998); Hong Kong Securities and Futures Commission (1992 and 1994); London Stock Exchange (1998); Commission Nazionale per le Societa e la Borsa (an Information Exchange Agreement in 1994 replaced by an MOU in 2002); and Isle of Man Financial Supervision Commission (2002). These MOUs typically 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.” The GFSC informs us that it is currently negotiating MOUs with four other regulatory bodies. Two of these were finalized subsequent to the mission. The GFSC is able to share information without an MOU. However, the MOU represents an important public statement on cooperation and sets out the understandings of the parties on such practical matters as the type of information to which it applies, the procedures for making a request, the uses to which the information may be put and the understandings on confidentiality. Under the Data Protection (Transfer in the Substantial Public Interest) Order 2002, the GFSC is required to obtain an undertaking that personal information will be kept confidential but, subject to that, is able to agree to the disclosure of personal information where it considers it is in the substantial public interest to do so.
Assessment	Implemented.
Comments
Principle 13.	The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.
Description	The GFSC did not at the time the mission visited Guernsey have explicit statutory powers to require the production of information for communication to an offshore regulator. We thought it should. The GFSC’s statutory powers were limited to the sharing of information already in its possession as described under Principle 12. Suitable powers are now contained in a 2003 amendment to the FSC Law. We are informed that this received royal assent in July 2003. We note that the Law Officers have power under the Company Securities (Insider Dealing) (Bailiwick of Guernsey) Law, 1996 to appoint inspectors where there are circumstances suggesting that an insider dealing offense under the laws of another country may have been committed and that a person in the Bailiwick may have been concerned or may have information or documents. The Law Officers have power to transmit material obtained under statutory authority to the prosecuting or supervisory authorities in the other country. We considered that the Bailiwick had partially implemented Principle 13 at the time of the mission visit. We consider that it has now fully implemented the principle with the coming into force of the 2003 amendment to the FSC Law.
Assessment	Implemented.
Comments
Principles for Issuers
Principle 14.	There should be full, accurate and timely disclosure of financial results and other information that is material to investors’ decisions.
Description	The disclosure requirements for public offerings arise in three ways: by GFSC discretion, through the exercise of its powers under COBO, in respect of offerings other than Guernsey open-ended funds; under the various POI Rules in respect of the offer of interests in Guernsey open-ended funds; and by the CISX under the listing rules about disclosure. Securities—other than Guernsey open-ended funds—offered in or from within the Bailiwick of Guernsey must have GFSC consent under COBO. The GFSC is, at present, conferring with the finance industry on the terms of a detailed guidance note on the disclosure of information in an offer by a closed-ended fund. The directors of the issuer take responsibility for the content of the prospectus or other offer document. For open-ended fund approvals, a lawyer’s certificate is also required, confirming that the relevant disclosure requirements have been met. Promotion to private investors must be carried out under the authority of a Guernsey licensee who must take responsibility for the content of any local presentation. In the case of an offer under COBO, the GFSC does not have power to supervise the issuer but may take action against the responsible licensee, for example, by imposing a condition on the license. The Companies (Guernsey) Law, 1994 provides for the keeping of accounting records, the appointment of auditors, the preparation of financial statements and distribution to shareholders. There are similar provisions in the Companies (Alderney) Law, 1994. The GFSC, as a matter of policy, will not permit a public offer to be made without an undertaking from the issuer in the prospectus to provide for the regular disclosure of information, including the preparation and timely distribution of audited financial statements. The disclosure requirements for open-ended funds are set out in the relevant class rules (the Collective Investment Schemes Rules 1988, and the Collective Investment Scheme (Class A) Rules 2002 (the Class A Rules), the Collective Investment Schemes (Class B) Rules 1990 (the Class B Rules) and the Collective Investment Schemes (Qualifying Professional Investors Funds) (Class Q) Rules 1998 (the Class Q Rules). No offering may proceed until the GFSC has issued its consent. The GFSC maintains an active compliance program in respect of these obligations of issuers. We have confirmed this by inspection of GFSC files and discussions with GFSC officers. The program is described under Principle 10 above. There is at present a Closed-Ended Fund Working Party comprising representatives of the GFSC and the finance sector which has prepared and published detailed proposals for ongoing reporting by closed-ended fund managers. The GFSC expects to formalize these shortly in a formal policy statement. Where a company is listed on the CISX, the listing rules require regular and timely reporting of financial information and of matters significant to the company. Listed companies are required to publish annual and semi-annual reports. This is backed by Guernsey company law where there is a requirement for the preparation and distribution of audited annual financial statements.
Assessment	Implemented.
Comments
Principle 15.	Holders of securities in a company should be treated in a fair and equitable manner.
Description	There are a number of provisions in the Companies Laws in force in the Bailiwick which aim to ensure that holders of securities are treated in a fair and equitable manner. While, as we understand the position, the GFSC is not responsible for enforcing company law, investment company managers based in the Bailiwick will hold an investment business license and will be subject to GFSC supervision. There is a very small number of trading companies with members of the general public as shareholders and the ongoing management of these will be regulated under the Companies Laws. In either case, the GFSC will have been involved under COBO at the time of issue of securities and the terms of the investment contract as contained in the offer document will have been settled before the COBO consents were issued. Investors benefit from this GFSC involvement. The Companies (Guernsey), Law 1994 contains a number of provisions which are material to the treatment of holders of securities. These relate largely to the constitution, corporate governance and reporting to shareholders. They are rather more for the benefit of shareholders than debenture holders. The debenture holders will particularly benefit, we think, from the GFSC review of the investment contract at the time the securities are first issued. There are rules of law about insider dealing which establish an offense of insider dealing and powers of investigation (see under Principle 28). In addition the London City Code on Takeovers and Mergers applies to listed companies which are resident in Guernsey, Jersey, the Isle of Man as well as the United Kingdom.
Assessment	Implemented
Comments
Principle 16.	Accounting and auditing standards should be of a high and internationally acceptable quality.
Description	Subject to exceptions, in particular in relation to ‘dormant companies’ and ‘asset holding companies’, all companies are required under the Companies (Guernsey) Law, 1994 and the Companies (Alderney) Law, 1994 to prepare, and deliver to their members annual financial statements audited by an external auditor. In addition, the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 (the FNCC Rules) require all licensees to maintain accounting records and to prepare audited annual financial statements. They regulate the appointment of qualified auditors and a change of auditors. The Collective Investment Schemes Rules 1988, the Collective Investment Scheme (Class A) Rules 2002, the Collective Investment Schemes (Class B) Rules, 1990 and the Collective Investment Schemes (Qualifying Professional Investors Funds) (Class Q) Rules 1998 also contain rules on the preparation of annual reports and financial statements and the auditing of accounting information by qualified auditors. The auditors’ report will state whether in their opinion the financial statements have been properly prepared in accordance with the law and whether they give a “true and fair” view. Bailiwick companies will normally adopt generally accepted accounting principles (GAAP) in the United Kingdom and the audit will be conducted on this basis. However under a Statement of Channel Islands Accounting Practice, it is recognized that the financial statements of companies incorporated other than in the Channel Islands may be drawn up to comply with the standards of the jurisdiction, e.g., United States GAAP, or International Accounting Standards. The accounting standards adopted will be identified in the audit report to the financial statements. A person is not qualified for appointment as an auditor unless a member of: the Institute of Chartered Accountants in England and Wales; the Institute of Chartered Accountants of Scotland; the Institute of Chartered Accountants in Ireland; or the Chartered Association of Certified Accountants, and eligible for appointment under the rules of the body as an auditor. Qualified auditors who are members of any one of the above bodies will be subject to its independence and audit rules and guidelines and subject to its disciplinary authority. There has been some consideration in the Bailiwick in recent times about the best source of authority for audit standards and the review of auditor performance, particularly in the context of evidence of unsatisfactory practice overseas. The GFSC should continue to review policy in this area. For the present the mission considers it appropriate for the Bailiwick to work to maintain satisfactory standards through the present institutional links between the profession and the offshore institutes and the links between some firms and their affiliates in the United Kingdom and elsewhere.
Assessment	Implemented.
Comments	The source of authority for financial reporting and audit standards and for the review of auditor performance is under careful review internationally. We consider that the GFSC, the accounting profession and others should continue their ongoing consideration of this matter.
Principles for Collective Investment Schemes
Principle 17.	The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.
Description	Any person who carries on restricted activities in connection with a collective investment scheme as defined by the POI Law must have a license. This includes the promoter, the administrator, the manager and the trustee or custodian of a collective investment scheme. Section 4 of the POI Law sets out the criteria which the GFSC must apply in considering an application. These include: the general nature and specific attributes of the controlled investment business to which the application relates; whether or not the applicant is a fit and proper person to carry on that business; the manner in which it is proposed to organize the carrying on of controlled investment business to which the application relates, the number of persons who will be responsible for carrying on each aspect of that business and the relationship between those persons; what, if any, economic benefit the Bailiwick is likely to derive from the carrying on of that business; and any other factors which the GFSC thinks it appropriate to consider. The GFSC may grant or refuse a license and may attach conditions to a license. The GFSC has made Rules relating to the conduct of investment business and the operation of the various classes of CISs. The Rules are supplemented by published guidance on certain aspects of fund operations, often based on matters which it has observed in the course of its monitoring programs. Licensees must have appropriate resources and experience to act and meet requirements under the Collective Investment Schemes (Designated Persons) Rules 1988 in connection with financial records, financial statements, financial resources, audit, financial notifications, best execution, arrangements for indirect payment for services, product bias, gifts, benefits in kind and reciprocal arrangements, the allocation of transactions, records relating to transactions, contract notes, the inspection of records, client money, compliance arrangements and complaints and other notifications. Licensees must also comply with equivalent requirements in connection with financial resources, notifications and records, fitness and properness, and compliance arrangements under the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998. In addition, section 8 of the POI Law requires that Bailiwick collective investment schemes must be authorized by the GFSC. The GFSC has made rules - the Class A Rules, the Class B Rules and the Class Q Rules - which regulate the operation of funds. The Class A Rules are the most detailed, with less detailed arrangements applying to the Class B and Class Q funds which are normally offered to more sophisticated or institutional investors. These scheme-based Rules do not apply to closed-ended funds which are promoted under the authority of COBO. The GFSC maintains an active compliance program in respect of those who market or operate a CIS. We have confirmed this by inspection of files and discussions with GFSC officers. The program is described under Principle 10 above. In December 1988 the Bailiwick was granted “designated territory status” under Section 87 of the United Kingdom Financial Services Act. Class A funds are therefore freely marketable in the United Kingdom. Similar arrangements are in place with Australia, Belgium, Hong Kong, Isle of Man, Japan, Jersey, the Netherlands, the Republic of Ireland, South Africa and Switzerland.
Assessment	Implemented.
Comments
Principle 18.	The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.
Description	Collective investment schemes may be formed as trusts, bodies corporate, or as limited partnerships. The Trusts (Guernsey) Law, 1989, the Companies (Guernsey) Law, 1994 and the Limited Partnerships (Guernsey) Law, 1995 provide the basic framework for the establishment of the scheme structures. The POI Law and the rules made under it establish additional controls on the legal form and structure of schemes. The Rules provide for the segregation and protection of client assets. The Bailiwick also promotes the PCC. The GFSC attributes the following characteristics to this type of company: is one legal entity; provides, for each cell, legal segregation and protection of assets and liabilities; may create its own core shares and cell shares, providing two classes of assets—core (or noncellular), attributable to the PCC directly, and cellular attributable to the cells; can provide an unlimited number of cells; can be converted from an existing company; offers flexibility in the allocation of capital between the core and individual cells; and offers a wide range of potential applications. We are informed that creditors of an individual cell of a PCC have no recourse to the assets of another cell, but will have recourse to the core assets. Provision is made in the Protected Cell Companies Ordinance, 1997 for the incorporation of such a company, or the conversion of an existing company into such a company, with the consent of the GFSC. The Ordinance allows for the PCC to be a CIS. The vehicle was originally developed, we understand, for captive insurance business within a group of companies. The GFSC also allows for the use of umbrella funds, subject to the Rules. It considers the PCC a more secure investment vehicle than the umbrella fund. For all CISs client assets must be held in a segregated pool under the control of a separate custodian. In the case of Class A schemes the custodian must not only be separate but also independent from the manager’s group. The Collective Investment Schemes (Designated Persons) Rules 1988 also require subscription monies received from investors and redemption monies due to investors to be segregated from the assets of the fund. In addition to the custody function, the custodian’s duties under the Class A and Class B Rules but not the Class Q Rules extend to overseeing the operation of the fund by the manager and administrator and satisfying itself that the manager and administrator operate the fund in accordance with the POI Rules and with the objectives disclosed to investors. In this sense, the custodian’s role is akin to that of a trustee. This trustee function applies irrespective of the legal form of the fund. The segregation and protection of client assets are evaluated by the GFSC during on-site visits to the administrators, managers and custodian/trustees of collective investment schemes.
Assessment	Implemented.
Comments
Principle 19.	Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.
Description	Every fund authorized under the POI Law must offer to investors a prospectus or statement of scheme particulars or equivalent document setting out prescribed information, including the objectives and policies of the fund; the names of the manager, custodian, registrar, auditor and any other functionaries appointed to operate the fund; the manner and frequency of valuations; subscription and redemption arrangements; the fees and charges to be paid by investors; the level of fees and charges which will be met by the fund; and other information - such as suitable risk warnings. The detailed requirements are specified at Schedule 4 to the Class A Rules, the Schedule to the Class B Rules and the Schedule to the Class Q Rules. The GFSC is required to approve the Scheme Particulars. The manager must revise the Scheme Particulars annually and any changes must be submitted to the GFSC for consideration before they are implemented. The manager (and, in the case of a company based scheme, the directors) have a responsibility to ensure that the prospectus/scheme particulars do not contain any untrue or misleading statements. The CIS Rules also require scheme annual reports and financial statements (and, additionally, interim reports for Class A schemes) to be prepared and distributed to investors. The rules prescribe detailed contents for the reports and accounts, which must be published within six months of the end of the period to which they relate. For Class A and B schemes, the designated custodian/trustee must report on the management of the scheme. The CIS Rules provide for the periodic valuation of property, to be carried out on both offer and bid basis, and for the pricing of units. The Scheme Particulars must describe the arrangements for this. The GFSC maintains an active compliance program in respect of those who market or operate a CIS. We have confirmed this by inspection of files and discussions with GFSC officers. The program is described under Principle 10 above.
Assessment	Implemented.
Comments
Principle 20.	Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme
Description	The CIS Rules set out the requirements for the valuation of CISs and the arrangements for pricing, subscription and redemption of units in a scheme. As noted under Principle 19, the pricing basis must be disclosed in the Scheme Particulars or equivalent document. The GFSC has also issued guidance on the steps to be taken by operators and custodians to ensure that valuation and pricing is conducted in an efficient and controlled manner so as to minimize the risk of error. Compliance with the rules and guidance notes on asset valuation and pricing are monitored by the GFSC during on-site visits (see also under Principle 10 above). The CIS Rules set out the requirements for the redemption of units. The Scheme Particulars must describe the procedures for redemption and the circumstances in which the redemption of units may be suspended. The GFSC must be informed of the suspension of redemption rights. Fund administrators’ policies, in connection with the redemption of units are monitored by the GFSC during on-site visits.
Assessment	Implemented.
Comments
Principles for Market Intermediaries
Principle 21.	Regulation should provide for minimum entry standards for market intermediaries.
Description	All market intermediaries and investment advisers require a license under the POI Law. The minimum entry standards are set out in the Law as noted under Principle 17. The GFSC requires as a matter of policy that new entrants demonstrate that they have an already established track record in their sphere of activity, that they are persons of integrity, honesty and competence, and that they have adequate financial resources. They must also have an appropriate business plan. Section 4(3) of the POI Law states: “In considering whether to grant an application made under Section 3 the Commission shall have regard to the need to protect the public and the reputation of the Bailiwick as a financial center; and to that end the Commission shall consider: the general nature and specific attributes of the controlled investment business to which the application relates; whether or not the applicant is a fit and proper person to carry on that business; the manner in which it is proposed to organize the carrying on of the controlled investment business to which the application relates, the number of persons who will be responsible for carrying on each aspect of that business and the relationship between those persons; what, if any, economic benefit the Bailiwick is likely to derive from the carrying on of that business; if the applicant has stated that he proposes to carry on controlled investment business in, or from within, Alderney or Sark, any opinion expressed, in response to a notice given under subsection (2), by the Policy and Finance Committee of the States of Alderney or by the Greffier (registrar of companies) of Sark as the case may be; and any other factors which the Commission thinks it appropriate to consider.” Licensees must be “fit and proper,” that is, in accordance with a GFSC policy paper on the website, they must have: integrity; solvency; and competence. The GFSC describe their more detailed expectations of a licensee in the policy paper. To meet the competence requirement the business must among other things be directed by at least two individual people (the “four eyes” policy). The Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 (the FNCC Rules) apply to market intermediaries and investment advisers. Among other matters, these rules require the appointment of a qualified independent auditor and the production of annual audited financial statements. These must include a statement of financial resources certified by the auditor. The GFSC maintains an active compliance program in respect of CIS disclosure. We have confirmed this by inspection of files and discussion with GFSC officers. The program is described under Principle 10 above.
Assessment	Implemented.
Comments
Principle 22.	There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.
Description	Paragraph 8 of Schedule 2 to the FNCC Rules states “A licensee should ensure that it maintains adequate financial resources to meet its investment business commitments and to withstand the risks to which its business is subject.” Part 2 of the FNCC Rules sets out minimum capital requirements for the various categories of investment business including market intermediaries and investment advisers. Client money and client assets must be segregated from a firm’s assets at all times. Most market intermediaries are branches or subsidiaries of firms regulated in other jurisdictions-particularly the United Kingdom—and subject to capital adequacy standards in those jurisdictions. As described under Principles 11 and 12, the GFSC is able to share information with the relevant foreign regulator. The GFSC reviews and evaluates the capital and other prudential standards as maintained by market intermediaries during on-site visits.
Assessment	Implemented.
Comments
Principle 23.	Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.
Description	Market intermediaries and investment advisers must comply with the FNCC Rules. They must observe the following 10 Principles set out in Schedule 2: integrity (principle 1); skill, care and diligence (principle 2); conflicts of interest (principle 3); information about customers objectives (principle 4); information for customers (principle 5); segregation of customer assets (principle 6); high standards of market conduct (principle 7); adequacy of financial resources (principle 8); internal organization (principle 9); and relations with GFSC. (principle 10). The FNCC Rules contain obligations relating to a licensee’s conduct of business. These obligations include requirements relating to: (a) customer relations: customer agreements; suitability of investment; disclosure of risks and charges; inducements; and complaints, (b) dealing, managing, and advising: order priority; best execution; timely and fair allocation; churning and switching; and the content of contract notes, (c) and safekeeping of customer assets and client money. The licensee must undertake an annual review to determine the effectiveness of its compliance and monitoring procedures. It must have a written procedure for the handling of complaints and must submit an annual report to the GFSC on significant complaints received, settled andoutstanding. The GFSC informs us that in its monitoring work, it emphasizes the responsibility of senior management for the quality of the internal control environment and the importance of proper segregation and reconciliation of customer asset holdings and client money holdings. The GFSC undertakes off-site monitoring and on-site inspections of all licensees. These are described under Principle 10 above.
Assessment	Implemented.
Comments
Principle 24.	There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.
Description	Where the GFSC considers that a licensed investment business has insufficient financial resources it may impose a condition on the license. Such a condition may have important consequences. It may have the character of a direction to the licensee, for example, that the licensee should not dispose of any asset or class of assets or that it should transfer assets into a trust account (see Section 5 of the POI Law). There is an investor compensation scheme in place in respect of Class A CISs (that is, schemes which are for offer to the general public), to mitigate the effect of a failure. Moreover the GFSC is at present conferring with the Law Officers on possible amendments to the Companies Law on corporate rescue provisions. Nevertheless the GFSC does not have special powers to intervene to deal with a failure.
Assessment	Partially implemented.
Comments	We recommend that the Bailiwick consider the powers which should be available to the GFSC to deal with the failure of an intermediary.
Principles for the Secondary Market
Principle 25.	The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.
Description	The operation of an investment exchange is a restricted activity requiring a license from the GFSC under the POI Law. The expression “operating an investment exchange” applies both to an exchange and to an alternative trading system. There is one exchange currently established in Guernsey, the CISX. The CISX was established in March 1998 as a company limited by guarantee, with shares. It is licensed by the GFSC. The GFSC monitors the CISX through on-site and off-site supervision. The number of securities admitted to the CISX Official List as at October 31, 2002 was 280. The market capitalization as at 31 October 2002 was U.S.$17 billion. Prior calendar year figures were:
	YTD		31 Oct. 2002	2001	2000	1999
	Trading companies			2	-	1
	Closed-ended investment funds
		Primary	3	5	4	-
		Secondary	11	22	27	8
	Open-ended investment funds		16	28	60	54
	Specialist debt securities (Bonds)		2	14	6	4
	SPVs		1	-	3	-
	Warrants		2	7	10	-
	Total:		35	93	110	67
	Trading figures were:
	(In pounds sterling)
	YTD		08 Nov 2002	2001	2000	1999
	Shares traded		76,955,496	75,327,426	31,676,148	32,598,695
	Value		72,102,762	76,262,293	47,032,605	52,420,553
	Transactions		672	620	367	267
	The trading system The key features of the trading system are: an electronic bulletin board is maintained by Reuters on which market makers may input two-way prices and other brokers may enter orders in real time; all trading is done by telephone; trades are reported to the exchange using the bulletin board and must be published within three minutes of execution; information on corporate actions, net asset value, historical price information (12 month period), recent trade history and current background information on listed securities is available on Reuters; information about listed entities is reported to the CISX and disseminated by Reuters on a continuous basis; and information on all quotes, orders and trades is stored at the exchange, both to facilitate market surveillance and to provide a historical record. The market is screen-based with no trading floor. The trading hours are from 8.00 am until 4.30 pm, Monday to Friday. All Trading Members have access to the trading platform as a condition of their membership. All securities transactions must be reported to the Market Authority within three minutes of the trade. The CISX requires information on trades, counter-party ID, security, price, date, time and size. The price of all deals reported is distributed immediately by the CISX via Reuters. The Market Authority sets and publishes the normal market size for each security within the CISX pages on Reuters. The GFSC and any user of Reuters have access to the CISX pages (CISXINDEX). The CISX does not provide clearance and settlement facilities. The Market Authority in consultation with the issuer’s sponsor designates an approved clearance system for each security (see Principle 30). Supervision The CISX must, under the Investment Exchange (Notification) Rules 1998, notify the GFSC of information relating to: key individuals; regulatory plans and rules; auditors; fees and charges; annual report, accounts and budgets; directors’ annual statement of opinion on sufficiency of financial resources; quarterly management accounts; the constitution; delegation of monitoring; complaints; trading hours; force majeure; listings; membership; investigations; defaults; and insolvency and legal proceedings. The CISX has a continuing requirement under the law to maintain: sufficient financial, human and technical resources; monitoring and enforcement; investigation of complaints; and promotion and maintenance of standards. The CISX rulebook contains rules about trading and settlement, admission of products to trading, admission of participants to the trading system, the provision of trading information, the routing of orders, trade execution, past trade reporting and publication, supervision of system and participants, dispute resolution and appeals procedures, operational failure and trading disruptions. The GFSC’s on-site inspection procedures are generally as described under Principle 10. The members A member may be a Trading Member or a Listing Member. A member must: be a corporate, partnership or legal entity which is regulated by the CISX or a regulatory body in a recognized jurisdiction approved by the CISX or, in the case of a Listing Member that is not licensed, by a member of a professional body approved by the CISX; satisfy the board that it is of good financial standing and integrity; satisfy the Board it is fit and proper to be a member; not carry on any business inconsistent with its membership of the exchange; and comply with the rules of the exchange. As at September 30, 2002 there were 32 Members, three of which were Trading Members, Collins Stewart (CI) Ltd (regulated by the GFSC), and Dresdner Kleinwort Wasserstein Securities Ltd and Winterflood Securities Ltd (regulated by the UK Financial Services Authority), and 29 were listing members. The Membership Rules contain a Code of Conduct which includes Principles of Best Practice, and rules about Conduct of Business and Forbidden Market Practices. These apply to all members. In addition the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 contain detailed conduct of business rules which also apply to members who are licensed. A Trading Member may register as a market maker in listed securities specified by the Trading Member, and will be required to comply with the CISX’s obligations of a market maker. Trading Members are subject to visits by the CISX and Reuters to confirm the necessary systems are in place to enable trading to occur. A Listing Member must be established as an entity in the Channel Islands and must have suitably qualified staff. An issuer wishing to have its securities listed on the exchange is required to engage the services of a Listing Member who will act as a sponsor. There are two categories of sponsors, those who may sponsor all types of securities to listing and those who may only sponsor the listing of investment funds. There are currently 29 Listing Members, of which one third are law firms providing corporate services, one Member is an accountancy firm, and the balance are investment fund managers or administrators. A listing member is required to: confirm to the exchange that it has satisfied itself as to compliance with the relevant requirements of the listing rules; communicate and deal with the exchange on all matters arising in connection with the application for listing and the continuing obligations of the issuer; prepare and lodge with the exchange a formal application for listing together with all supporting documentation; and seek the approval of the exchange for the listing prospectus or other disclosure document. Listings Listings are covered by the Listing Rules. The Rules cover: general requirements and market authority; compliance and market enforcement; sponsors and authorized representatives; application procedures and special categories of procedures; and the rules are subject to review by the members and by the GFSC before they are adopted. A listing member of the CISX sponsors applications. The listing member is required to carry out a program of due diligence on the issuer and its directors before submitting an application for listing. Directors’ declarations are provided. The CISX may at its discretion confer with the GFSC and ask it to carry out further search. All listed funds are regulated in a jurisdiction recognized by the CISX. There are a number of securities that are seldom if ever traded. The open-ended funds are a case in point. The primary purpose of the listing appears to be for the issuer to establish a respected and independent source of information on the affairs of the fund which is available to investors and to those who promote or advise on the fund. The objective is achieved by entering into continuous disclosure obligations with a stock exchange of good standing. There may be circumstances in which the listing of interests in a closed-ended fund not otherwise traded may be important for trading purposes, in particular, to provide an exit mechanism to interest holders. Nevertheless that appears to be a lesser consideration. Financial resources The available clearance and settlement systems are in other jurisdictions. Both the CISX and the GFSC, in supervising the CISX, are expected to satisfy themselves that the systems are subject to adequate regulation in the home jurisdictions. The GFSC is responsible for monitoring the financial resources of both the CISX and the members who are its license holders. An approved offshore regulator is responsible for monitoring the financial resources of the system operators and the CISX members who are based offshore. The CISX is not responsible for monitoring the resources of its members. The present scheme of regulation may be appropriate for the size, level of activity and exposure of the CISX and those who trade on it but the board of directors of the company and the GFSC will need to keep its systems and activities under continuing review. As at December 31, 2001, the CISX had net assets of GBP869,167. Operating expenditure for the year was GBP612,286. All elected members of the company have undertaken to contribute up to GBP10,000 each in the event of a winding up. The maximum aggregate value of the present undertakings is GBP320,000.
Assessment	Implemented.
Comments
Principle 26.	There should be ongoing regulatory supervision of exchanges and trading systems, which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.
Description	We have reviewed the material relevant to this Principle under Principle 25. We consider that the Bailiwick has implemented Principle 26.
Assessment	Implemented.
Comments
Principle 27.	Regulation should promote transparency of trading.
Description	The CISX market is established as a public market (see Principle 26) and it is operated and supervised on this basis. The Membership Rules impose obligations on those undertaking transactions including obligations about the reporting of information. They also impose a Code of Conduct including provision for such matters as Client Order Priority, Timely Execution and Best Execution. The Listing Rules impose Continuing Obligations on the Listed Issuers including the fundamental obligation to keep the public, the CISX and the holders of securities informed of material information. The FNCC Rules, which apply to all licensees, contain provisions about dealing, managing, and advising, in particular: customer order priority; timely execution; best execution; timely and fair allocation; churning and switching; and dealing ahead of published research or analysis.
Assessment	Implemented.
Comments
Principle 28.	Regulation should be designed to detect and deter manipulation and other unfair trading practices.
Description	Insider dealing is a criminal offense under the Company Securities (Insider Dealing) (Bailiwick of Guernsey) Law, 1996. It applies to transactions on the CISX but also on any of a lengthy list of overseas exchanges. It confers investigation powers on the Law Officers. It does not impose transaction reporting obligations on insiders who engage in transactions. It does not apply generally to manipulation and unfair dealing and is not in itself sufficient to meet the needs of Principle 28. The Law Officers administer this Law. They may appoint inspectors to investigate a suspected offense. GFSC officers may be appointed as inspectors. These powers may not be used for the purpose of assisting a prosecuting or supervisory authority in another jurisdiction in respect of a contravention or suspected contravention of insider trading law in that jurisdiction. They may nevertheless be used by the Law Officers for communicating information which the Law Officers have already acquired in the course of their work. The City Code on Takeovers and Mergers and the Rules Governing Substantial Acquisitions of Shares also apply to listed companies resident in Guernsey, Jersey and the Isle of Man as well as the United Kingdom. The Protection of Investors (Bailiwick of Guernsey) (Amendment) Law, 2003, extended the law by establishing new offenses relating to misleading statements and practices and a new offense of market abuse. It extended the GFSC’s power to obtain information to apply to the circumstances of a suspected offense although it did not appear to extend it to apply to a person who was not a licensee or associate or was otherwise engaged in investment business as defined. Market manipulation is difficult to detect and difficult to prove in a court. Clear powers to obtain information are essential to the process of detecting and deterring manipulation and unfair trading as contemplated by Principle 28. A clear power to share information with other regulators is equally important and is dealt with under Principle 11. A 2003 amendment law now covers manipulation and unfair trading, although it does not prescribe procedures for obtaining information from those people who are not carrying on investment business as defined such as professional investors or intermediaries. The GFSC inform us that it will rely on the Law Officers to take enforcement action in these cases. The 2003 amendment has received royal assent and we consider that the Bailiwick has now fully implemented Principle 28.
Assessment	Implemented
Comments	Should there be a significant increase in turnover on the CISX, particularly in equities, the Government may need to consider whether there should be transaction reporting requirements for directors and other insiders under the law. In the meantime there are reporting provisions in the Listing Rules which bind listed issuers but not directors or other insiders personally.
Principle 29.	Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.
Description	As noted under Principle 22, all licensees, including the CISX and its members, are subject to the FNCC rules, which include minimum solvency requirements. Those solvency requirements are supplemented by the requirement that all client assets and money be segregated from the licensees’ own assets. The FNCC rules are being reviewed by a joint commission/industry working party and public consultation is expected to commence shortly on a planned revision to the FNCC rules in a number of areas including solvency and client money/asset segregation issues. At present, of the three broker/dealers domiciled in Guernsey two are branches of UK firms and subject to United Kingdom FSA capital adequacy requirements. The third provides the GFSC with monthly statements, on the UKFSA basis, on solvency and the control of large exposures. In the meantime, the GFSC is at present preparing a consultation document on these matters. It intends to issue new rules during 2004. In the meantime the present procedures for the regulation and supervision of the exchange appear to provide a solid if incomplete coverage.
Assessment	Partially implemented.
Comments
Principle 30.	Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.
Description	The Investment Exchange (Notification) Rules 1998 require the CISX to “either itself provide satisfactory procedures (including default procedures) for the settlement of transactions on the exchange or ensure such provision by means of services provided under clearance systems approved by it.” The Rules relating to the settlement of transactions are set out in Chapter 6 of the CISX Rules. They deal among other things with: trade confirmation; the method of settlement including designation of clearance system; timing of settlement; responsibility for settlement; partial settlement; late settlement; buying-in; and the appointment of settlement agents. Trading in the shares of local companies may be settled via Crest or Crest Residual International. Debt securities and other eligible securities may be settled through either Cedel Bank or EuroClear. The Rules state this is unless otherwise agreed by the parties to the transaction at the time of transaction. The CISX must consent to any such non-standard settlement. Under the CISX Rules the Market Authority determines the standard settlement period for each security, in general following London market practice for the type of security concerned. Current market practice is for the settlement of domestic and foreign equities on a T+3 basis. The CISX and the GFSC must reassure themselves that these systems are subject to satisfactory regulatory oversight in their home jurisdiction. In addition the GFSC’s oversight responsibilities apply on a continuing basis.
Assesment	Implemented
Comments

Table 14.

Summary Observance of the IOSCO Objectives and Principles of Securities Regulation

Table 14.

Summary Observance of the IOSCO Objectives and Principles of Securities Regulation

Assessment		Principles Grouped by Assessment Grade
Grade	Count	List
Implemented		1, 3, 4, 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 25,
	26	26, 27, 28, 30
Broadly
implemented	1	2,
Partially
implemented	3	8, 24, 29
Not implemented	…	…
Not applicable	…	…

Table 14.

Summary Observance of the IOSCO Objectives and Principles of Securities Regulation

Assessment		Principles Grouped by Assessment Grade
Grade	Count	List
Implemented		1, 3, 4, 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 25,
	26	26, 27, 28, 30
Broadly
implemented	1	2,
Partially
implemented	3	8, 24, 29
Not implemented	…	…
Not applicable	…	…

Table 15.

Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Table 15.

Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Reference Principle	Recommended Action
Principles Relating to the Regulator (CP 1-5)
CP 1	1. We note that the IOSCO Principles are backed by the three IOSCO Objectives are: the protection of investors; ensuring markets are fair, efficient, and transparent; and reducing systemic risk. We recommend that the GFSC consider in any review of its statement of responsibilities whether any aspect of its commitment to these objectives should be more explicitly recognized. We consider that the GFSC would be better placed to undertake work under the Borrowing (Control) Law if its powers were more up-to-date and better integrated with its other powers. The GFSC has informed us that it is proposing to review this Law, in the context of a more general review of Company Law. We recommend that the GFSC proceed to undertake this work.
Principles for the Enforcement of Securities Regulation (CP 8-10)
CP 8	We recommend that the government consider whether the GFSC should have access to powers of entry and search, directly or through another agency such as the Law Officers. We recommend that the GFSC consider whether to seek a general power to comment on investment business management and market practice.
Principles for Issuers (CP 14-16)
CP 16	The source of authority for financial reporting and audit standards and for the review of auditor performance is under careful review internationally. We recommend that the GFSC, the accounting profession and others should continue their ongoing consideration of this matter.
Principles for Market Intermediaries (CP 21-24)
CP 24 There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.	We recommend that the Bailiwick consider the powers which should be available to the GFSC to deal with the failure of an intermediary

Table 15.

Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Reference Principle	Recommended Action
Principles Relating to the Regulator (CP 1-5)
CP 1	1. We note that the IOSCO Principles are backed by the three IOSCO Objectives are: the protection of investors; ensuring markets are fair, efficient, and transparent; and reducing systemic risk. We recommend that the GFSC consider in any review of its statement of responsibilities whether any aspect of its commitment to these objectives should be more explicitly recognized. We consider that the GFSC would be better placed to undertake work under the Borrowing (Control) Law if its powers were more up-to-date and better integrated with its other powers. The GFSC has informed us that it is proposing to review this Law, in the context of a more general review of Company Law. We recommend that the GFSC proceed to undertake this work.
Principles for the Enforcement of Securities Regulation (CP 8-10)
CP 8	We recommend that the government consider whether the GFSC should have access to powers of entry and search, directly or through another agency such as the Law Officers. We recommend that the GFSC consider whether to seek a general power to comment on investment business management and market practice.
Principles for Issuers (CP 14-16)
CP 16	The source of authority for financial reporting and audit standards and for the review of auditor performance is under careful review internationally. We recommend that the GFSC, the accounting profession and others should continue their ongoing consideration of this matter.
Principles for Market Intermediaries (CP 21-24)
CP 24 There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.	We recommend that the Bailiwick consider the powers which should be available to the GFSC to deal with the failure of an intermediary

Authorities’ Response to the Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Overview

98. 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.

Principles Relating to the Regulator (Principle 1)

99. See paragraph 12 for the response to the recommendation concerning the GFSC’s objectives.

100. 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.

Principles Relating to the Regulator (Principle 2)

101. See paragraph 13 for the response on the recommendation concerning the GFSC’s independence.

Principles for the Enforcement of Securities Regulation (Principle 8)

102. The States Assembly approved the drafting of separate, explicit, statutory on-site inspection powers with regard to investment licensees in 2002. Consequently, 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.

103. In addition, 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. A similar provision is already found in the other regulatory legislation administered by the GFSC.

104. With regard to the recommendation that the GFSC should possess a general power enabling it to comment on investment business management and market practice, the GFSC will report to the States of Guernsey Advisory and Finance Committee on the recommendation in 2004. There is nothing in the current framework which prohibits the GFSC from commenting on investment business management and market practice should it see fit.

Principles for Issuers (Principle 16)

105. The Bailiwick of Guernsey does not issue its own accounting or auditing standards; it follows internationally recognised 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 impact the Guernsey investment industry.

Principles for Market Intermediaries (Principle 24)

106. 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.

Principles for Secondary Market (Principles 29)

107. 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.

V. Review Against the Ogbs Statement of Best Practice for Trust and Company Service Providers

A. General

108. In August 2002, a Working Group established by the Offshore Group of Banking Supervisors (OGBS) produced a draft “Statement of Best Practice” (Statement) for trust and company service providers (CSP). The Fund agreed with the Commission that the Statement will be used for the review of trust and company service providers in Guernsey⁸. Subsequent to the mission the statement was formally adopted by the OGBS.

Methodology

109. The OGBS Working Group did not develop a methodology to accompany the Statement. Reviewers working for the Fund, who use the Statement in their work, developed the methodology used for the review.

110. The Statement is applicable to trust and company service providers whether or not they are based in a jurisdiction that has a formal licensing and supervisory regime. Thus, unlike the principles applicable to banking, insurance and securities, the Statement does not require that trust and company service providers are licensed or that they are subject to ongoing supervisory or enforcement procedures.

111. Even though Guernsey licenses and supervises trust and company service providers, the mission concluded that, to ensure consistency between this and future reviews of other jurisdictions, some of which may not have a formal system of licensing and supervision in place, it was not appropriate to review issues such as the independence, accountability and resources of the regulator, the licensing process, ongoing supervision or enforcement except to the extent necessary to review compliance with the Best Practice Statement.

112. Furthermore, the mission has had to make certain assumptions in the way that it has interpreted the Best Practice Statement.

113. The Best Practice Statement is expressed as a set of general principles rather than a set of detailed criteria. In the circumstances, the mission has provided an indication of how the regulation of fiduciaries in Guernsey compares with the Best Practice Statement but has not attempted to provide a specific measure of compliance as it has in respect of the Basle, IAIS, and IOSCO Principles.

114. The Statement includes consideration of the following:

fit-and-proper criteria;
conduct of business;
the holding and sharing of information;
cessation of business; and
misleading statements.

Additional issues

115. The assessment team has, of course, had the opportunity of examining the regulation of trust and company service providers as undertaken in Guernsey. Although the report contains recommendations to the Commission, it should be appreciated that it is not, and should not be considered to be, an assessment.

B. Detailed Assessment

Table 16.

Detailed Assessment Against the OGBS Statement of Best Practice for Trust and Company Service Providers

Table 16.

Detailed Assessment Against the OGBS Statement of Best Practice for Trust and Company Service Providers

Definition of Trust and Company Service Business
Principle 1.	The scope of trust and company service business should be adequately defined.
	1.1 The scope of activities subject to the requirements of a jurisdiction should cover at least the following (when provided in the course of business): Company service provider acting as company or partnership formation agent; acting as (or arranging for another to act as) a director or secretary of a company or a partner of a partnership; providing a registered office, business address or accommodation, correspondence or administrative address for a company, partnership or for any other person; acting as, or arranging for another to act as, a nominee shareholder or unit holder for another person. Trust service provider acting as (or arranging for another to act as) a trustee of an express trust.
Description	In Guernsey, company and trust service provider business is regarded as fiduciary business and is defined under the Fiduciary Law (s.2) as: the formation, management or administration of trusts, and the provision of advice in relation to the formation, management or administration of trusts, including: acting as corporate or individual trustee or protector for trusts; the provision to trusts of corporate or individual trustees or protectors; company or corporate administration including: the formation, management or administration of companies, partnerships or other unincorporated bodies, and the provision of advice in relation to the formation, management or administration of companies, partnerships or other unincorporated bodies, whether incorporated or established in or under the laws of the Bailiwick or elsewhere; the provision to any such companies, partnerships or other unincorporated bodies of: corporate or individual directors; individuals or companies to act as company or corporate secretary or in any other capacity as officer of a company, partnership or other unincorporated body other than a director; nominee services, including (without limitation) acting as or providing nominee shareholders; registered offices or accommodation addresses (the expression “address” in this subparagraph including any postal, telecommunication or electronic address); acting as director of any company or unincorporated body, or as partner of any partnership, whether incorporated, registered or established in or under the laws of the Bailiwick or elsewhere; the provision of executorship services including (without limitation) acting as, or accepting an appointment made by will as, an executor of a will or administrator of an estate. A significant number of persons are exempted from the licensing requirements, see explanatory note and exempted activities following principle 1.4 below.
Comments
	Additional Criteria 1.2 Many jurisdictions provide that companies must appoint a registered agent. It is desirable that in such jurisdictions acting as registered agent is incorporated within the definition of company service business.
Description	There is no such requirement in Guernsey. There is a requirement to have a registered office and the provision of that is regulated (see Fiduciaries Law s.2(1)(b)(ii).
	1.3 The trust law of many jurisdictions recognizes enforcers, protectors and custodians. It is desirable that the provision of these services is, as far as necessary, also covered by the definition of trust service business.
Description	This is covered in the Fiduciaries Law section 2(1)(a) “the formation, management or administration of trusts, and the provision of advice in relation to the formation, management or administration of trusts, including (without limitation): acting as corporate or individual trustee or protector for trusts; and the provision to trusts of corporate or individual trustees or protectors.
	1.4 It is also desirable for the definition of trust business to include the provision of trust management and administration services, insofar as those activities are not otherwise regulated.
Description	See response to principle 1.1 above.
	Explanatory note Countries and jurisdictions may provide for limited exceptions to the requirements set out in this Methodology in respect of CSPs that do not provide director or nominee shareholder services and that do not handle or manage client assets or funds. The exceptions could include lesser standards covering: the span of control covering the number of persons engaged in the business; the level of qualifications/experience of the persons engaged in the business; the capital/professional indemnity insurance requirements; and the audit requirements. Exempted activities The Fiduciary Law encompasses a very wide range of activities, and as a result there are a number of exemptions for activities where regulation is not appropriate or necessary. The following are not regulated activities (Fiduciaries Law s.3): acting as trustee or custodian of a collective investment scheme authorized by the GFSC under section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987; acting as a director of a company which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the company by the director (other than acting as director); acting as a director of a company which is quoted on a stock exchange recognized by the GFSC for the purposes of this paragraph; acting as a director of a company where more than half in nominal value of the equity share capital of that company is held by: the director, as beneficial owner; any close relative of the director, as beneficial owner; or the trustees of a trust of which a person mentioned in subparagraph (i) or (ii) is a beneficiary; acting as a director of a supervised company; acting as a director of a company which is a subsidiary of a company described in paragraphs (b), (c), (d) or (e); acting, where the person so acting is an individual, as a director of not more than six companies, being directorships which are not the subject of an exemption contained in any other paragraph of this subsection, except in any case where the GFSC does not apply the exemption contained in this paragraph in respect of any person on the grounds that, having regard to the criteria of Schedule 1, the GFSC is not satisfied that he is a fit and proper person to be or to become a director of a company; and, where the GFSC decides not to apply the exemption contained in this paragraph, it shall serve notice to that effect on the person concerned, giving particulars of the right of appeal set out in section 19; acting as bookkeeper or company secretary of a company which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the company by the person concerned (other than acting as bookkeeper or company secretary); acting as a partner of a partnership which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the partnership by the partner (other than acting as partner); acting as a partner of a partnership: which holds a license to carry on controlled investment business under section 4 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 or which is exempt from licensing under section 29 of that Law; or which holds an authorization under section 8 of that Law; acting as a limited partner in a limited partnership; acting as bookkeeper of a partnership which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the partnership by the person concerned (other than acting as bookkeeper); the acceptance of money on terms under which the money: is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services and is repayable in the event of the property or services not in fact being sold, hired or otherwise provided; is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the nonperformance of a contract; or without prejudice to subparagraph (ii), is paid by way of security for the delivery up or return of any property, whether in a particular state of repair of otherwise; acting as guardian of a minor or person under legal disability where the appointment is made by, and where the discharge of the functions of guardian is subject to the supervision of, the Royal Court, the Court of Alderney or the Court of the Seneschal; acting as executor of the will of, or administrator of the estate of, a person who was resident or domiciled in the Bailiwick at the time of the execution of the will or at the time of death, provided that the person so acting is a lawyer; acting as trustee of testamentary trusts created by the will of a person who was resident or domiciled in the Bailiwick at the time of the execution of the will or at the time of death, provided that the person so acting is a lawyer; the provision of advice or the drafting of documents by a lawyer, accountant or actuary in the ordinary course of carrying on the profession of lawyer, accountant or (as the case may be) actuary; the incorporation of companies by an advocate and the drafting of minutes of meetings by a lawyer, accountant or actuary; the preparation and auditing of accounts; activities undertaken in the course of a profession or business: (i) which are undertaken without separate or additional remuneration (whether from the client concerned or from a third party); and (ii) which are incidental to the carrying on of that profession or business; provided that the person carrying on the profession or business does not hold himself out as undertaking those activities; the activities of the Ecclesiastical Court and Registrar thereof in relation to the granting of probate and letters of administration; the provision of accommodation addresses (within the meaning of section 2(1)(b)(ii)(D): by the States of Guernsey Telecommunications Board or the States of Guernsey Post Office Board (or any company succeeding to the undertaking of either of those Boards) or by an internet or telecommunications service provider; or where the address is provided solely for the service of process or the service of notice under a contract; any activity carried on under the authority of and in accordance with the conditions of a license, registration or authorization granted under any of the regulatory Laws; the following activities when carried on by a registered insurance intermediary within the meaning of section 49A of the Insurance Business (Guernsey) Law, 1986: the formation of, and the provision of advice in relation to the formation of, a retirement annuity scheme or retirement annuity trust scheme approved by the Administrator of Income Tax under the provisions of part XIII of the Income Tax (Guernsey) Law, 1975; or the formation of, and the provision of advice in relation to the formation of, a pension scheme or trust of a life assurance policy; any particular activity, transaction or appointment specifically exempted from the operation of section 2 by written instrument of the GFSC; and for the purposes of this paragraph: an application for such an exemption shall be made in such form and manner, and shall be accompanied by such information and documents, as the GFSC may require; the application shall be accompanied by such fee as may be prescribed by regulations under section 7; the application may be refused or granted subject to such conditions as the GFSC may consider necessary or expedient; the GFSC may at any time after receipt of the application require the applicant to furnish such additional information and documents as it considers necessary or desirable; and the exemption may be revoked or varied at any time by the GFSC by written notice to the person to whom it was granted.
Fit-and-Proper Criteria
Principle 2.	All countries/jurisdictions should require that those individuals holding key positions in a trust or company service provider (“key persons”) should be fit and proper.
Description	With regard to key persons the Fiduciary Law Section 6 by implication considers certain persons to be “key persons.” The Law provides that where the application is for a full fiduciary license, the GFSC must be satisfied that the criteria are satisfied by the applicant itself and in relation to anyone who is to be a director, controller, partner or manager. A controller includes: a managing director or chief executive of the applicant; a shareholder controller—someone who, alone or with associates, controls or is entitled to control the exercise of at least 15 percent of voting power at general meeting; or an indirect controller—someone in accordance with whose instructions the directors are accustomed to act. The minimum criteria for licensing are contained in Schedule 1 to the Fiduciary Law. These minimum criteria cover the following: integrity and skill; economic benefit to the Bailiwick (full fiduciary license holders); fit-and-proper persons; business to be directed by at least two individuals (full fiduciary license holders); and business to be conducted in prudent manner. The GFSC does not have the power to vary the standards applied in determining whether an applicant meets these criteria. However, the GFSC will determine whether any conditions should be attached to a license, for example restricting the activities the fiduciary can undertake. All applications are independently verified by the GFSC. The verification process involves a detailed review of the application, including a review of certain databases. Each controller, director and manager of the applicant is required to submit a personal questionnaire. This requires background information on the person, including experience, details of current and previous employment and any disciplinary action taken against them. It also contains a request for details of any membership/licensing by other regulators. Such references are taken up with these regulators. The GFSC also, where it considers it desirable on risk-based analysis to do so, conducts on-site visits to applicants before deciding whether to grant a license. This occurs in approximately one third of cases and involves verification of the information provided in the application on the applicant’s take-on and other procedures. A visit at this stage also allows the GFSC to probe the competence of the applicant or its staff. Those applicants who are licensed will all be subject to an on-site inspection program.
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	2.1 In assessing whether a key person is fit and proper, the country/jurisdiction should consider his: honesty, integrity and reputation; competence and capability; and financial soundness.
Description	This will require a consideration of all relevant matters including the specific criteria set out in principles 2.2, 2.3 and 2.4. The Fiduciary Law (Schedule 1) at subsections 3 (2) and 3 (3) is relevant. Subsection 3.2 states that in determining whether a person is fit and proper to hold a fiduciary license or a particular position, regard shall be had to: his probity, competence, experience and soundness of judgment for fulfilling the responsibilities of a licensed fiduciary or (as the case may be) of that position; the diligence with which he is fulfilling or likely to fulfill those responsibilities; whether the interests of clients of the applicant or licensed fiduciary are, or are likely to be, in any way threatened by his holding a fiduciary license or that position; his educational and professional qualifications, his membership of professional or other relevant bodies and any evidence of his continuing professional education or development; his knowledge and understanding of the legal and professional obligations to be assumed or undertaken; and his procedures for the vetting of clients and his record of compliance with any provision contained in or made under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991 or the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999. and Subsection (3) states that: Without prejudice to the generality of the foregoing provisions, regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has: committed any offense, and in particular any offense involving fraud or other dishonesty or violence; contravened any provision contained in or made under this Law, the regulatory Laws or any other enactment appearing to the GFSC to be designed for protecting members of the public against financial loss due to: dishonesty, incompetence or malpractice by persons concerned in the provision of regulated activities, banking, insurance, investment or other financial services; or the conduct of discharged or undischarged bankrupts or persons who are otherwise insolvent; engaged in any business practices appearing to the GFSC to be deceitful or oppressive or otherwise improper (whether unlawful or not) or which otherwise reflect discredit on his method of conducting business or his suitability to carry on regulated activities; engaged in or been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgment.
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	2.2 In the case of the person’s honesty, integrity and reputation, the following matters are relevant and should be considered: (a) any criminal offense of which he has been convicted or any criminal charges outstanding, particularly where the offense concerned is an offense of dishonesty or an offense relating to financial crime or committed under any financial services legislation.
Description	The Fiduciaries Law (Schedule 1 para. 3(3)(a) states that regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has (a) committed any offense, and in particular any offense involving fraud or other dishonesty or violence;
Comments	Although the Law does not mention criminal charges the GFSC does not believe that this prejudices the generality of fit and proper considerations. The GFSC notes that pending charges would raise questions of integrity, probity or soundness of judgment under para. 3(2)(a) of Schedule 1 of the Fiduciaries Law.
	(b) any adverse finding, settlement or fine in civil proceedings, particularly in connection with a company or a financial services business;
Description	The Fiduciary Law Schedule 1 para. 3(2)(c) requires the GFSC in assessing applicants for a license to consider the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has contravened any provision contained in or made under this Law, the regulatory Laws or any other enactment appearing to the GFSC to be designed for protecting members of the public against financial loss: (see response to principle 2.1 above-Fiduciary Law (Schedule 1, para. 3.3, b-d).
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	(c) any association, past or present, with a firm, company or other person that is or has been the subject of a regulatory investigation or disciplinary or enforcement proceedings;
Description	See response to principle 2.1 above—Fiduciary Law (Schedule 1) para. 3.3.d.
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	(d) any disciplinary, enforcement, disqualification or similar proceedings to which he has, or may be, subject or any professional or administrative reprimands;
Description	See response to principle 2.1 above—Fiduciary Law (Schedule 1) para. 3.3.d.
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	(e) any previous regulatory breaches committed by him or by a person with whom he is or has been associated and any complaints made against him; and
Description	Breaches of regulatory law by the individual are covered by Schedule 1 para. 3(3)(b). See also principle 2.2.b above. The GFSC noted that association with someone who has committed such breaches would be approached as in 2(c) and (d) above. Complaints against an applicant are covered by the Fiduciaries Law Schedule 1 para.5(9) (c) which provides that the GFSC shall have regard, in determining whether a person is to be regarded as conducting his business in a prudent manner, to the complaints history of the applicant or licensed fiduciary.
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	(f) whether he has been candid and truthful in his dealings with the Director and/or any other regulatory body.
Description	The Fiduciaries Law s.46 (1) creates an offense of providing misleading information in connection with a fiduciary license application. It states that: A person who:181 in connection with an application for a fiduciary license under this Law; in purported compliance with a requirement imposed by or under any provision of this Law or of any Ordinance, regulation or rule made under it; or otherwise than as mentioned in paragraph (a) or (b) but in circumstances in which he intends, or could reasonably be expected to know, that the statement, information or document provided by him would or might be used by the GFSC for the purpose of exercising its functions conferred by or under this Law: makes a statement which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; dishonestly or otherwise, recklessly makes a statement which is false, deceptive or misleading in a material particular; produces or furnishes or causes or permits to be produced or furnished any information or document which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; or dishonestly or otherwise, recklessly produces or furnishes or recklessly causes or permits to be produced or furnished any information or document which is false, deceptive or misleading in a material particular; is guilty of an offense. In addition, Section 46(2) states that: A licensed fiduciary which fails to provide the GFSC with any information in its possession knowing or having reasonable cause to believe: that the information is relevant to the exercise by the GFSC of its functions under this Law in relation to the licensed fiduciary; and that the withholding of the information is likely to result in the GFSC being misled as to any matter which is relevant to and of material significance to the exercise of those functions in relation to the licensed fiduciary, is guilty of an offense.
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	2.3 In the case of the person’s competence and ability, the following matters are relevant and should be considered: (a) the extent of that person’s relevant experience; and (b) where the person is an individual, his or her knowledge and professional and other relevant qualifications.
Description	The Fiduciaries Law, Schedule 1 para. 3(2) refers to competence and experience. It states that in determining whether a person is a fit and proper person to hold a fiduciary license or a particular position, regard shall be had to his probity, competence, experience and soundness of judgment for fulfilling the responsibilities of a licensed fiduciary or (as the case may be) of that position; and paragraph 3(2)(d) refers to educational and professional qualifications membership of professional or other relevant bodies and any evidence of continuing professional education or development.
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	2.4 In the case of a person’s financial soundness, the following matters are relevant and should be considered: (a) any insolvency proceedings that have been instituted against the person;
Description	The GFSC does request this information on its application form…
Comments	The GFSC stated that it looks at resources under Fiduciaries Law, Schedule 1, para. 5 and would become concerned about any relevant matter. In addition, question 27 of the PQ asks for confirmation that there was no pending winding up application or any receivership or composition with creditors.
	(b) where the person is an individual, any adverse credit rating.
Description	The GFSC do not routinely make credit ratings enquiries.
Comments	The GFSC stated that it would refuse an applicant on resources grounds using the prudent business criteria under the Fiduciaries Law, Schedule 1, para. 5.
	Additional criteria 2.5 It is also desirable for jurisdictions to require that those persons who hold an interest in a service provider, whether legal or beneficial, should be fit and proper applying the criteria set out in paragraphs 2.1 to 2.4 above, with suitable modifications where the person is a corporate body.
Description	The GFSC considers this as essential because someone who is not fit and proper could otherwise control a licensee. The application forms for a full fiduciary license require information on the directors, partners and managers and on beneficial ownership/control. All such persons are required to submit a detailed personal questionnaire. (Fiduciaries Law, Schedule 1). The Fiduciaries Law s. 14 also provides the GFSC with the power to object to transfers of control of a service provider. It. requires a person to notify the GFSC in writing of his intention to become a controller (or partner in a service provider which is a partnership). In the case of a company, a controller is someone holding at least 15 percent of a company’s shares. The GFSC requires that all such persons complete a personal questionnaire detailing their experience and background. Following such notification the GFSC may require the person to furnish additional information or documents in order to enable the GFSC to decide whether or not to serve a notice of objection. The criterion used in determining whether to issue a notice of objection is whether the GFSC is satisfied that: the person is fit and proper; the interests of the clients of the service provider would not be threatened by that person becoming a controller; and the minimum criteria for licensing of the service provider will continue to be met. Section 22 of the Fiduciary Law requires that anyone becoming a significant shareholder (i.e., holding between 5 percent and 15 percent) notify the GFSC within 14 days of becoming so.
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Conduct of Business
Principle 3.	All countries/jurisdictions should require that those providing the service of trust or company service provider exhibit evidence that their business will be or is being conducted in accordance with the proper corporate governance, customer due diligence, conduct of client business, financial soundness, and systems and controls requirements.
	Corporate Governance 3.1 Trust and company service providers should comply with recognized standards of corporate governance in respect of both the business itself and clients’ corporate vehicles, trusts and other legal entities.
Description	The application forms for a full fiduciary license require information on a number of areas regarding the strategic and operating plan of an applicant. This includes succession and disaster recovery plans, as well as plans for staff training and development. The GFSC pays close attention to the question of whether the applicant complies with the requirement for “four eyes” and considers the relative experience and ownership interests of the persons put forward as fulfilling that test. Where the GFSC is not convinced that there are “four eyes,” it has refused to license an applicant until additional executive personnel are taken on at a suitable level. Where the GFSC is dissatisfied with any response or where it has decided to undertake an on-site visit, it asks additional questions, including questions covering the operation of the applicant. The GFSC examines procedures, controls and reporting lines as part of on-site visits with respect to fiduciary business and with respect to administered trusts and companies with particular reference to the director or trustee applying its own judgment to the issues.
Comments	There are still a number of fiduciaries operating under the “transitional provisions” of the law. These companies and individuals are fully covered by the supervisory and enforcement provisions of the legislation, but some have not yet been licensed because the GFSC is not fully satisfied that they meet all of the licensing criteria. The GFSC believes that it is making every effort to complete the process as effectively and efficiently as possible consistent with the need for decisions to be based on a detailed consideration of each individual application that must involve proper respect for due process. It has set up a Shadow Financial Services Tribunal and within the next few months, the licensing process will be substantially complete. If the transitional process is not complete within the next few months, the mission would be concerned about the risks to the reputation of the jurisdiction and would recommend in those circumstances the setting of a cut-off date for completion of the licensing process.
	3.2 Trust and company service providers should comply with the FATF Recommendations concerning money laundering and the financing of terrorism.
Description	Service providers are subject to the Bailiwick’s anti-money laundering provisions contained in the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002, the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism issued under those Regulations and the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002. These have been supplemented by the Position Paper on Overriding Principles for a Revised Know Your Customer Framework. Suspicious transactions must be reported to the Financial Intelligence Service (FIS) and also to the GFSC where they might cause regulatory concern, for example if the institution’s systems failed to detect a relevant matter or there is a serious reputational risk to Guernsey or the institution. The application forms for a fiduciary license require a full account of the applicant’s procedures for complying with the anti-money laundering requirements to which it is subject and in many cases, copies of procedures manuals are obtained and reviewed before the licensing decision is made. Noncompliance with the law or a regulation is a criminal offense. Furthermore such a failure may result in disciplinary action by the GFSC (including the revocation of a license). A breach of the Guidance Notes, whilst not a criminal offense may also be grounds for regulatory action. The GFSC has obtained and reviewed procedures for the prevention of money laundering and countering the financing of terrorism from applicants for licenses. Examination of the adequacy of those procedures and how they are followed in practice is one of the areas reviewed during on-site inspections.
Comments	See also AML/CFT assessment in this report.
	3.3 Trust and company service providers should comply with any relevant financial regulatory standards.
Description	The Fiduciaries Law s.29, gives the GFSC the authority to make rules prescribing the form in which a licensed fiduciary’s accounts and the auditors reports on those accounts are to be, and the information and particulars contained in them, and the times or intervals at which they are to be drawn up and furnished.
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	3.4 Trust and company service providers should comply with all relevant domestic statutory obligations, for example the legislation governing the formation and administration of companies.
Description	On-site visits review these issues.
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	3.5 Trust and company service providers should comply with recognized standards in respect of the responsibilities of directors and trustees.
Description	The GFSC has published a Code of Practice for Company Directors under the Fiduciaries Law, s.35. The Code states that directors should understand and act in accordance with their legal duties and requires them to act in good faith and in the best interests of the company. Separate Codes of Practice have also been issued for Trust Service Providers and Corporate Service Providers.
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	Additional criteria 3.6 Trust and company service providers should have adequate internal controls that provide at least four eyes control.
Description	This is a statutory criterion for full licensees. In the case of a full fiduciary license, at least two individuals, resident in the Bailiwick and of appropriate standing and experience, shall effectively direct the business of the licensed fiduciary. (the Fiduciaries Law, schedule 1 para.). In applying this test the GFSC considers the independence of senior management and, where necessary, requires additional appointments to be made before a license is granted. As part of its on-site inspections, the GFSC reviews the institution’s compliance with its legal obligations and the GFSC’s Codes of Practice and the adequacy of its internal review systems. Reporting lines and business controls are also considered during on-site inspections.
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	Customer due diligence 3.7 Trust and company service providers should be required to satisfy standards equivalent to those set out in the Basel Committee’s CDD Paper, published in October 2001, to the extent that the recommendations in that paper are relevant to nonbanks.
Description	Applicants and licensees must satisfy the requirements of the GFSC’s Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism.
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	3.8 Customer due diligence procedures should cover the following: (a) customer identification; (b) verification of identity of customer; (c) risk profile (e.g., politically exposed persons); (d) source of wealth; (e) source of funds; and (f) ongoing monitoring.
Description	In this report, these issues are covered in the AML/CFT review. The money-laundering Guidance Notes cover these matters.
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	Conduct of client business 3.9 Trust and company service providers should be required to have systems and procedures in place for the conduct of client business covering: (a) the identification and segregation of clients’ assets from the assets of the business;
Description	TSP Code of Practice para. 4 states that: TSPs should treat the interests of beneficiaries as paramount subject to their legal obligations to other persons or bodies. In particular, TSPs should: invest, distribute or otherwise manage each trust’s assets in accordance with the law and the trust deed; manage the investment and custody of trust assets professionally and responsibly; maintain confidentiality except where disclosure of information is required or permitted by an applicable law or by guidance published by the GFSC, or authorized by the person(s) to whom the duty of confidentiality is owed; provide promptly to clients information to which they are entitled about a trust; ensure that the funds of different trusts are kept separately from each other and from the TSP’s own funds; agree a clear fee structure in advance of taking an appointment and charge fees in accordance with that and in a fair and transparent manner; notify clients that the TSP is licensed by the GFSC; avoid setting up or participating in discretionary trusts where the trustees merely carry out the settler’s instructions and exercise no significant discretion; and deal in a timely manner and in the best interests of the beneficiaries with any transfer to other trustees. The CSP Code of Practice, para. 6 states that: A CSP should, through its staff: identify and act in each client company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or a client company; keep the funds of each client company separate from each other and from the CSP’s own funds. The GFSC monitors compliance with these requirements during on-site visits. The GFSC states that any inadequacy of systems can be tied to the general licensing criterion in the Fiduciaries Law Schedule 1, that require adequate accounting and other records and adequate systems of control. In addition, the external auditors are required to identify any clients’ assets that were not being segregated from each other or from those of the licensee and report the matter to the GFSC.
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	(b) the effective handling of clients’ assets, which should include both safe custody and proper management procedures;
Description	See response to principle 3.9.a above.
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	(c) the maintenance of adequate and orderly accounting records of clients’ affairs;
Description	See response to principle 3.9.a above. In addition, the Guernsey Society of Certified and Chartered Accountants’ Guidance Note, with which licensees’ auditors have to comply, requires them to “make preliminary assessment of control risk by reviewing client administration controls” that include client accounting.
	(d) the maintenance of adequate client documentation (e.g. trust deeds);
Description	See response to principle 3.9.a and 3.9.c above. These are examined during on-site visits.
	(e) the appropriate authorization and handling of all transactions and decisions by persons with the knowledge, experience and status required to effect such transactions or make the required decisions according to the nature and status of the transactions/decisions involved.
Description	This is reviewed during on-site reviews as part of client assets questions
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	Explanatory note Examples of the type of issue raised by paragraph (e) are set out below: where discretion is exercised for or in relation to clients, all reasonable steps should be taken to obtain sufficient information in order to exercise that discretion or other powers in a proper manner and such discretion should only be exercised for a proper purpose; any actual or perceived conflict of interest should be avoided or, where conflicts arise, such conflicts should be covered by disclosure, internal rules of confidentiality, rules on when or when not to act, or otherwise as appropriate; all business (including the establishing, transferring or closing of business relationships with its customers) should be transacted in an expeditious manner. The GFSC’s comments Re adequacy of information, see principle 3.4 above; Re conflicts of interest, the Code of Practice for CSP’s requires licensees to “identify and act in each company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or client company (para. 6). The equivalent obligation relating to trusts can be found in para. 5 of The TSP Code; Re transacting business in an expeditious manner. This would be covered under general competence criterion if there were unacceptable delays or under adequacy of systems if the delay arose from a failure of the licensee’s systems.
	Financial soundness 3.10 Trust and company service providers should be required to: (a) maintain adequate and orderly accounting records of their business and their clients’ affairs;
Description	The Fiduciary Law, Schedule 1, para. 5(6) states that in relation to both own business and clients’ affairs, a person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain adequate accounting and other records of his business and adequate systems of control of his business and records. Auditors would also pick up any lack of either type of accounting records during their audit.
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	(b) maintain adequate financial resources including adequate paid up capital and adequate liquid capital to enable the business to continue and to enable clients’ affairs to be managed properly for an appropriate period;
Description	The Fiduciaries Law Schedule 1, para. 5(2) states that “A person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain a capital base and insurance cover: of an amount commensurate with the nature and scale of his operations; of an amount and nature sufficient to safeguard the interests of his clients and any other factors appearing to the GFSC to be relevant. For trust companies the GFSC requires paid up share capital of at least £25,000 and there is a three months’ expenditure test. Post-licensing the GFSC monitors capital on an annual basis through the submission of annual accounts. The GFSC believes that it is effectively able to impose whatever level of capital and resources are considered appropriate under the law.”
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	(c) comply with any relevant financial regulatory standards and international accounting standards;
Description	In relation to accounting standards, the audit must be conducted in accordance with Auditing standards issued by the Auditing Practice Board and the financial statements must be prepared in accordance with U.K., U.S. or International Accounting Standards, unless the GFSC agrees to accept another standard. The GFSC informed the mission that so far it has not agreed to any other standard.
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	(d) maintain adequate professional indemnity insurance cover.
Description	The Fiduciaries Law, Schedule 1, para. 5, imposes a statutory requirement for all licensees to have adequate cover for their activities. It states that: A person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain a capital base and insurance cover: of an amount commensurate with the nature and scale of his operations; and of an amount and nature sufficient to safeguard the interests of his clients and any other factors appearing to the GFSC to be relevant. The GFSC noted that it has generally required full licensees to have cover of greater of £1million and three times turnover, and personal licensees £1million or, where small-scale activities only, £500,000.
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	Systems and procedures 3.11 Trust and company service providers should be required to: (a) have in place effective compliance functions which include the designation or appointment of an appropriately skilled and experienced person as compliance officer;
Description	There is at present no requirement in the law for such an appointment. The GFSC noted, however, that in practice most Money Laundering Reporting Officers, a post which must exist, act as compliance officer. In addition, compliance with regulatory and other legal requirements is the responsibility of the Board and the designation of an individual at director or other level would not affect the current situation. In summary, the functions are being covered under current legislation.
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	(b) have in place effective reporting requirements which include the designation or appointment of an appropriately skilled and experienced person as an anti-money laundering reporting officer
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002, require the appointment of MLRO. While there is no explicit requirement on experience, the GFSC noted that it would comment if it thought that a MLRO was not sufficiently experienced for the job.
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	(c) have in place an effective complaints handling system which should include the maintenance of a record of complaints and the actions taken to resolve them;
Description	The Code of Practice requires licensees to record, investigate and, as appropriate, act on complaints. The Code of Practice for TSPs states that: TSPs should, through their staff, record; investigate; and, as appropriate, act on complaints (para. 5). The Code of Practice for CSP, similarly states that: CSP’s should, through their staff, record; investigate; and, as appropriate, act on complaints (para. 6). The GFSC noted that through on-site visits, it reviews these records.
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	(d) maintain adequate, orderly and up to date records of all business transactions and instructions at an appropriate location in the jurisdiction, including: accounting records of the business; accounting records of clients’ affairs; records of the internal organization and risk management systems; client documentation (e.g. client requirements).
Description	With respect to accounting records—See the response to Principle 3.10(a) above. The business records would include records of meetings and other communications with settlors/beneficiaries/beneficial owners. The GFSC noted that it expects to see such communications on files during visits and has had occasion during visits to report on inadequate records.
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	3.12 Trust and company service providers should be required to retain records for a period appropriate to the business and in line with relevant legal obligations.
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002 imposes a six-year period. During on-site inspections the GFSC questions licensees about these matters.
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	3.13 Trust and company service providers should be required to maintain a manual of appropriate policies and procedures; including business take on procedures, and documenting systems and procedures intended to safeguard the business and clients’ assets and ensure that only authorized and proper transactions are undertaken.
Description	The Fiduciaries Law, Schedule 1, para. 5(6) requires the licensee to maintain adequate accounting and other records of his business and adequate systems of control of his business and records. The GFSC noted that it reviews procedures before visits and compliance with them during on-site visits.
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	3.14 Trust and company service providers should be required to ensure: (a) that they have an adequate span of control with a sufficient number of appropriately skilled and experienced persons able to exercise independent judgment; and
Description	The Fiduciaries Law, Schedule 1, para. 4, states that at least two individuals of appropriate standing and experience shall effectively direct the business of the licensed fiduciary.
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	(b) that those engaged in the business have a minimum relevant experience and qualifications.
Description	In addition to the requirement under 3.14.a, the GFSC must be satisfied that the directors and managers are sufficiently experienced and qualified (the Fiduciaries Law, Schedule 1, paras. 3(2)(a) and (b). The GFSC noted that the levels of experience are factored into its risk-profiling for post licensing visits.
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	Explanatory Note Exceptions may apply to this criterion in respect of sole practitioners where, for example, an individual trustee function is controlled by the court.
	3.15 Trust and company service providers should be required to ensure that professional development requirements are satisfactorily met.
Description	The GFSC believes that this is the responsibility of professional and industry associations.
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	3.16 Trust and company service providers should be required to ensure that their officers and staff have a full understanding of the duties arising under the laws relevant to the affairs of client corporate vehicles, trust and other legal entities for which they are acting in the jurisdictions in which they are carrying on business and in which the assets being handled/managed are held.
Description	See the response to Principle 3.14 above. In addition, the Fiduciaries Law, para. 3(2) requires the GFSC to take account of the individual’s knowledge and understanding of the legal and professional obligations to be assumed or undertaken.
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Holding and Sharing of Information
Principle 4.	All countries/jurisdictions should ensure that there is proper provision for the holding, having access to and sharing of information.
	4.1 Information on the ultimate beneficial owner and/or controllers of corporate vehicles, and the trustees, settler, protector/beneficiaries of trusts should be known to the service provider.
Description	The money laundering Guidance Notes require licensees to keep this information.
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	4.2 Any changes of client control/ownership should be promptly monitored, particularly where a service provider is administering a corporate vehicle in the form of a “shelf company or where bearer shares or nominee share holdings are involved.
Description	The Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism, para. 39 would require the service provider to verify the identity of a new beneficial owner.
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	4.3 There should be an adequate, effective and appropriate mechanism in place for information to be made available to all the relevant authorities.
Description	The Fiduciaries Law s.23 enables the GFSC to obtain information and documents. The Fiduciary Law s.43 sets out the confidentiality provisions relating to information within the GFSC’s possession. It states that: no person who under or for the purposes of this Law receives information relating to the business or other affairs of any person; no person who obtains any such information directly or indirectly from a person who has so received it; shall disclose the information without the consent of the person to whom it relates and (if different) the person from whom it was so obtained; and a person who discloses information in contravention of this section is guilty of an offense. The Fiduciary Law s.44 provides gateways for onward transmission to other regulators, investigating and prosecuting authorities (see Principle 4.4 below).
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	4.4 There should be no barrier to the appropriate flow of information.
Description	There is no particular barrier, for example, no requirement for the Attorney General’s consent before disclosure to the GFSC. (There is in section 44(1) a requirement for AG’s consent in very limited circumstances where information has gone from the GFSC to the Police and the Police want to disclose for investigation and prosecution outside Guernsey.) The Fiduciary Law s.44 specifies the cases where disclosure is permitted. These include: information which at the time of disclosure is or has already been made available to the public from other sources; information in the form of a summary or collection of information so framed as not to enable information relating to any particular person to be ascertained from it; the disclosure of information for the purpose of enabling or assisting the GFSC to discharge its functions conferred by or under this Law; information by the GFSC to the auditor of a licensed fiduciary or former licensed fiduciary if it appears to the GFSC that the disclosure would enable or assist the GFSC to discharge its functions conferred by or under this Law or would otherwise be in the interest of the public; where, in order to enable or assist it to discharge its functions conferred by or under the Law, the GFSC considers it necessary to seek advice from a qualified person on any matter of law, accountancy or valuation or any other matter requiring the exercise of professional skill, the disclosure by the GFSC to that person of such information as appears to the GFSC to be necessary to ensure that he is properly informed as to the matters on which his advice is sought; information in the interests of clients or the public interest; information for the purpose of enabling or assisting a relevant supervisory authority in a place outside the Bailiwick to exercise its functions; the disclosure of information for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of or otherwise for the purposes of any criminal proceedings; the disclosure of information to a person or body responsible for a scheme for compensating clients or investors (whether in the Bailiwick or elsewhere): if it appears to the GFSC that the disclosure would enable or assist the recipient of the information or the GFSC to discharge its functions; and if the recipient has given to the GFSC a written undertaking that the information will not be further disclosed without the prior consent of the GFSC.
Comments
	4.5 Information regarding the clients of the service provider should be kept in the jurisdiction in which the service provider is located.
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002 (Regulation 5) require licensees to retain customer documents and customer verification documents “in a manner that makes their retrieval readily practicable.” In addition, the requirement under the Fiduciary Law, Schedule 1, para. 5(6), to keep adequate records and have adequate systems of control is relevant.
Comments
	4.6 There should be no legal barrier to the flow of information or documentation necessary for the recipient of business from a provider who is an acceptable introducer to satisfy itself that adequate customer due diligence has been undertaken in accordance with the arrangements set out in the Basel customer due diligence paper.
Description	The GFSC noted that it does not prevent financial services businesses in the Bailiwick from supplying verification documents to other jurisdictions.
Comments
Audit and Compliance Reviews
Principle 5.	All countries/jurisdictions should require proper provision to be made for audits and compliance reviews.
	5.1 External auditors with relevant experience and appropriate track record should be appointed to carry out a full audit of the trust and company service providers’ businesses in accordance with international standards.
Description	The Regulation of Fiduciaries (Accounts) Rules, 2001, para. 10.1, requires: a person shall provide to the GFSC financial statements for each accounting period at any time during which it held a full fiduciary license; the statements shall be provided to the GFSC within four months of the end of the accounting period to which they relate; the financial statements shall be accompanied by: an auditor’s report on the financial statements; any report prepared by an internal or external auditor which is available to the licensed fiduciary and addresses a relevant matter; and brief details of any report prepared by an accountant or consultant, which is available to the licensed, fiduciary and addresses a relevant matter (relevant matter means a breakdown or material weakness in a licensed fiduciary’s internal control procedures);. a licensed fiduciary shall forthwith provide to the GFSC a copy of any management letter received from his external auditor. The Fiduciary Law s.58 defines an auditor as one approved by the GFSC. The GFSC only approves auditors who confirm that they will perform audits of fiduciary licensees in accordance with the GSCCA Guidance Notes on the audit of fiduciaries. The Guidance Notes require the auditor to review client files and to form a view on risks facing the licensee. In addition, the Companies Law s.63(1) states that: “A person is not qualified for appointment as an auditor unless he is (a) a member of (i) the Institute of Chartered Accountants in England and Wales, of Scotland or in Ireland; (ii) the Chartered Association of certified Accountants; or (b) for the time being authorized by the Committee to audit the accounts of companies as having similar qualifications obtained outside the United Kingdom.” It goes on to state that: “The audit must be conducted in accordance with Auditing Standards issued by the Auditing Practices Board and the financial statements must be prepared in accordance with U.K., U.S., or International Accounting standards, unless the GFSC agrees to a different standard.”
Comments
	5.2 External auditors should have the statutory authority and protection necessary to report to the competent authorities any breaches of relevant legislation or other material concerns.
Description	Auditors are protected by Section 31, which provides that communications of information relevant to the GFSC’s functions do not constitute a breach of any duty by the auditor. This is the case whether or not the communication is in response to a request from the GFSC. The Fiduciaries Law s.31 states that: “No duty to which an auditor of a licensed fiduciary is subject is contravened by reason of his communicating in good faith to the GFSC, whether or not in response to a request made by it, any information or opinion on a matter relevant to any function of the GFSC. The section applies to any matter of which he becomes aware in his capacity as auditor and which relates to the business or affairs of the licensed fiduciary.” The protection also applies to the auditor of a former licensed fiduciary as it applies in relation to the auditor of a licensed fiduciary.
Comments
	5.3 Adequate procedures should be implemented to ensure that regular independent reviews are conducted of compliance with the Statement.
Description	The GFSC reviews compliance during on-site visits.
Comments
Cessation of Business and Misleading Statements
Principle 6.	All countries/jurisdictions should have proper provisions for the ceasing of business and for prohibiting misleading statements.
	6.1 The interests of customer/clients should be able to be adequately safeguarded when the service provider is no longer able to carry on the business for any reason.
Description	This is currently not covered. However, legislation introducing the Office of Public Trustee has been agreed by Guernsey, Alderney, and Sark legislatures and sent to the Privy Council in the week of November 4, 2002 for the Royal Sanction.
Comments
	6.2 All countries/jurisdictions should ensure that trust and company service providers do not provide false or misleading information (including advertisements
Description	The Fiduciary Law s.20 gives the GFSC the power to make regulations on fiduciary advertisements. It states that the regulations that have been made (The Regulation of Fiduciaries (Fiduciary Advertisements and Annual Returns) Regulations, 2001) prohibit personal fiduciary licensees from advertising but do not impinge on advertising by holders of full licenses. However, even without such regulations, the GFSC can under Section 20(7) give a direction prohibiting a fiduciary advertisement or requiring its modification. The GFSC may make regulations in respect of the issue, form, and content of fiduciary advertisements and may prohibit the issue of advertisements of any description (whether by reference to their contents, to the persons by whom they are issued or otherwise); make provision as to the matters which must or which may not be included in fiduciary advertisements; provide for exemptions from any prohibition or requirement imposed by the regulations. A person who issues or causes to be issued, in or from within the Bailiwick or (in the case of a Bailiwick company) in or from within any place whatsoever, an advertisement the issue of which is prohibited by regulations under this section or which otherwise contravenes any provision of such regulations is guilty of an offense. In addition to the annual return, the service provider is required, pursuant to section 46(2), to provide the GFSC with any information in its possession that is relevant to the GFSC in the exercise of its powers. Failure to do so is an offense. In furtherance of this, the Codes of Practice for Trust Service Providers and Corporate Service Providers set out the events about which the GFSC would expect to be notified. These include the commencement of proceedings against the service provider in any country and serious or prolonged breakdown of the service provider’s administrative systems. The guidance that accompanies the Code confirms that the list in the Code is not exhaustive but rather indicative of the type of events of which the GFSC would expect to be notified. The GFSC reviews whether on-site inspections reveal that any matter, such as a complaint, should have been but has not been notified to the GFSC. Section above sets out the other requirements in the Fiduciary Law for notification to or approval by the GFSC.
Comments

Table 16.

Detailed Assessment Against the OGBS Statement of Best Practice for Trust and Company Service Providers

Definition of Trust and Company Service Business
Principle 1.	The scope of trust and company service business should be adequately defined.
	1.1 The scope of activities subject to the requirements of a jurisdiction should cover at least the following (when provided in the course of business): Company service provider acting as company or partnership formation agent; acting as (or arranging for another to act as) a director or secretary of a company or a partner of a partnership; providing a registered office, business address or accommodation, correspondence or administrative address for a company, partnership or for any other person; acting as, or arranging for another to act as, a nominee shareholder or unit holder for another person. Trust service provider acting as (or arranging for another to act as) a trustee of an express trust.
Description	In Guernsey, company and trust service provider business is regarded as fiduciary business and is defined under the Fiduciary Law (s.2) as: the formation, management or administration of trusts, and the provision of advice in relation to the formation, management or administration of trusts, including: acting as corporate or individual trustee or protector for trusts; the provision to trusts of corporate or individual trustees or protectors; company or corporate administration including: the formation, management or administration of companies, partnerships or other unincorporated bodies, and the provision of advice in relation to the formation, management or administration of companies, partnerships or other unincorporated bodies, whether incorporated or established in or under the laws of the Bailiwick or elsewhere; the provision to any such companies, partnerships or other unincorporated bodies of: corporate or individual directors; individuals or companies to act as company or corporate secretary or in any other capacity as officer of a company, partnership or other unincorporated body other than a director; nominee services, including (without limitation) acting as or providing nominee shareholders; registered offices or accommodation addresses (the expression “address” in this subparagraph including any postal, telecommunication or electronic address); acting as director of any company or unincorporated body, or as partner of any partnership, whether incorporated, registered or established in or under the laws of the Bailiwick or elsewhere; the provision of executorship services including (without limitation) acting as, or accepting an appointment made by will as, an executor of a will or administrator of an estate. A significant number of persons are exempted from the licensing requirements, see explanatory note and exempted activities following principle 1.4 below.
Comments
	Additional Criteria 1.2 Many jurisdictions provide that companies must appoint a registered agent. It is desirable that in such jurisdictions acting as registered agent is incorporated within the definition of company service business.
Description	There is no such requirement in Guernsey. There is a requirement to have a registered office and the provision of that is regulated (see Fiduciaries Law s.2(1)(b)(ii).
	1.3 The trust law of many jurisdictions recognizes enforcers, protectors and custodians. It is desirable that the provision of these services is, as far as necessary, also covered by the definition of trust service business.
Description	This is covered in the Fiduciaries Law section 2(1)(a) “the formation, management or administration of trusts, and the provision of advice in relation to the formation, management or administration of trusts, including (without limitation): acting as corporate or individual trustee or protector for trusts; and the provision to trusts of corporate or individual trustees or protectors.
	1.4 It is also desirable for the definition of trust business to include the provision of trust management and administration services, insofar as those activities are not otherwise regulated.
Description	See response to principle 1.1 above.
	Explanatory note Countries and jurisdictions may provide for limited exceptions to the requirements set out in this Methodology in respect of CSPs that do not provide director or nominee shareholder services and that do not handle or manage client assets or funds. The exceptions could include lesser standards covering: the span of control covering the number of persons engaged in the business; the level of qualifications/experience of the persons engaged in the business; the capital/professional indemnity insurance requirements; and the audit requirements. Exempted activities The Fiduciary Law encompasses a very wide range of activities, and as a result there are a number of exemptions for activities where regulation is not appropriate or necessary. The following are not regulated activities (Fiduciaries Law s.3): acting as trustee or custodian of a collective investment scheme authorized by the GFSC under section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987; acting as a director of a company which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the company by the director (other than acting as director); acting as a director of a company which is quoted on a stock exchange recognized by the GFSC for the purposes of this paragraph; acting as a director of a company where more than half in nominal value of the equity share capital of that company is held by: the director, as beneficial owner; any close relative of the director, as beneficial owner; or the trustees of a trust of which a person mentioned in subparagraph (i) or (ii) is a beneficiary; acting as a director of a supervised company; acting as a director of a company which is a subsidiary of a company described in paragraphs (b), (c), (d) or (e); acting, where the person so acting is an individual, as a director of not more than six companies, being directorships which are not the subject of an exemption contained in any other paragraph of this subsection, except in any case where the GFSC does not apply the exemption contained in this paragraph in respect of any person on the grounds that, having regard to the criteria of Schedule 1, the GFSC is not satisfied that he is a fit and proper person to be or to become a director of a company; and, where the GFSC decides not to apply the exemption contained in this paragraph, it shall serve notice to that effect on the person concerned, giving particulars of the right of appeal set out in section 19; acting as bookkeeper or company secretary of a company which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the company by the person concerned (other than acting as bookkeeper or company secretary); acting as a partner of a partnership which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the partnership by the partner (other than acting as partner); acting as a partner of a partnership: which holds a license to carry on controlled investment business under section 4 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 or which is exempt from licensing under section 29 of that Law; or which holds an authorization under section 8 of that Law; acting as a limited partner in a limited partnership; acting as bookkeeper of a partnership which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the partnership by the person concerned (other than acting as bookkeeper); the acceptance of money on terms under which the money: is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services and is repayable in the event of the property or services not in fact being sold, hired or otherwise provided; is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the nonperformance of a contract; or without prejudice to subparagraph (ii), is paid by way of security for the delivery up or return of any property, whether in a particular state of repair of otherwise; acting as guardian of a minor or person under legal disability where the appointment is made by, and where the discharge of the functions of guardian is subject to the supervision of, the Royal Court, the Court of Alderney or the Court of the Seneschal; acting as executor of the will of, or administrator of the estate of, a person who was resident or domiciled in the Bailiwick at the time of the execution of the will or at the time of death, provided that the person so acting is a lawyer; acting as trustee of testamentary trusts created by the will of a person who was resident or domiciled in the Bailiwick at the time of the execution of the will or at the time of death, provided that the person so acting is a lawyer; the provision of advice or the drafting of documents by a lawyer, accountant or actuary in the ordinary course of carrying on the profession of lawyer, accountant or (as the case may be) actuary; the incorporation of companies by an advocate and the drafting of minutes of meetings by a lawyer, accountant or actuary; the preparation and auditing of accounts; activities undertaken in the course of a profession or business: (i) which are undertaken without separate or additional remuneration (whether from the client concerned or from a third party); and (ii) which are incidental to the carrying on of that profession or business; provided that the person carrying on the profession or business does not hold himself out as undertaking those activities; the activities of the Ecclesiastical Court and Registrar thereof in relation to the granting of probate and letters of administration; the provision of accommodation addresses (within the meaning of section 2(1)(b)(ii)(D): by the States of Guernsey Telecommunications Board or the States of Guernsey Post Office Board (or any company succeeding to the undertaking of either of those Boards) or by an internet or telecommunications service provider; or where the address is provided solely for the service of process or the service of notice under a contract; any activity carried on under the authority of and in accordance with the conditions of a license, registration or authorization granted under any of the regulatory Laws; the following activities when carried on by a registered insurance intermediary within the meaning of section 49A of the Insurance Business (Guernsey) Law, 1986: the formation of, and the provision of advice in relation to the formation of, a retirement annuity scheme or retirement annuity trust scheme approved by the Administrator of Income Tax under the provisions of part XIII of the Income Tax (Guernsey) Law, 1975; or the formation of, and the provision of advice in relation to the formation of, a pension scheme or trust of a life assurance policy; any particular activity, transaction or appointment specifically exempted from the operation of section 2 by written instrument of the GFSC; and for the purposes of this paragraph: an application for such an exemption shall be made in such form and manner, and shall be accompanied by such information and documents, as the GFSC may require; the application shall be accompanied by such fee as may be prescribed by regulations under section 7; the application may be refused or granted subject to such conditions as the GFSC may consider necessary or expedient; the GFSC may at any time after receipt of the application require the applicant to furnish such additional information and documents as it considers necessary or desirable; and the exemption may be revoked or varied at any time by the GFSC by written notice to the person to whom it was granted.
Fit-and-Proper Criteria
Principle 2.	All countries/jurisdictions should require that those individuals holding key positions in a trust or company service provider (“key persons”) should be fit and proper.
Description	With regard to key persons the Fiduciary Law Section 6 by implication considers certain persons to be “key persons.” The Law provides that where the application is for a full fiduciary license, the GFSC must be satisfied that the criteria are satisfied by the applicant itself and in relation to anyone who is to be a director, controller, partner or manager. A controller includes: a managing director or chief executive of the applicant; a shareholder controller—someone who, alone or with associates, controls or is entitled to control the exercise of at least 15 percent of voting power at general meeting; or an indirect controller—someone in accordance with whose instructions the directors are accustomed to act. The minimum criteria for licensing are contained in Schedule 1 to the Fiduciary Law. These minimum criteria cover the following: integrity and skill; economic benefit to the Bailiwick (full fiduciary license holders); fit-and-proper persons; business to be directed by at least two individuals (full fiduciary license holders); and business to be conducted in prudent manner. The GFSC does not have the power to vary the standards applied in determining whether an applicant meets these criteria. However, the GFSC will determine whether any conditions should be attached to a license, for example restricting the activities the fiduciary can undertake. All applications are independently verified by the GFSC. The verification process involves a detailed review of the application, including a review of certain databases. Each controller, director and manager of the applicant is required to submit a personal questionnaire. This requires background information on the person, including experience, details of current and previous employment and any disciplinary action taken against them. It also contains a request for details of any membership/licensing by other regulators. Such references are taken up with these regulators. The GFSC also, where it considers it desirable on risk-based analysis to do so, conducts on-site visits to applicants before deciding whether to grant a license. This occurs in approximately one third of cases and involves verification of the information provided in the application on the applicant’s take-on and other procedures. A visit at this stage also allows the GFSC to probe the competence of the applicant or its staff. Those applicants who are licensed will all be subject to an on-site inspection program.
Comments
	2.1 In assessing whether a key person is fit and proper, the country/jurisdiction should consider his: honesty, integrity and reputation; competence and capability; and financial soundness.
Description	This will require a consideration of all relevant matters including the specific criteria set out in principles 2.2, 2.3 and 2.4. The Fiduciary Law (Schedule 1) at subsections 3 (2) and 3 (3) is relevant. Subsection 3.2 states that in determining whether a person is fit and proper to hold a fiduciary license or a particular position, regard shall be had to: his probity, competence, experience and soundness of judgment for fulfilling the responsibilities of a licensed fiduciary or (as the case may be) of that position; the diligence with which he is fulfilling or likely to fulfill those responsibilities; whether the interests of clients of the applicant or licensed fiduciary are, or are likely to be, in any way threatened by his holding a fiduciary license or that position; his educational and professional qualifications, his membership of professional or other relevant bodies and any evidence of his continuing professional education or development; his knowledge and understanding of the legal and professional obligations to be assumed or undertaken; and his procedures for the vetting of clients and his record of compliance with any provision contained in or made under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991 or the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999. and Subsection (3) states that: Without prejudice to the generality of the foregoing provisions, regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has: committed any offense, and in particular any offense involving fraud or other dishonesty or violence; contravened any provision contained in or made under this Law, the regulatory Laws or any other enactment appearing to the GFSC to be designed for protecting members of the public against financial loss due to: dishonesty, incompetence or malpractice by persons concerned in the provision of regulated activities, banking, insurance, investment or other financial services; or the conduct of discharged or undischarged bankrupts or persons who are otherwise insolvent; engaged in any business practices appearing to the GFSC to be deceitful or oppressive or otherwise improper (whether unlawful or not) or which otherwise reflect discredit on his method of conducting business or his suitability to carry on regulated activities; engaged in or been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgment.
Comments
	2.2 In the case of the person’s honesty, integrity and reputation, the following matters are relevant and should be considered: (a) any criminal offense of which he has been convicted or any criminal charges outstanding, particularly where the offense concerned is an offense of dishonesty or an offense relating to financial crime or committed under any financial services legislation.
Description	The Fiduciaries Law (Schedule 1 para. 3(3)(a) states that regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has (a) committed any offense, and in particular any offense involving fraud or other dishonesty or violence;
Comments	Although the Law does not mention criminal charges the GFSC does not believe that this prejudices the generality of fit and proper considerations. The GFSC notes that pending charges would raise questions of integrity, probity or soundness of judgment under para. 3(2)(a) of Schedule 1 of the Fiduciaries Law.
	(b) any adverse finding, settlement or fine in civil proceedings, particularly in connection with a company or a financial services business;
Description	The Fiduciary Law Schedule 1 para. 3(2)(c) requires the GFSC in assessing applicants for a license to consider the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has contravened any provision contained in or made under this Law, the regulatory Laws or any other enactment appearing to the GFSC to be designed for protecting members of the public against financial loss: (see response to principle 2.1 above-Fiduciary Law (Schedule 1, para. 3.3, b-d).
Comments
	(c) any association, past or present, with a firm, company or other person that is or has been the subject of a regulatory investigation or disciplinary or enforcement proceedings;
Description	See response to principle 2.1 above—Fiduciary Law (Schedule 1) para. 3.3.d.
Comments
	(d) any disciplinary, enforcement, disqualification or similar proceedings to which he has, or may be, subject or any professional or administrative reprimands;
Description	See response to principle 2.1 above—Fiduciary Law (Schedule 1) para. 3.3.d.
Comments
	(e) any previous regulatory breaches committed by him or by a person with whom he is or has been associated and any complaints made against him; and
Description	Breaches of regulatory law by the individual are covered by Schedule 1 para. 3(3)(b). See also principle 2.2.b above. The GFSC noted that association with someone who has committed such breaches would be approached as in 2(c) and (d) above. Complaints against an applicant are covered by the Fiduciaries Law Schedule 1 para.5(9) (c) which provides that the GFSC shall have regard, in determining whether a person is to be regarded as conducting his business in a prudent manner, to the complaints history of the applicant or licensed fiduciary.
Comments
	(f) whether he has been candid and truthful in his dealings with the Director and/or any other regulatory body.
Description	The Fiduciaries Law s.46 (1) creates an offense of providing misleading information in connection with a fiduciary license application. It states that: A person who:181 in connection with an application for a fiduciary license under this Law; in purported compliance with a requirement imposed by or under any provision of this Law or of any Ordinance, regulation or rule made under it; or otherwise than as mentioned in paragraph (a) or (b) but in circumstances in which he intends, or could reasonably be expected to know, that the statement, information or document provided by him would or might be used by the GFSC for the purpose of exercising its functions conferred by or under this Law: makes a statement which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; dishonestly or otherwise, recklessly makes a statement which is false, deceptive or misleading in a material particular; produces or furnishes or causes or permits to be produced or furnished any information or document which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; or dishonestly or otherwise, recklessly produces or furnishes or recklessly causes or permits to be produced or furnished any information or document which is false, deceptive or misleading in a material particular; is guilty of an offense. In addition, Section 46(2) states that: A licensed fiduciary which fails to provide the GFSC with any information in its possession knowing or having reasonable cause to believe: that the information is relevant to the exercise by the GFSC of its functions under this Law in relation to the licensed fiduciary; and that the withholding of the information is likely to result in the GFSC being misled as to any matter which is relevant to and of material significance to the exercise of those functions in relation to the licensed fiduciary, is guilty of an offense.
Comments
	2.3 In the case of the person’s competence and ability, the following matters are relevant and should be considered: (a) the extent of that person’s relevant experience; and (b) where the person is an individual, his or her knowledge and professional and other relevant qualifications.
Description	The Fiduciaries Law, Schedule 1 para. 3(2) refers to competence and experience. It states that in determining whether a person is a fit and proper person to hold a fiduciary license or a particular position, regard shall be had to his probity, competence, experience and soundness of judgment for fulfilling the responsibilities of a licensed fiduciary or (as the case may be) of that position; and paragraph 3(2)(d) refers to educational and professional qualifications membership of professional or other relevant bodies and any evidence of continuing professional education or development.
Comments
	2.4 In the case of a person’s financial soundness, the following matters are relevant and should be considered: (a) any insolvency proceedings that have been instituted against the person;
Description	The GFSC does request this information on its application form…
Comments	The GFSC stated that it looks at resources under Fiduciaries Law, Schedule 1, para. 5 and would become concerned about any relevant matter. In addition, question 27 of the PQ asks for confirmation that there was no pending winding up application or any receivership or composition with creditors.
	(b) where the person is an individual, any adverse credit rating.
Description	The GFSC do not routinely make credit ratings enquiries.
Comments	The GFSC stated that it would refuse an applicant on resources grounds using the prudent business criteria under the Fiduciaries Law, Schedule 1, para. 5.
	Additional criteria 2.5 It is also desirable for jurisdictions to require that those persons who hold an interest in a service provider, whether legal or beneficial, should be fit and proper applying the criteria set out in paragraphs 2.1 to 2.4 above, with suitable modifications where the person is a corporate body.
Description	The GFSC considers this as essential because someone who is not fit and proper could otherwise control a licensee. The application forms for a full fiduciary license require information on the directors, partners and managers and on beneficial ownership/control. All such persons are required to submit a detailed personal questionnaire. (Fiduciaries Law, Schedule 1). The Fiduciaries Law s. 14 also provides the GFSC with the power to object to transfers of control of a service provider. It. requires a person to notify the GFSC in writing of his intention to become a controller (or partner in a service provider which is a partnership). In the case of a company, a controller is someone holding at least 15 percent of a company’s shares. The GFSC requires that all such persons complete a personal questionnaire detailing their experience and background. Following such notification the GFSC may require the person to furnish additional information or documents in order to enable the GFSC to decide whether or not to serve a notice of objection. The criterion used in determining whether to issue a notice of objection is whether the GFSC is satisfied that: the person is fit and proper; the interests of the clients of the service provider would not be threatened by that person becoming a controller; and the minimum criteria for licensing of the service provider will continue to be met. Section 22 of the Fiduciary Law requires that anyone becoming a significant shareholder (i.e., holding between 5 percent and 15 percent) notify the GFSC within 14 days of becoming so.
Comments
Conduct of Business
Principle 3.	All countries/jurisdictions should require that those providing the service of trust or company service provider exhibit evidence that their business will be or is being conducted in accordance with the proper corporate governance, customer due diligence, conduct of client business, financial soundness, and systems and controls requirements.
	Corporate Governance 3.1 Trust and company service providers should comply with recognized standards of corporate governance in respect of both the business itself and clients’ corporate vehicles, trusts and other legal entities.
Description	The application forms for a full fiduciary license require information on a number of areas regarding the strategic and operating plan of an applicant. This includes succession and disaster recovery plans, as well as plans for staff training and development. The GFSC pays close attention to the question of whether the applicant complies with the requirement for “four eyes” and considers the relative experience and ownership interests of the persons put forward as fulfilling that test. Where the GFSC is not convinced that there are “four eyes,” it has refused to license an applicant until additional executive personnel are taken on at a suitable level. Where the GFSC is dissatisfied with any response or where it has decided to undertake an on-site visit, it asks additional questions, including questions covering the operation of the applicant. The GFSC examines procedures, controls and reporting lines as part of on-site visits with respect to fiduciary business and with respect to administered trusts and companies with particular reference to the director or trustee applying its own judgment to the issues.
Comments	There are still a number of fiduciaries operating under the “transitional provisions” of the law. These companies and individuals are fully covered by the supervisory and enforcement provisions of the legislation, but some have not yet been licensed because the GFSC is not fully satisfied that they meet all of the licensing criteria. The GFSC believes that it is making every effort to complete the process as effectively and efficiently as possible consistent with the need for decisions to be based on a detailed consideration of each individual application that must involve proper respect for due process. It has set up a Shadow Financial Services Tribunal and within the next few months, the licensing process will be substantially complete. If the transitional process is not complete within the next few months, the mission would be concerned about the risks to the reputation of the jurisdiction and would recommend in those circumstances the setting of a cut-off date for completion of the licensing process.
	3.2 Trust and company service providers should comply with the FATF Recommendations concerning money laundering and the financing of terrorism.
Description	Service providers are subject to the Bailiwick’s anti-money laundering provisions contained in the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002, the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism issued under those Regulations and the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002. These have been supplemented by the Position Paper on Overriding Principles for a Revised Know Your Customer Framework. Suspicious transactions must be reported to the Financial Intelligence Service (FIS) and also to the GFSC where they might cause regulatory concern, for example if the institution’s systems failed to detect a relevant matter or there is a serious reputational risk to Guernsey or the institution. The application forms for a fiduciary license require a full account of the applicant’s procedures for complying with the anti-money laundering requirements to which it is subject and in many cases, copies of procedures manuals are obtained and reviewed before the licensing decision is made. Noncompliance with the law or a regulation is a criminal offense. Furthermore such a failure may result in disciplinary action by the GFSC (including the revocation of a license). A breach of the Guidance Notes, whilst not a criminal offense may also be grounds for regulatory action. The GFSC has obtained and reviewed procedures for the prevention of money laundering and countering the financing of terrorism from applicants for licenses. Examination of the adequacy of those procedures and how they are followed in practice is one of the areas reviewed during on-site inspections.
Comments	See also AML/CFT assessment in this report.
	3.3 Trust and company service providers should comply with any relevant financial regulatory standards.
Description	The Fiduciaries Law s.29, gives the GFSC the authority to make rules prescribing the form in which a licensed fiduciary’s accounts and the auditors reports on those accounts are to be, and the information and particulars contained in them, and the times or intervals at which they are to be drawn up and furnished.
Comments
	3.4 Trust and company service providers should comply with all relevant domestic statutory obligations, for example the legislation governing the formation and administration of companies.
Description	On-site visits review these issues.
Comments
	3.5 Trust and company service providers should comply with recognized standards in respect of the responsibilities of directors and trustees.
Description	The GFSC has published a Code of Practice for Company Directors under the Fiduciaries Law, s.35. The Code states that directors should understand and act in accordance with their legal duties and requires them to act in good faith and in the best interests of the company. Separate Codes of Practice have also been issued for Trust Service Providers and Corporate Service Providers.
Comments
	Additional criteria 3.6 Trust and company service providers should have adequate internal controls that provide at least four eyes control.
Description	This is a statutory criterion for full licensees. In the case of a full fiduciary license, at least two individuals, resident in the Bailiwick and of appropriate standing and experience, shall effectively direct the business of the licensed fiduciary. (the Fiduciaries Law, schedule 1 para.). In applying this test the GFSC considers the independence of senior management and, where necessary, requires additional appointments to be made before a license is granted. As part of its on-site inspections, the GFSC reviews the institution’s compliance with its legal obligations and the GFSC’s Codes of Practice and the adequacy of its internal review systems. Reporting lines and business controls are also considered during on-site inspections.
Comments
	Customer due diligence 3.7 Trust and company service providers should be required to satisfy standards equivalent to those set out in the Basel Committee’s CDD Paper, published in October 2001, to the extent that the recommendations in that paper are relevant to nonbanks.
Description	Applicants and licensees must satisfy the requirements of the GFSC’s Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism.
Comments
	3.8 Customer due diligence procedures should cover the following: (a) customer identification; (b) verification of identity of customer; (c) risk profile (e.g., politically exposed persons); (d) source of wealth; (e) source of funds; and (f) ongoing monitoring.
Description	In this report, these issues are covered in the AML/CFT review. The money-laundering Guidance Notes cover these matters.
Comments
	Conduct of client business 3.9 Trust and company service providers should be required to have systems and procedures in place for the conduct of client business covering: (a) the identification and segregation of clients’ assets from the assets of the business;
Description	TSP Code of Practice para. 4 states that: TSPs should treat the interests of beneficiaries as paramount subject to their legal obligations to other persons or bodies. In particular, TSPs should: invest, distribute or otherwise manage each trust’s assets in accordance with the law and the trust deed; manage the investment and custody of trust assets professionally and responsibly; maintain confidentiality except where disclosure of information is required or permitted by an applicable law or by guidance published by the GFSC, or authorized by the person(s) to whom the duty of confidentiality is owed; provide promptly to clients information to which they are entitled about a trust; ensure that the funds of different trusts are kept separately from each other and from the TSP’s own funds; agree a clear fee structure in advance of taking an appointment and charge fees in accordance with that and in a fair and transparent manner; notify clients that the TSP is licensed by the GFSC; avoid setting up or participating in discretionary trusts where the trustees merely carry out the settler’s instructions and exercise no significant discretion; and deal in a timely manner and in the best interests of the beneficiaries with any transfer to other trustees. The CSP Code of Practice, para. 6 states that: A CSP should, through its staff: identify and act in each client company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or a client company; keep the funds of each client company separate from each other and from the CSP’s own funds. The GFSC monitors compliance with these requirements during on-site visits. The GFSC states that any inadequacy of systems can be tied to the general licensing criterion in the Fiduciaries Law Schedule 1, that require adequate accounting and other records and adequate systems of control. In addition, the external auditors are required to identify any clients’ assets that were not being segregated from each other or from those of the licensee and report the matter to the GFSC.
Comments
	(b) the effective handling of clients’ assets, which should include both safe custody and proper management procedures;
Description	See response to principle 3.9.a above.
Comments
	(c) the maintenance of adequate and orderly accounting records of clients’ affairs;
Description	See response to principle 3.9.a above. In addition, the Guernsey Society of Certified and Chartered Accountants’ Guidance Note, with which licensees’ auditors have to comply, requires them to “make preliminary assessment of control risk by reviewing client administration controls” that include client accounting.
	(d) the maintenance of adequate client documentation (e.g. trust deeds);
Description	See response to principle 3.9.a and 3.9.c above. These are examined during on-site visits.
	(e) the appropriate authorization and handling of all transactions and decisions by persons with the knowledge, experience and status required to effect such transactions or make the required decisions according to the nature and status of the transactions/decisions involved.
Description	This is reviewed during on-site reviews as part of client assets questions
Comments
	Explanatory note Examples of the type of issue raised by paragraph (e) are set out below: where discretion is exercised for or in relation to clients, all reasonable steps should be taken to obtain sufficient information in order to exercise that discretion or other powers in a proper manner and such discretion should only be exercised for a proper purpose; any actual or perceived conflict of interest should be avoided or, where conflicts arise, such conflicts should be covered by disclosure, internal rules of confidentiality, rules on when or when not to act, or otherwise as appropriate; all business (including the establishing, transferring or closing of business relationships with its customers) should be transacted in an expeditious manner. The GFSC’s comments Re adequacy of information, see principle 3.4 above; Re conflicts of interest, the Code of Practice for CSP’s requires licensees to “identify and act in each company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or client company (para. 6). The equivalent obligation relating to trusts can be found in para. 5 of The TSP Code; Re transacting business in an expeditious manner. This would be covered under general competence criterion if there were unacceptable delays or under adequacy of systems if the delay arose from a failure of the licensee’s systems.
	Financial soundness 3.10 Trust and company service providers should be required to: (a) maintain adequate and orderly accounting records of their business and their clients’ affairs;
Description	The Fiduciary Law, Schedule 1, para. 5(6) states that in relation to both own business and clients’ affairs, a person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain adequate accounting and other records of his business and adequate systems of control of his business and records. Auditors would also pick up any lack of either type of accounting records during their audit.
Comments
	(b) maintain adequate financial resources including adequate paid up capital and adequate liquid capital to enable the business to continue and to enable clients’ affairs to be managed properly for an appropriate period;
Description	The Fiduciaries Law Schedule 1, para. 5(2) states that “A person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain a capital base and insurance cover: of an amount commensurate with the nature and scale of his operations; of an amount and nature sufficient to safeguard the interests of his clients and any other factors appearing to the GFSC to be relevant. For trust companies the GFSC requires paid up share capital of at least £25,000 and there is a three months’ expenditure test. Post-licensing the GFSC monitors capital on an annual basis through the submission of annual accounts. The GFSC believes that it is effectively able to impose whatever level of capital and resources are considered appropriate under the law.”
Comments
	(c) comply with any relevant financial regulatory standards and international accounting standards;
Description	In relation to accounting standards, the audit must be conducted in accordance with Auditing standards issued by the Auditing Practice Board and the financial statements must be prepared in accordance with U.K., U.S. or International Accounting Standards, unless the GFSC agrees to accept another standard. The GFSC informed the mission that so far it has not agreed to any other standard.
Comments
	(d) maintain adequate professional indemnity insurance cover.
Description	The Fiduciaries Law, Schedule 1, para. 5, imposes a statutory requirement for all licensees to have adequate cover for their activities. It states that: A person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain a capital base and insurance cover: of an amount commensurate with the nature and scale of his operations; and of an amount and nature sufficient to safeguard the interests of his clients and any other factors appearing to the GFSC to be relevant. The GFSC noted that it has generally required full licensees to have cover of greater of £1million and three times turnover, and personal licensees £1million or, where small-scale activities only, £500,000.
Comment
	Systems and procedures 3.11 Trust and company service providers should be required to: (a) have in place effective compliance functions which include the designation or appointment of an appropriately skilled and experienced person as compliance officer;
Description	There is at present no requirement in the law for such an appointment. The GFSC noted, however, that in practice most Money Laundering Reporting Officers, a post which must exist, act as compliance officer. In addition, compliance with regulatory and other legal requirements is the responsibility of the Board and the designation of an individual at director or other level would not affect the current situation. In summary, the functions are being covered under current legislation.
Comments
	(b) have in place effective reporting requirements which include the designation or appointment of an appropriately skilled and experienced person as an anti-money laundering reporting officer
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002, require the appointment of MLRO. While there is no explicit requirement on experience, the GFSC noted that it would comment if it thought that a MLRO was not sufficiently experienced for the job.
Comments
	(c) have in place an effective complaints handling system which should include the maintenance of a record of complaints and the actions taken to resolve them;
Description	The Code of Practice requires licensees to record, investigate and, as appropriate, act on complaints. The Code of Practice for TSPs states that: TSPs should, through their staff, record; investigate; and, as appropriate, act on complaints (para. 5). The Code of Practice for CSP, similarly states that: CSP’s should, through their staff, record; investigate; and, as appropriate, act on complaints (para. 6). The GFSC noted that through on-site visits, it reviews these records.
Comments
	(d) maintain adequate, orderly and up to date records of all business transactions and instructions at an appropriate location in the jurisdiction, including: accounting records of the business; accounting records of clients’ affairs; records of the internal organization and risk management systems; client documentation (e.g. client requirements).
Description	With respect to accounting records—See the response to Principle 3.10(a) above. The business records would include records of meetings and other communications with settlors/beneficiaries/beneficial owners. The GFSC noted that it expects to see such communications on files during visits and has had occasion during visits to report on inadequate records.
Comments
	3.12 Trust and company service providers should be required to retain records for a period appropriate to the business and in line with relevant legal obligations.
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002 imposes a six-year period. During on-site inspections the GFSC questions licensees about these matters.
Comment
	3.13 Trust and company service providers should be required to maintain a manual of appropriate policies and procedures; including business take on procedures, and documenting systems and procedures intended to safeguard the business and clients’ assets and ensure that only authorized and proper transactions are undertaken.
Description	The Fiduciaries Law, Schedule 1, para. 5(6) requires the licensee to maintain adequate accounting and other records of his business and adequate systems of control of his business and records. The GFSC noted that it reviews procedures before visits and compliance with them during on-site visits.
Comments
	3.14 Trust and company service providers should be required to ensure: (a) that they have an adequate span of control with a sufficient number of appropriately skilled and experienced persons able to exercise independent judgment; and
Description	The Fiduciaries Law, Schedule 1, para. 4, states that at least two individuals of appropriate standing and experience shall effectively direct the business of the licensed fiduciary.
Comments
	(b) that those engaged in the business have a minimum relevant experience and qualifications.
Description	In addition to the requirement under 3.14.a, the GFSC must be satisfied that the directors and managers are sufficiently experienced and qualified (the Fiduciaries Law, Schedule 1, paras. 3(2)(a) and (b). The GFSC noted that the levels of experience are factored into its risk-profiling for post licensing visits.
Comments
	Explanatory Note Exceptions may apply to this criterion in respect of sole practitioners where, for example, an individual trustee function is controlled by the court.
	3.15 Trust and company service providers should be required to ensure that professional development requirements are satisfactorily met.
Description	The GFSC believes that this is the responsibility of professional and industry associations.
Comments
	3.16 Trust and company service providers should be required to ensure that their officers and staff have a full understanding of the duties arising under the laws relevant to the affairs of client corporate vehicles, trust and other legal entities for which they are acting in the jurisdictions in which they are carrying on business and in which the assets being handled/managed are held.
Description	See the response to Principle 3.14 above. In addition, the Fiduciaries Law, para. 3(2) requires the GFSC to take account of the individual’s knowledge and understanding of the legal and professional obligations to be assumed or undertaken.
Comments
Holding and Sharing of Information
Principle 4.	All countries/jurisdictions should ensure that there is proper provision for the holding, having access to and sharing of information.
	4.1 Information on the ultimate beneficial owner and/or controllers of corporate vehicles, and the trustees, settler, protector/beneficiaries of trusts should be known to the service provider.
Description	The money laundering Guidance Notes require licensees to keep this information.
Comments
	4.2 Any changes of client control/ownership should be promptly monitored, particularly where a service provider is administering a corporate vehicle in the form of a “shelf company or where bearer shares or nominee share holdings are involved.
Description	The Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism, para. 39 would require the service provider to verify the identity of a new beneficial owner.
Comments
	4.3 There should be an adequate, effective and appropriate mechanism in place for information to be made available to all the relevant authorities.
Description	The Fiduciaries Law s.23 enables the GFSC to obtain information and documents. The Fiduciary Law s.43 sets out the confidentiality provisions relating to information within the GFSC’s possession. It states that: no person who under or for the purposes of this Law receives information relating to the business or other affairs of any person; no person who obtains any such information directly or indirectly from a person who has so received it; shall disclose the information without the consent of the person to whom it relates and (if different) the person from whom it was so obtained; and a person who discloses information in contravention of this section is guilty of an offense. The Fiduciary Law s.44 provides gateways for onward transmission to other regulators, investigating and prosecuting authorities (see Principle 4.4 below).
Comments
	4.4 There should be no barrier to the appropriate flow of information.
Description	There is no particular barrier, for example, no requirement for the Attorney General’s consent before disclosure to the GFSC. (There is in section 44(1) a requirement for AG’s consent in very limited circumstances where information has gone from the GFSC to the Police and the Police want to disclose for investigation and prosecution outside Guernsey.) The Fiduciary Law s.44 specifies the cases where disclosure is permitted. These include: information which at the time of disclosure is or has already been made available to the public from other sources; information in the form of a summary or collection of information so framed as not to enable information relating to any particular person to be ascertained from it; the disclosure of information for the purpose of enabling or assisting the GFSC to discharge its functions conferred by or under this Law; information by the GFSC to the auditor of a licensed fiduciary or former licensed fiduciary if it appears to the GFSC that the disclosure would enable or assist the GFSC to discharge its functions conferred by or under this Law or would otherwise be in the interest of the public; where, in order to enable or assist it to discharge its functions conferred by or under the Law, the GFSC considers it necessary to seek advice from a qualified person on any matter of law, accountancy or valuation or any other matter requiring the exercise of professional skill, the disclosure by the GFSC to that person of such information as appears to the GFSC to be necessary to ensure that he is properly informed as to the matters on which his advice is sought; information in the interests of clients or the public interest; information for the purpose of enabling or assisting a relevant supervisory authority in a place outside the Bailiwick to exercise its functions; the disclosure of information for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of or otherwise for the purposes of any criminal proceedings; the disclosure of information to a person or body responsible for a scheme for compensating clients or investors (whether in the Bailiwick or elsewhere): if it appears to the GFSC that the disclosure would enable or assist the recipient of the information or the GFSC to discharge its functions; and if the recipient has given to the GFSC a written undertaking that the information will not be further disclosed without the prior consent of the GFSC.
Comments
	4.5 Information regarding the clients of the service provider should be kept in the jurisdiction in which the service provider is located.
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002 (Regulation 5) require licensees to retain customer documents and customer verification documents “in a manner that makes their retrieval readily practicable.” In addition, the requirement under the Fiduciary Law, Schedule 1, para. 5(6), to keep adequate records and have adequate systems of control is relevant.
Comments
	4.6 There should be no legal barrier to the flow of information or documentation necessary for the recipient of business from a provider who is an acceptable introducer to satisfy itself that adequate customer due diligence has been undertaken in accordance with the arrangements set out in the Basel customer due diligence paper.
Description	The GFSC noted that it does not prevent financial services businesses in the Bailiwick from supplying verification documents to other jurisdictions.
Comments
Audit and Compliance Reviews
Principle 5.	All countries/jurisdictions should require proper provision to be made for audits and compliance reviews.
	5.1 External auditors with relevant experience and appropriate track record should be appointed to carry out a full audit of the trust and company service providers’ businesses in accordance with international standards.
Description	The Regulation of Fiduciaries (Accounts) Rules, 2001, para. 10.1, requires: a person shall provide to the GFSC financial statements for each accounting period at any time during which it held a full fiduciary license; the statements shall be provided to the GFSC within four months of the end of the accounting period to which they relate; the financial statements shall be accompanied by: an auditor’s report on the financial statements; any report prepared by an internal or external auditor which is available to the licensed fiduciary and addresses a relevant matter; and brief details of any report prepared by an accountant or consultant, which is available to the licensed, fiduciary and addresses a relevant matter (relevant matter means a breakdown or material weakness in a licensed fiduciary’s internal control procedures);. a licensed fiduciary shall forthwith provide to the GFSC a copy of any management letter received from his external auditor. The Fiduciary Law s.58 defines an auditor as one approved by the GFSC. The GFSC only approves auditors who confirm that they will perform audits of fiduciary licensees in accordance with the GSCCA Guidance Notes on the audit of fiduciaries. The Guidance Notes require the auditor to review client files and to form a view on risks facing the licensee. In addition, the Companies Law s.63(1) states that: “A person is not qualified for appointment as an auditor unless he is (a) a member of (i) the Institute of Chartered Accountants in England and Wales, of Scotland or in Ireland; (ii) the Chartered Association of certified Accountants; or (b) for the time being authorized by the Committee to audit the accounts of companies as having similar qualifications obtained outside the United Kingdom.” It goes on to state that: “The audit must be conducted in accordance with Auditing Standards issued by the Auditing Practices Board and the financial statements must be prepared in accordance with U.K., U.S., or International Accounting standards, unless the GFSC agrees to a different standard.”
Comments
	5.2 External auditors should have the statutory authority and protection necessary to report to the competent authorities any breaches of relevant legislation or other material concerns.
Description	Auditors are protected by Section 31, which provides that communications of information relevant to the GFSC’s functions do not constitute a breach of any duty by the auditor. This is the case whether or not the communication is in response to a request from the GFSC. The Fiduciaries Law s.31 states that: “No duty to which an auditor of a licensed fiduciary is subject is contravened by reason of his communicating in good faith to the GFSC, whether or not in response to a request made by it, any information or opinion on a matter relevant to any function of the GFSC. The section applies to any matter of which he becomes aware in his capacity as auditor and which relates to the business or affairs of the licensed fiduciary.” The protection also applies to the auditor of a former licensed fiduciary as it applies in relation to the auditor of a licensed fiduciary.
Comments
	5.3 Adequate procedures should be implemented to ensure that regular independent reviews are conducted of compliance with the Statement.
Description	The GFSC reviews compliance during on-site visits.
Comments
Cessation of Business and Misleading Statements
Principle 6.	All countries/jurisdictions should have proper provisions for the ceasing of business and for prohibiting misleading statements.
	6.1 The interests of customer/clients should be able to be adequately safeguarded when the service provider is no longer able to carry on the business for any reason.
Description	This is currently not covered. However, legislation introducing the Office of Public Trustee has been agreed by Guernsey, Alderney, and Sark legislatures and sent to the Privy Council in the week of November 4, 2002 for the Royal Sanction.
Comments
	6.2 All countries/jurisdictions should ensure that trust and company service providers do not provide false or misleading information (including advertisements
Description	The Fiduciary Law s.20 gives the GFSC the power to make regulations on fiduciary advertisements. It states that the regulations that have been made (The Regulation of Fiduciaries (Fiduciary Advertisements and Annual Returns) Regulations, 2001) prohibit personal fiduciary licensees from advertising but do not impinge on advertising by holders of full licenses. However, even without such regulations, the GFSC can under Section 20(7) give a direction prohibiting a fiduciary advertisement or requiring its modification. The GFSC may make regulations in respect of the issue, form, and content of fiduciary advertisements and may prohibit the issue of advertisements of any description (whether by reference to their contents, to the persons by whom they are issued or otherwise); make provision as to the matters which must or which may not be included in fiduciary advertisements; provide for exemptions from any prohibition or requirement imposed by the regulations. A person who issues or causes to be issued, in or from within the Bailiwick or (in the case of a Bailiwick company) in or from within any place whatsoever, an advertisement the issue of which is prohibited by regulations under this section or which otherwise contravenes any provision of such regulations is guilty of an offense. In addition to the annual return, the service provider is required, pursuant to section 46(2), to provide the GFSC with any information in its possession that is relevant to the GFSC in the exercise of its powers. Failure to do so is an offense. In furtherance of this, the Codes of Practice for Trust Service Providers and Corporate Service Providers set out the events about which the GFSC would expect to be notified. These include the commencement of proceedings against the service provider in any country and serious or prolonged breakdown of the service provider’s administrative systems. The guidance that accompanies the Code confirms that the list in the Code is not exhaustive but rather indicative of the type of events of which the GFSC would expect to be notified. The GFSC reviews whether on-site inspections reveal that any matter, such as a complaint, should have been but has not been notified to the GFSC. Section above sets out the other requirements in the Fiduciary Law for notification to or approval by the GFSC.
Comments

Authorities’ Response to the Review against the OGBS Statement of Best Practice for Trust and Company Service Providers.

116. The authorities welcome the IMF’s assessment and confirmation that the Bailiwick of Guernsey’s standards of trust and company service provider regulation are fully consistent with the OGBS Statement of Best Practice for Trust and Company Service Providers.

The IMF’s Monetary and Exchange Affairs Department (MAE) was renamed the Monetary and Financial Systems Department (MFD) as of May 1, 2003. The new name has been used throughout the report.

The assessment was undertaken by Marcel Maes and Jack Heyes (Consultants MFD).

The team consisted of Ian Carrington, (Senior Financial Sector Expert, MFD) and Ross Delston, (Consulting Counsel, LEG), with Washington-based assistance from Stuart Yikona, (Technical Assistance Officer LEG). Messrs. Carrington and Delston were part of a Fund-lead mission to Guernsey during the period November 13-26, 2002. The expert not under the supervision of the IMF was Detective Chief Superintendent Felix Mc Kenna of Ireland’s Criminal Assets Bureau.

References in names of laws to ‘Guernsey’ refer to that island only, as opposed to references to “the Bailiwick of Guernsey,” which refer to the islands of Alderney, Guernsey and Sark.

The Notes do not meet the definition of ‘law’ contained in the Methodology since they are not ‘mandatory.’ The Attorney General agrees with this conclusion. Hence, the Notes were not included in the detailed assessment in any discussion of laws or legal requirements.

Section 1(a) of the Royal Court Order makes the Rules of Professional Conduct binding on Guernsey Advocates. Rule 23A of such Rules state that an Advocate “is under a duty at all times to observe the provisions of all Guernsey laws.” The Commentary on this rule refers to “guidelines - for example in respect of money laundering,” which refers to the Notes. Consideration should be given to amending relevant laws to include all activities of Advocates that would be covered by the amended European Union Anti-Money Laundering Directive, in addition to those activities covered under current Guernsey law.

The assessment was undertaken by John Farrell.

The assessment was undertaken by Neville Grant

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Guernsey-Crown Dependency of the United Kingdom: Assessment of the Supervision and Regulation of the Financial Sector Volume II—Detailed Assessment of Observance of Standards and Codes

Author:

International Monetary Fund

Volume/Issue:: Volume 2003: Issue 365

Publisher:: International Monetary Fund

ISBN:: 9781451814224

ISSN:: 1934-7685

Pages:: 194

DOI:: https://doi.org/10.5089/9781451814224.002

Keywords
I. Basel Core Principles for Effective Banking Supervision
- A. General
- B. Detailed Assessment
II. FATF Recommendations for Anti-money Laundering and Combating the Financing of Terrorism
- A. General
- B. Detailed Assessment
III. Insurance Core Principles
- A. General
- B. Detailed Assessment
IV. IOSCO Objectives and Principles of Securities Regulation
- A. General
- B. Detailed Assessment
V. Review Against the Ogbs Statement of Best Practice for Trust and Company Service Providers
- A. General
- B. Detailed Assessment

Table 16.

Detailed Assessment Against the OGBS Statement of Best Practice for Trust and Company Service Providers

Definition of Trust and Company Service Business
Principle 1.	The scope of trust and company service business should be adequately defined.
	1.1 The scope of activities subject to the requirements of a jurisdiction should cover at least the following (when provided in the course of business): Company service provider acting as company or partnership formation agent; acting as (or arranging for another to act as) a director or secretary of a company or a partner of a partnership; providing a registered office, business address or accommodation, correspondence or administrative address for a company, partnership or for any other person; acting as, or arranging for another to act as, a nominee shareholder or unit holder for another person. Trust service provider acting as (or arranging for another to act as) a trustee of an express trust.
Description	In Guernsey, company and trust service provider business is regarded as fiduciary business and is defined under the Fiduciary Law (s.2) as: the formation, management or administration of trusts, and the provision of advice in relation to the formation, management or administration of trusts, including: acting as corporate or individual trustee or protector for trusts; the provision to trusts of corporate or individual trustees or protectors; company or corporate administration including: the formation, management or administration of companies, partnerships or other unincorporated bodies, and the provision of advice in relation to the formation, management or administration of companies, partnerships or other unincorporated bodies, whether incorporated or established in or under the laws of the Bailiwick or elsewhere; the provision to any such companies, partnerships or other unincorporated bodies of: corporate or individual directors; individuals or companies to act as company or corporate secretary or in any other capacity as officer of a company, partnership or other unincorporated body other than a director; nominee services, including (without limitation) acting as or providing nominee shareholders; registered offices or accommodation addresses (the expression “address” in this subparagraph including any postal, telecommunication or electronic address); acting as director of any company or unincorporated body, or as partner of any partnership, whether incorporated, registered or established in or under the laws of the Bailiwick or elsewhere; the provision of executorship services including (without limitation) acting as, or accepting an appointment made by will as, an executor of a will or administrator of an estate. A significant number of persons are exempted from the licensing requirements, see explanatory note and exempted activities following principle 1.4 below.
Comments
	Additional Criteria 1.2 Many jurisdictions provide that companies must appoint a registered agent. It is desirable that in such jurisdictions acting as registered agent is incorporated within the definition of company service business.
Description	There is no such requirement in Guernsey. There is a requirement to have a registered office and the provision of that is regulated (see Fiduciaries Law s.2(1)(b)(ii).
	1.3 The trust law of many jurisdictions recognizes enforcers, protectors and custodians. It is desirable that the provision of these services is, as far as necessary, also covered by the definition of trust service business.
Description	This is covered in the Fiduciaries Law section 2(1)(a) “the formation, management or administration of trusts, and the provision of advice in relation to the formation, management or administration of trusts, including (without limitation): acting as corporate or individual trustee or protector for trusts; and the provision to trusts of corporate or individual trustees or protectors.
	1.4 It is also desirable for the definition of trust business to include the provision of trust management and administration services, insofar as those activities are not otherwise regulated.
Description	See response to principle 1.1 above.
	Explanatory note Countries and jurisdictions may provide for limited exceptions to the requirements set out in this Methodology in respect of CSPs that do not provide director or nominee shareholder services and that do not handle or manage client assets or funds. The exceptions could include lesser standards covering: the span of control covering the number of persons engaged in the business; the level of qualifications/experience of the persons engaged in the business; the capital/professional indemnity insurance requirements; and the audit requirements. Exempted activities The Fiduciary Law encompasses a very wide range of activities, and as a result there are a number of exemptions for activities where regulation is not appropriate or necessary. The following are not regulated activities (Fiduciaries Law s.3): acting as trustee or custodian of a collective investment scheme authorized by the GFSC under section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987; acting as a director of a company which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the company by the director (other than acting as director); acting as a director of a company which is quoted on a stock exchange recognized by the GFSC for the purposes of this paragraph; acting as a director of a company where more than half in nominal value of the equity share capital of that company is held by: the director, as beneficial owner; any close relative of the director, as beneficial owner; or the trustees of a trust of which a person mentioned in subparagraph (i) or (ii) is a beneficiary; acting as a director of a supervised company; acting as a director of a company which is a subsidiary of a company described in paragraphs (b), (c), (d) or (e); acting, where the person so acting is an individual, as a director of not more than six companies, being directorships which are not the subject of an exemption contained in any other paragraph of this subsection, except in any case where the GFSC does not apply the exemption contained in this paragraph in respect of any person on the grounds that, having regard to the criteria of Schedule 1, the GFSC is not satisfied that he is a fit and proper person to be or to become a director of a company; and, where the GFSC decides not to apply the exemption contained in this paragraph, it shall serve notice to that effect on the person concerned, giving particulars of the right of appeal set out in section 19; acting as bookkeeper or company secretary of a company which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the company by the person concerned (other than acting as bookkeeper or company secretary); acting as a partner of a partnership which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the partnership by the partner (other than acting as partner); acting as a partner of a partnership: which holds a license to carry on controlled investment business under section 4 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 or which is exempt from licensing under section 29 of that Law; or which holds an authorization under section 8 of that Law; acting as a limited partner in a limited partnership; acting as bookkeeper of a partnership which has an established place of business within the Bailiwick provided that no services consisting of or comprising a regulated activity are supplied to the partnership by the person concerned (other than acting as bookkeeper); the acceptance of money on terms under which the money: is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services and is repayable in the event of the property or services not in fact being sold, hired or otherwise provided; is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the nonperformance of a contract; or without prejudice to subparagraph (ii), is paid by way of security for the delivery up or return of any property, whether in a particular state of repair of otherwise; acting as guardian of a minor or person under legal disability where the appointment is made by, and where the discharge of the functions of guardian is subject to the supervision of, the Royal Court, the Court of Alderney or the Court of the Seneschal; acting as executor of the will of, or administrator of the estate of, a person who was resident or domiciled in the Bailiwick at the time of the execution of the will or at the time of death, provided that the person so acting is a lawyer; acting as trustee of testamentary trusts created by the will of a person who was resident or domiciled in the Bailiwick at the time of the execution of the will or at the time of death, provided that the person so acting is a lawyer; the provision of advice or the drafting of documents by a lawyer, accountant or actuary in the ordinary course of carrying on the profession of lawyer, accountant or (as the case may be) actuary; the incorporation of companies by an advocate and the drafting of minutes of meetings by a lawyer, accountant or actuary; the preparation and auditing of accounts; activities undertaken in the course of a profession or business: (i) which are undertaken without separate or additional remuneration (whether from the client concerned or from a third party); and (ii) which are incidental to the carrying on of that profession or business; provided that the person carrying on the profession or business does not hold himself out as undertaking those activities; the activities of the Ecclesiastical Court and Registrar thereof in relation to the granting of probate and letters of administration; the provision of accommodation addresses (within the meaning of section 2(1)(b)(ii)(D): by the States of Guernsey Telecommunications Board or the States of Guernsey Post Office Board (or any company succeeding to the undertaking of either of those Boards) or by an internet or telecommunications service provider; or where the address is provided solely for the service of process or the service of notice under a contract; any activity carried on under the authority of and in accordance with the conditions of a license, registration or authorization granted under any of the regulatory Laws; the following activities when carried on by a registered insurance intermediary within the meaning of section 49A of the Insurance Business (Guernsey) Law, 1986: the formation of, and the provision of advice in relation to the formation of, a retirement annuity scheme or retirement annuity trust scheme approved by the Administrator of Income Tax under the provisions of part XIII of the Income Tax (Guernsey) Law, 1975; or the formation of, and the provision of advice in relation to the formation of, a pension scheme or trust of a life assurance policy; any particular activity, transaction or appointment specifically exempted from the operation of section 2 by written instrument of the GFSC; and for the purposes of this paragraph: an application for such an exemption shall be made in such form and manner, and shall be accompanied by such information and documents, as the GFSC may require; the application shall be accompanied by such fee as may be prescribed by regulations under section 7; the application may be refused or granted subject to such conditions as the GFSC may consider necessary or expedient; the GFSC may at any time after receipt of the application require the applicant to furnish such additional information and documents as it considers necessary or desirable; and the exemption may be revoked or varied at any time by the GFSC by written notice to the person to whom it was granted.
Fit-and-Proper Criteria
Principle 2.	All countries/jurisdictions should require that those individuals holding key positions in a trust or company service provider (“key persons”) should be fit and proper.
Description	With regard to key persons the Fiduciary Law Section 6 by implication considers certain persons to be “key persons.” The Law provides that where the application is for a full fiduciary license, the GFSC must be satisfied that the criteria are satisfied by the applicant itself and in relation to anyone who is to be a director, controller, partner or manager. A controller includes: a managing director or chief executive of the applicant; a shareholder controller—someone who, alone or with associates, controls or is entitled to control the exercise of at least 15 percent of voting power at general meeting; or an indirect controller—someone in accordance with whose instructions the directors are accustomed to act. The minimum criteria for licensing are contained in Schedule 1 to the Fiduciary Law. These minimum criteria cover the following: integrity and skill; economic benefit to the Bailiwick (full fiduciary license holders); fit-and-proper persons; business to be directed by at least two individuals (full fiduciary license holders); and business to be conducted in prudent manner. The GFSC does not have the power to vary the standards applied in determining whether an applicant meets these criteria. However, the GFSC will determine whether any conditions should be attached to a license, for example restricting the activities the fiduciary can undertake. All applications are independently verified by the GFSC. The verification process involves a detailed review of the application, including a review of certain databases. Each controller, director and manager of the applicant is required to submit a personal questionnaire. This requires background information on the person, including experience, details of current and previous employment and any disciplinary action taken against them. It also contains a request for details of any membership/licensing by other regulators. Such references are taken up with these regulators. The GFSC also, where it considers it desirable on risk-based analysis to do so, conducts on-site visits to applicants before deciding whether to grant a license. This occurs in approximately one third of cases and involves verification of the information provided in the application on the applicant’s take-on and other procedures. A visit at this stage also allows the GFSC to probe the competence of the applicant or its staff. Those applicants who are licensed will all be subject to an on-site inspection program.
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	2.1 In assessing whether a key person is fit and proper, the country/jurisdiction should consider his: honesty, integrity and reputation; competence and capability; and financial soundness.
Description	This will require a consideration of all relevant matters including the specific criteria set out in principles 2.2, 2.3 and 2.4. The Fiduciary Law (Schedule 1) at subsections 3 (2) and 3 (3) is relevant. Subsection 3.2 states that in determining whether a person is fit and proper to hold a fiduciary license or a particular position, regard shall be had to: his probity, competence, experience and soundness of judgment for fulfilling the responsibilities of a licensed fiduciary or (as the case may be) of that position; the diligence with which he is fulfilling or likely to fulfill those responsibilities; whether the interests of clients of the applicant or licensed fiduciary are, or are likely to be, in any way threatened by his holding a fiduciary license or that position; his educational and professional qualifications, his membership of professional or other relevant bodies and any evidence of his continuing professional education or development; his knowledge and understanding of the legal and professional obligations to be assumed or undertaken; and his procedures for the vetting of clients and his record of compliance with any provision contained in or made under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991 or the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999. and Subsection (3) states that: Without prejudice to the generality of the foregoing provisions, regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has: committed any offense, and in particular any offense involving fraud or other dishonesty or violence; contravened any provision contained in or made under this Law, the regulatory Laws or any other enactment appearing to the GFSC to be designed for protecting members of the public against financial loss due to: dishonesty, incompetence or malpractice by persons concerned in the provision of regulated activities, banking, insurance, investment or other financial services; or the conduct of discharged or undischarged bankrupts or persons who are otherwise insolvent; engaged in any business practices appearing to the GFSC to be deceitful or oppressive or otherwise improper (whether unlawful or not) or which otherwise reflect discredit on his method of conducting business or his suitability to carry on regulated activities; engaged in or been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgment.
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	2.2 In the case of the person’s honesty, integrity and reputation, the following matters are relevant and should be considered: (a) any criminal offense of which he has been convicted or any criminal charges outstanding, particularly where the offense concerned is an offense of dishonesty or an offense relating to financial crime or committed under any financial services legislation.
Description	The Fiduciaries Law (Schedule 1 para. 3(3)(a) states that regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has (a) committed any offense, and in particular any offense involving fraud or other dishonesty or violence;
Comments	Although the Law does not mention criminal charges the GFSC does not believe that this prejudices the generality of fit and proper considerations. The GFSC notes that pending charges would raise questions of integrity, probity or soundness of judgment under para. 3(2)(a) of Schedule 1 of the Fiduciaries Law.
	(b) any adverse finding, settlement or fine in civil proceedings, particularly in connection with a company or a financial services business;
Description	The Fiduciary Law Schedule 1 para. 3(2)(c) requires the GFSC in assessing applicants for a license to consider the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has contravened any provision contained in or made under this Law, the regulatory Laws or any other enactment appearing to the GFSC to be designed for protecting members of the public against financial loss: (see response to principle 2.1 above-Fiduciary Law (Schedule 1, para. 3.3, b-d).
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	(c) any association, past or present, with a firm, company or other person that is or has been the subject of a regulatory investigation or disciplinary or enforcement proceedings;
Description	See response to principle 2.1 above—Fiduciary Law (Schedule 1) para. 3.3.d.
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	(d) any disciplinary, enforcement, disqualification or similar proceedings to which he has, or may be, subject or any professional or administrative reprimands;
Description	See response to principle 2.1 above—Fiduciary Law (Schedule 1) para. 3.3.d.
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	(e) any previous regulatory breaches committed by him or by a person with whom he is or has been associated and any complaints made against him; and
Description	Breaches of regulatory law by the individual are covered by Schedule 1 para. 3(3)(b). See also principle 2.2.b above. The GFSC noted that association with someone who has committed such breaches would be approached as in 2(c) and (d) above. Complaints against an applicant are covered by the Fiduciaries Law Schedule 1 para.5(9) (c) which provides that the GFSC shall have regard, in determining whether a person is to be regarded as conducting his business in a prudent manner, to the complaints history of the applicant or licensed fiduciary.
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	(f) whether he has been candid and truthful in his dealings with the Director and/or any other regulatory body.
Description	The Fiduciaries Law s.46 (1) creates an offense of providing misleading information in connection with a fiduciary license application. It states that: A person who:181 in connection with an application for a fiduciary license under this Law; in purported compliance with a requirement imposed by or under any provision of this Law or of any Ordinance, regulation or rule made under it; or otherwise than as mentioned in paragraph (a) or (b) but in circumstances in which he intends, or could reasonably be expected to know, that the statement, information or document provided by him would or might be used by the GFSC for the purpose of exercising its functions conferred by or under this Law: makes a statement which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; dishonestly or otherwise, recklessly makes a statement which is false, deceptive or misleading in a material particular; produces or furnishes or causes or permits to be produced or furnished any information or document which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; or dishonestly or otherwise, recklessly produces or furnishes or recklessly causes or permits to be produced or furnished any information or document which is false, deceptive or misleading in a material particular; is guilty of an offense. In addition, Section 46(2) states that: A licensed fiduciary which fails to provide the GFSC with any information in its possession knowing or having reasonable cause to believe: that the information is relevant to the exercise by the GFSC of its functions under this Law in relation to the licensed fiduciary; and that the withholding of the information is likely to result in the GFSC being misled as to any matter which is relevant to and of material significance to the exercise of those functions in relation to the licensed fiduciary, is guilty of an offense.
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	2.3 In the case of the person’s competence and ability, the following matters are relevant and should be considered: (a) the extent of that person’s relevant experience; and (b) where the person is an individual, his or her knowledge and professional and other relevant qualifications.
Description	The Fiduciaries Law, Schedule 1 para. 3(2) refers to competence and experience. It states that in determining whether a person is a fit and proper person to hold a fiduciary license or a particular position, regard shall be had to his probity, competence, experience and soundness of judgment for fulfilling the responsibilities of a licensed fiduciary or (as the case may be) of that position; and paragraph 3(2)(d) refers to educational and professional qualifications membership of professional or other relevant bodies and any evidence of continuing professional education or development.
Comments
	2.4 In the case of a person’s financial soundness, the following matters are relevant and should be considered: (a) any insolvency proceedings that have been instituted against the person;
Description	The GFSC does request this information on its application form…
Comments	The GFSC stated that it looks at resources under Fiduciaries Law, Schedule 1, para. 5 and would become concerned about any relevant matter. In addition, question 27 of the PQ asks for confirmation that there was no pending winding up application or any receivership or composition with creditors.
	(b) where the person is an individual, any adverse credit rating.
Description	The GFSC do not routinely make credit ratings enquiries.
Comments	The GFSC stated that it would refuse an applicant on resources grounds using the prudent business criteria under the Fiduciaries Law, Schedule 1, para. 5.
	Additional criteria 2.5 It is also desirable for jurisdictions to require that those persons who hold an interest in a service provider, whether legal or beneficial, should be fit and proper applying the criteria set out in paragraphs 2.1 to 2.4 above, with suitable modifications where the person is a corporate body.
Description	The GFSC considers this as essential because someone who is not fit and proper could otherwise control a licensee. The application forms for a full fiduciary license require information on the directors, partners and managers and on beneficial ownership/control. All such persons are required to submit a detailed personal questionnaire. (Fiduciaries Law, Schedule 1). The Fiduciaries Law s. 14 also provides the GFSC with the power to object to transfers of control of a service provider. It. requires a person to notify the GFSC in writing of his intention to become a controller (or partner in a service provider which is a partnership). In the case of a company, a controller is someone holding at least 15 percent of a company’s shares. The GFSC requires that all such persons complete a personal questionnaire detailing their experience and background. Following such notification the GFSC may require the person to furnish additional information or documents in order to enable the GFSC to decide whether or not to serve a notice of objection. The criterion used in determining whether to issue a notice of objection is whether the GFSC is satisfied that: the person is fit and proper; the interests of the clients of the service provider would not be threatened by that person becoming a controller; and the minimum criteria for licensing of the service provider will continue to be met. Section 22 of the Fiduciary Law requires that anyone becoming a significant shareholder (i.e., holding between 5 percent and 15 percent) notify the GFSC within 14 days of becoming so.
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Conduct of Business
Principle 3.	All countries/jurisdictions should require that those providing the service of trust or company service provider exhibit evidence that their business will be or is being conducted in accordance with the proper corporate governance, customer due diligence, conduct of client business, financial soundness, and systems and controls requirements.
	Corporate Governance 3.1 Trust and company service providers should comply with recognized standards of corporate governance in respect of both the business itself and clients’ corporate vehicles, trusts and other legal entities.
Description	The application forms for a full fiduciary license require information on a number of areas regarding the strategic and operating plan of an applicant. This includes succession and disaster recovery plans, as well as plans for staff training and development. The GFSC pays close attention to the question of whether the applicant complies with the requirement for “four eyes” and considers the relative experience and ownership interests of the persons put forward as fulfilling that test. Where the GFSC is not convinced that there are “four eyes,” it has refused to license an applicant until additional executive personnel are taken on at a suitable level. Where the GFSC is dissatisfied with any response or where it has decided to undertake an on-site visit, it asks additional questions, including questions covering the operation of the applicant. The GFSC examines procedures, controls and reporting lines as part of on-site visits with respect to fiduciary business and with respect to administered trusts and companies with particular reference to the director or trustee applying its own judgment to the issues.
Comments	There are still a number of fiduciaries operating under the “transitional provisions” of the law. These companies and individuals are fully covered by the supervisory and enforcement provisions of the legislation, but some have not yet been licensed because the GFSC is not fully satisfied that they meet all of the licensing criteria. The GFSC believes that it is making every effort to complete the process as effectively and efficiently as possible consistent with the need for decisions to be based on a detailed consideration of each individual application that must involve proper respect for due process. It has set up a Shadow Financial Services Tribunal and within the next few months, the licensing process will be substantially complete. If the transitional process is not complete within the next few months, the mission would be concerned about the risks to the reputation of the jurisdiction and would recommend in those circumstances the setting of a cut-off date for completion of the licensing process.
	3.2 Trust and company service providers should comply with the FATF Recommendations concerning money laundering and the financing of terrorism.
Description	Service providers are subject to the Bailiwick’s anti-money laundering provisions contained in the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002, the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism issued under those Regulations and the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002. These have been supplemented by the Position Paper on Overriding Principles for a Revised Know Your Customer Framework. Suspicious transactions must be reported to the Financial Intelligence Service (FIS) and also to the GFSC where they might cause regulatory concern, for example if the institution’s systems failed to detect a relevant matter or there is a serious reputational risk to Guernsey or the institution. The application forms for a fiduciary license require a full account of the applicant’s procedures for complying with the anti-money laundering requirements to which it is subject and in many cases, copies of procedures manuals are obtained and reviewed before the licensing decision is made. Noncompliance with the law or a regulation is a criminal offense. Furthermore such a failure may result in disciplinary action by the GFSC (including the revocation of a license). A breach of the Guidance Notes, whilst not a criminal offense may also be grounds for regulatory action. The GFSC has obtained and reviewed procedures for the prevention of money laundering and countering the financing of terrorism from applicants for licenses. Examination of the adequacy of those procedures and how they are followed in practice is one of the areas reviewed during on-site inspections.
Comments	See also AML/CFT assessment in this report.
	3.3 Trust and company service providers should comply with any relevant financial regulatory standards.
Description	The Fiduciaries Law s.29, gives the GFSC the authority to make rules prescribing the form in which a licensed fiduciary’s accounts and the auditors reports on those accounts are to be, and the information and particulars contained in them, and the times or intervals at which they are to be drawn up and furnished.
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	3.4 Trust and company service providers should comply with all relevant domestic statutory obligations, for example the legislation governing the formation and administration of companies.
Description	On-site visits review these issues.
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	3.5 Trust and company service providers should comply with recognized standards in respect of the responsibilities of directors and trustees.
Description	The GFSC has published a Code of Practice for Company Directors under the Fiduciaries Law, s.35. The Code states that directors should understand and act in accordance with their legal duties and requires them to act in good faith and in the best interests of the company. Separate Codes of Practice have also been issued for Trust Service Providers and Corporate Service Providers.
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	Additional criteria 3.6 Trust and company service providers should have adequate internal controls that provide at least four eyes control.
Description	This is a statutory criterion for full licensees. In the case of a full fiduciary license, at least two individuals, resident in the Bailiwick and of appropriate standing and experience, shall effectively direct the business of the licensed fiduciary. (the Fiduciaries Law, schedule 1 para.). In applying this test the GFSC considers the independence of senior management and, where necessary, requires additional appointments to be made before a license is granted. As part of its on-site inspections, the GFSC reviews the institution’s compliance with its legal obligations and the GFSC’s Codes of Practice and the adequacy of its internal review systems. Reporting lines and business controls are also considered during on-site inspections.
Comments
	Customer due diligence 3.7 Trust and company service providers should be required to satisfy standards equivalent to those set out in the Basel Committee’s CDD Paper, published in October 2001, to the extent that the recommendations in that paper are relevant to nonbanks.
Description	Applicants and licensees must satisfy the requirements of the GFSC’s Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism.
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	3.8 Customer due diligence procedures should cover the following: (a) customer identification; (b) verification of identity of customer; (c) risk profile (e.g., politically exposed persons); (d) source of wealth; (e) source of funds; and (f) ongoing monitoring.
Description	In this report, these issues are covered in the AML/CFT review. The money-laundering Guidance Notes cover these matters.
Comments
	Conduct of client business 3.9 Trust and company service providers should be required to have systems and procedures in place for the conduct of client business covering: (a) the identification and segregation of clients’ assets from the assets of the business;
Description	TSP Code of Practice para. 4 states that: TSPs should treat the interests of beneficiaries as paramount subject to their legal obligations to other persons or bodies. In particular, TSPs should: invest, distribute or otherwise manage each trust’s assets in accordance with the law and the trust deed; manage the investment and custody of trust assets professionally and responsibly; maintain confidentiality except where disclosure of information is required or permitted by an applicable law or by guidance published by the GFSC, or authorized by the person(s) to whom the duty of confidentiality is owed; provide promptly to clients information to which they are entitled about a trust; ensure that the funds of different trusts are kept separately from each other and from the TSP’s own funds; agree a clear fee structure in advance of taking an appointment and charge fees in accordance with that and in a fair and transparent manner; notify clients that the TSP is licensed by the GFSC; avoid setting up or participating in discretionary trusts where the trustees merely carry out the settler’s instructions and exercise no significant discretion; and deal in a timely manner and in the best interests of the beneficiaries with any transfer to other trustees. The CSP Code of Practice, para. 6 states that: A CSP should, through its staff: identify and act in each client company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or a client company; keep the funds of each client company separate from each other and from the CSP’s own funds. The GFSC monitors compliance with these requirements during on-site visits. The GFSC states that any inadequacy of systems can be tied to the general licensing criterion in the Fiduciaries Law Schedule 1, that require adequate accounting and other records and adequate systems of control. In addition, the external auditors are required to identify any clients’ assets that were not being segregated from each other or from those of the licensee and report the matter to the GFSC.
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	(b) the effective handling of clients’ assets, which should include both safe custody and proper management procedures;
Description	See response to principle 3.9.a above.
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	(c) the maintenance of adequate and orderly accounting records of clients’ affairs;
Description	See response to principle 3.9.a above. In addition, the Guernsey Society of Certified and Chartered Accountants’ Guidance Note, with which licensees’ auditors have to comply, requires them to “make preliminary assessment of control risk by reviewing client administration controls” that include client accounting.
	(d) the maintenance of adequate client documentation (e.g. trust deeds);
Description	See response to principle 3.9.a and 3.9.c above. These are examined during on-site visits.
	(e) the appropriate authorization and handling of all transactions and decisions by persons with the knowledge, experience and status required to effect such transactions or make the required decisions according to the nature and status of the transactions/decisions involved.
Description	This is reviewed during on-site reviews as part of client assets questions
Comments
	Explanatory note Examples of the type of issue raised by paragraph (e) are set out below: where discretion is exercised for or in relation to clients, all reasonable steps should be taken to obtain sufficient information in order to exercise that discretion or other powers in a proper manner and such discretion should only be exercised for a proper purpose; any actual or perceived conflict of interest should be avoided or, where conflicts arise, such conflicts should be covered by disclosure, internal rules of confidentiality, rules on when or when not to act, or otherwise as appropriate; all business (including the establishing, transferring or closing of business relationships with its customers) should be transacted in an expeditious manner. The GFSC’s comments Re adequacy of information, see principle 3.4 above; Re conflicts of interest, the Code of Practice for CSP’s requires licensees to “identify and act in each company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or client company (para. 6). The equivalent obligation relating to trusts can be found in para. 5 of The TSP Code; Re transacting business in an expeditious manner. This would be covered under general competence criterion if there were unacceptable delays or under adequacy of systems if the delay arose from a failure of the licensee’s systems.
	Financial soundness 3.10 Trust and company service providers should be required to: (a) maintain adequate and orderly accounting records of their business and their clients’ affairs;
Description	The Fiduciary Law, Schedule 1, para. 5(6) states that in relation to both own business and clients’ affairs, a person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain adequate accounting and other records of his business and adequate systems of control of his business and records. Auditors would also pick up any lack of either type of accounting records during their audit.
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	(b) maintain adequate financial resources including adequate paid up capital and adequate liquid capital to enable the business to continue and to enable clients’ affairs to be managed properly for an appropriate period;
Description	The Fiduciaries Law Schedule 1, para. 5(2) states that “A person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain a capital base and insurance cover: of an amount commensurate with the nature and scale of his operations; of an amount and nature sufficient to safeguard the interests of his clients and any other factors appearing to the GFSC to be relevant. For trust companies the GFSC requires paid up share capital of at least £25,000 and there is a three months’ expenditure test. Post-licensing the GFSC monitors capital on an annual basis through the submission of annual accounts. The GFSC believes that it is effectively able to impose whatever level of capital and resources are considered appropriate under the law.”
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	(c) comply with any relevant financial regulatory standards and international accounting standards;
Description	In relation to accounting standards, the audit must be conducted in accordance with Auditing standards issued by the Auditing Practice Board and the financial statements must be prepared in accordance with U.K., U.S. or International Accounting Standards, unless the GFSC agrees to accept another standard. The GFSC informed the mission that so far it has not agreed to any other standard.
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	(d) maintain adequate professional indemnity insurance cover.
Description	The Fiduciaries Law, Schedule 1, para. 5, imposes a statutory requirement for all licensees to have adequate cover for their activities. It states that: A person shall not be regarded as conducting his business in a prudent manner unless he maintains or, as the case may be, will maintain a capital base and insurance cover: of an amount commensurate with the nature and scale of his operations; and of an amount and nature sufficient to safeguard the interests of his clients and any other factors appearing to the GFSC to be relevant. The GFSC noted that it has generally required full licensees to have cover of greater of £1million and three times turnover, and personal licensees £1million or, where small-scale activities only, £500,000.
Comment
	Systems and procedures 3.11 Trust and company service providers should be required to: (a) have in place effective compliance functions which include the designation or appointment of an appropriately skilled and experienced person as compliance officer;
Description	There is at present no requirement in the law for such an appointment. The GFSC noted, however, that in practice most Money Laundering Reporting Officers, a post which must exist, act as compliance officer. In addition, compliance with regulatory and other legal requirements is the responsibility of the Board and the designation of an individual at director or other level would not affect the current situation. In summary, the functions are being covered under current legislation.
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	(b) have in place effective reporting requirements which include the designation or appointment of an appropriately skilled and experienced person as an anti-money laundering reporting officer
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002, require the appointment of MLRO. While there is no explicit requirement on experience, the GFSC noted that it would comment if it thought that a MLRO was not sufficiently experienced for the job.
Comments
	(c) have in place an effective complaints handling system which should include the maintenance of a record of complaints and the actions taken to resolve them;
Description	The Code of Practice requires licensees to record, investigate and, as appropriate, act on complaints. The Code of Practice for TSPs states that: TSPs should, through their staff, record; investigate; and, as appropriate, act on complaints (para. 5). The Code of Practice for CSP, similarly states that: CSP’s should, through their staff, record; investigate; and, as appropriate, act on complaints (para. 6). The GFSC noted that through on-site visits, it reviews these records.
Comments
	(d) maintain adequate, orderly and up to date records of all business transactions and instructions at an appropriate location in the jurisdiction, including: accounting records of the business; accounting records of clients’ affairs; records of the internal organization and risk management systems; client documentation (e.g. client requirements).
Description	With respect to accounting records—See the response to Principle 3.10(a) above. The business records would include records of meetings and other communications with settlors/beneficiaries/beneficial owners. The GFSC noted that it expects to see such communications on files during visits and has had occasion during visits to report on inadequate records.
Comments
	3.12 Trust and company service providers should be required to retain records for a period appropriate to the business and in line with relevant legal obligations.
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002 imposes a six-year period. During on-site inspections the GFSC questions licensees about these matters.
Comment
	3.13 Trust and company service providers should be required to maintain a manual of appropriate policies and procedures; including business take on procedures, and documenting systems and procedures intended to safeguard the business and clients’ assets and ensure that only authorized and proper transactions are undertaken.
Description	The Fiduciaries Law, Schedule 1, para. 5(6) requires the licensee to maintain adequate accounting and other records of his business and adequate systems of control of his business and records. The GFSC noted that it reviews procedures before visits and compliance with them during on-site visits.
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	3.14 Trust and company service providers should be required to ensure: (a) that they have an adequate span of control with a sufficient number of appropriately skilled and experienced persons able to exercise independent judgment; and
Description	The Fiduciaries Law, Schedule 1, para. 4, states that at least two individuals of appropriate standing and experience shall effectively direct the business of the licensed fiduciary.
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	(b) that those engaged in the business have a minimum relevant experience and qualifications.
Description	In addition to the requirement under 3.14.a, the GFSC must be satisfied that the directors and managers are sufficiently experienced and qualified (the Fiduciaries Law, Schedule 1, paras. 3(2)(a) and (b). The GFSC noted that the levels of experience are factored into its risk-profiling for post licensing visits.
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	Explanatory Note Exceptions may apply to this criterion in respect of sole practitioners where, for example, an individual trustee function is controlled by the court.
	3.15 Trust and company service providers should be required to ensure that professional development requirements are satisfactorily met.
Description	The GFSC believes that this is the responsibility of professional and industry associations.
Comments
	3.16 Trust and company service providers should be required to ensure that their officers and staff have a full understanding of the duties arising under the laws relevant to the affairs of client corporate vehicles, trust and other legal entities for which they are acting in the jurisdictions in which they are carrying on business and in which the assets being handled/managed are held.
Description	See the response to Principle 3.14 above. In addition, the Fiduciaries Law, para. 3(2) requires the GFSC to take account of the individual’s knowledge and understanding of the legal and professional obligations to be assumed or undertaken.
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Holding and Sharing of Information
Principle 4.	All countries/jurisdictions should ensure that there is proper provision for the holding, having access to and sharing of information.
	4.1 Information on the ultimate beneficial owner and/or controllers of corporate vehicles, and the trustees, settler, protector/beneficiaries of trusts should be known to the service provider.
Description	The money laundering Guidance Notes require licensees to keep this information.
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	4.2 Any changes of client control/ownership should be promptly monitored, particularly where a service provider is administering a corporate vehicle in the form of a “shelf company or where bearer shares or nominee share holdings are involved.
Description	The Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism, para. 39 would require the service provider to verify the identity of a new beneficial owner.
Comments
	4.3 There should be an adequate, effective and appropriate mechanism in place for information to be made available to all the relevant authorities.
Description	The Fiduciaries Law s.23 enables the GFSC to obtain information and documents. The Fiduciary Law s.43 sets out the confidentiality provisions relating to information within the GFSC’s possession. It states that: no person who under or for the purposes of this Law receives information relating to the business or other affairs of any person; no person who obtains any such information directly or indirectly from a person who has so received it; shall disclose the information without the consent of the person to whom it relates and (if different) the person from whom it was so obtained; and a person who discloses information in contravention of this section is guilty of an offense. The Fiduciary Law s.44 provides gateways for onward transmission to other regulators, investigating and prosecuting authorities (see Principle 4.4 below).
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	4.4 There should be no barrier to the appropriate flow of information.
Description	There is no particular barrier, for example, no requirement for the Attorney General’s consent before disclosure to the GFSC. (There is in section 44(1) a requirement for AG’s consent in very limited circumstances where information has gone from the GFSC to the Police and the Police want to disclose for investigation and prosecution outside Guernsey.) The Fiduciary Law s.44 specifies the cases where disclosure is permitted. These include: information which at the time of disclosure is or has already been made available to the public from other sources; information in the form of a summary or collection of information so framed as not to enable information relating to any particular person to be ascertained from it; the disclosure of information for the purpose of enabling or assisting the GFSC to discharge its functions conferred by or under this Law; information by the GFSC to the auditor of a licensed fiduciary or former licensed fiduciary if it appears to the GFSC that the disclosure would enable or assist the GFSC to discharge its functions conferred by or under this Law or would otherwise be in the interest of the public; where, in order to enable or assist it to discharge its functions conferred by or under the Law, the GFSC considers it necessary to seek advice from a qualified person on any matter of law, accountancy or valuation or any other matter requiring the exercise of professional skill, the disclosure by the GFSC to that person of such information as appears to the GFSC to be necessary to ensure that he is properly informed as to the matters on which his advice is sought; information in the interests of clients or the public interest; information for the purpose of enabling or assisting a relevant supervisory authority in a place outside the Bailiwick to exercise its functions; the disclosure of information for the purposes of the investigation, prevention or detection of crime or with a view to the instigation of or otherwise for the purposes of any criminal proceedings; the disclosure of information to a person or body responsible for a scheme for compensating clients or investors (whether in the Bailiwick or elsewhere): if it appears to the GFSC that the disclosure would enable or assist the recipient of the information or the GFSC to discharge its functions; and if the recipient has given to the GFSC a written undertaking that the information will not be further disclosed without the prior consent of the GFSC.
Comments
	4.5 Information regarding the clients of the service provider should be kept in the jurisdiction in which the service provider is located.
Description	The Criminal Justice (Proceeds of Crime) Regulations, 2002 (Regulation 5) require licensees to retain customer documents and customer verification documents “in a manner that makes their retrieval readily practicable.” In addition, the requirement under the Fiduciary Law, Schedule 1, para. 5(6), to keep adequate records and have adequate systems of control is relevant.
Comments
	4.6 There should be no legal barrier to the flow of information or documentation necessary for the recipient of business from a provider who is an acceptable introducer to satisfy itself that adequate customer due diligence has been undertaken in accordance with the arrangements set out in the Basel customer due diligence paper.
Description	The GFSC noted that it does not prevent financial services businesses in the Bailiwick from supplying verification documents to other jurisdictions.
Comments
Audit and Compliance Reviews
Principle 5.	All countries/jurisdictions should require proper provision to be made for audits and compliance reviews.
	5.1 External auditors with relevant experience and appropriate track record should be appointed to carry out a full audit of the trust and company service providers’ businesses in accordance with international standards.
Description	The Regulation of Fiduciaries (Accounts) Rules, 2001, para. 10.1, requires: a person shall provide to the GFSC financial statements for each accounting period at any time during which it held a full fiduciary license; the statements shall be provided to the GFSC within four months of the end of the accounting period to which they relate; the financial statements shall be accompanied by: an auditor’s report on the financial statements; any report prepared by an internal or external auditor which is available to the licensed fiduciary and addresses a relevant matter; and brief details of any report prepared by an accountant or consultant, which is available to the licensed, fiduciary and addresses a relevant matter (relevant matter means a breakdown or material weakness in a licensed fiduciary’s internal control procedures);. a licensed fiduciary shall forthwith provide to the GFSC a copy of any management letter received from his external auditor. The Fiduciary Law s.58 defines an auditor as one approved by the GFSC. The GFSC only approves auditors who confirm that they will perform audits of fiduciary licensees in accordance with the GSCCA Guidance Notes on the audit of fiduciaries. The Guidance Notes require the auditor to review client files and to form a view on risks facing the licensee. In addition, the Companies Law s.63(1) states that: “A person is not qualified for appointment as an auditor unless he is (a) a member of (i) the Institute of Chartered Accountants in England and Wales, of Scotland or in Ireland; (ii) the Chartered Association of certified Accountants; or (b) for the time being authorized by the Committee to audit the accounts of companies as having similar qualifications obtained outside the United Kingdom.” It goes on to state that: “The audit must be conducted in accordance with Auditing Standards issued by the Auditing Practices Board and the financial statements must be prepared in accordance with U.K., U.S., or International Accounting standards, unless the GFSC agrees to a different standard.”
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	5.2 External auditors should have the statutory authority and protection necessary to report to the competent authorities any breaches of relevant legislation or other material concerns.
Description	Auditors are protected by Section 31, which provides that communications of information relevant to the GFSC’s functions do not constitute a breach of any duty by the auditor. This is the case whether or not the communication is in response to a request from the GFSC. The Fiduciaries Law s.31 states that: “No duty to which an auditor of a licensed fiduciary is subject is contravened by reason of his communicating in good faith to the GFSC, whether or not in response to a request made by it, any information or opinion on a matter relevant to any function of the GFSC. The section applies to any matter of which he becomes aware in his capacity as auditor and which relates to the business or affairs of the licensed fiduciary.” The protection also applies to the auditor of a former licensed fiduciary as it applies in relation to the auditor of a licensed fiduciary.
Comments
	5.3 Adequate procedures should be implemented to ensure that regular independent reviews are conducted of compliance with the Statement.
Description	The GFSC reviews compliance during on-site visits.
Comments
Cessation of Business and Misleading Statements
Principle 6.	All countries/jurisdictions should have proper provisions for the ceasing of business and for prohibiting misleading statements.
	6.1 The interests of customer/clients should be able to be adequately safeguarded when the service provider is no longer able to carry on the business for any reason.
Description	This is currently not covered. However, legislation introducing the Office of Public Trustee has been agreed by Guernsey, Alderney, and Sark legislatures and sent to the Privy Council in the week of November 4, 2002 for the Royal Sanction.
Comments
	6.2 All countries/jurisdictions should ensure that trust and company service providers do not provide false or misleading information (including advertisements
Description	The Fiduciary Law s.20 gives the GFSC the power to make regulations on fiduciary advertisements. It states that the regulations that have been made (The Regulation of Fiduciaries (Fiduciary Advertisements and Annual Returns) Regulations, 2001) prohibit personal fiduciary licensees from advertising but do not impinge on advertising by holders of full licenses. However, even without such regulations, the GFSC can under Section 20(7) give a direction prohibiting a fiduciary advertisement or requiring its modification. The GFSC may make regulations in respect of the issue, form, and content of fiduciary advertisements and may prohibit the issue of advertisements of any description (whether by reference to their contents, to the persons by whom they are issued or otherwise); make provision as to the matters which must or which may not be included in fiduciary advertisements; provide for exemptions from any prohibition or requirement imposed by the regulations. A person who issues or causes to be issued, in or from within the Bailiwick or (in the case of a Bailiwick company) in or from within any place whatsoever, an advertisement the issue of which is prohibited by regulations under this section or which otherwise contravenes any provision of such regulations is guilty of an offense. In addition to the annual return, the service provider is required, pursuant to section 46(2), to provide the GFSC with any information in its possession that is relevant to the GFSC in the exercise of its powers. Failure to do so is an offense. In furtherance of this, the Codes of Practice for Trust Service Providers and Corporate Service Providers set out the events about which the GFSC would expect to be notified. These include the commencement of proceedings against the service provider in any country and serious or prolonged breakdown of the service provider’s administrative systems. The guidance that accompanies the Code confirms that the list in the Code is not exhaustive but rather indicative of the type of events of which the GFSC would expect to be notified. The GFSC reviews whether on-site inspections reveal that any matter, such as a complaint, should have been but has not been notified to the GFSC. Section above sets out the other requirements in the Fiduciary Law for notification to or approval by the GFSC.
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Topics

Countries

Series

About

Resources

Abstract

I. Basel Core Principles for Effective Banking Supervision

A. General

Information and methodology used for assessment

Institutional and macroprudential setting, market structure overview

General preconditions for effective banking supervision

B. Detailed Assessment

Recommended actions and authorities’ response to the assessment

Recommended actions

Authorities’ Response to the Recommended Action Plan to Improve Compliance with the Basel Core Principles

Overview

II. FATF Recommendations for Anti-money Laundering and Combating the Financing of Terrorism

A. General

Information and methodology used for the assessment

Overview of measures to prevent money laundering and terrorism financing

Legal and Institutional Framework

Implementation of the Legal and Institutional Framework, and Financial Sector-specific Issues

B. Detailed Assessment

Assessing criminal justice measures and international cooperation

Assessing preventive measures for financial institutions

Description of the Controls and Monitoring of Cash and Cross-Border Transactions

Ratings of Compliance with FATF Recommendations, Summary of Effectiveness of AML/CFT efforts, Recommended Action Plan and Authorities’ Response to the Assessment

Authorities’ Response to the Recommended Action Plan to Improve Compliance with the FATF Recommendations

Overview

Criminalization of ML and FT

Confiscation of Proceeds of Crime or Property Used to Finance Terrorism

The FIU and Processes for Receiving, Analysing, and Disseminating Financial Information and Other Intelligence at the Domestic and International Levels

Law Enforcement and Prosecution Authorities, Powers and Duties

General Framework

Customer Identification

Ongoing Monitoring of Accounts and Transactions

Record Keeping

Suspicious Transactions Reporting

Internal Controls, Compliance and Audit

Integrity Standards

Enforcement Powers and Sanctions

Banking Sector based on Sector-Specific Criteria III – On-going Monitoring of Accounts and Transactions

Banking Sector based on Sector-Specific Criteria IV – Record Keeping

Securities Sector based on Sector-Specific Criteria VIII – Enforcement Powers and Sanctions

III. Insurance Core Principles

A. General

Information and methodology used for assessment

Institutional and macroprudential setting—overview

Markets

General preconditions for effective insurance supervision

B. Detailed Assessment

Authorities’ Response to the Recommended Action Plan to Improve Observance of IAIS Core Principles

Overview

Organisation (ICP 1)

Prudential Rules (ICP 8)

Imposition of Penalties (ICP 14)

IV. IOSCO Objectives and Principles of Securities Regulation

A. General

Information and methodology used for assessment

Institutional and macroprudential setting, market structure

General preconditions for effective securities regulation

B. Detailed Assessment

Authorities’ Response to the Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Overview

Principles Relating to the Regulator (Principle 1)

Principles Relating to the Regulator (Principle 2)

Principles for the Enforcement of Securities Regulation (Principle 8)

Principles for Issuers (Principle 16)

Principles for Market Intermediaries (Principle 24)

Principles for Secondary Market (Principles 29)

V. Review Against the Ogbs Statement of Best Practice for Trust and Company Service Providers

A. General

Methodology

Additional issues

B. Detailed Assessment

Authorities’ Response to the Review against the OGBS Statement of Best Practice for Trust and Company Service Providers.

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Asian Development Bank