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We asked, You said, We did

Here are some of the issues we have consulted on and their outcomes.

We asked

On the 21st April 2021 the Commission published a Consultation Paper on its proposal to consider the status of its Statutory Instruments as a consequence of the Revision of Laws project.  All were reviewed to ensure that the regulatory framework continues to function correctly following the implementation of the new laws.

The paper proposed that several Statutory Instruments would be revoked, as a consequence of no longer being in use, and that the remaining would either be re-issued in an updated format or considered at a later date.  It invited comments both on the proposals and on the accompanying drafts of the proposed re-issued regulations and rules.

The consultation period ran for 8 weeks and closed on the 17th June 2021.

You said

There were 12 responses, via the Consultation Hub and five further submissions made, directly to the Commission, after the consultation period had closed.

Feedback and comments were received from all industry sectors; either from Firms themselves or via their industry bodies.  The Commission also received feedback from service providers and other official bodies.

The message from the majority of respondents was positive and supportive of the Commission’s approach to ‘cleaning up’ the statutory instruments, by revoking and archiving those no longer in use, and updating those remaining to ensure they are all drafted in a similar format and in plain English.

The proposal to archive those Statutory Instruments no longer in operation was welcomed and the Commission recognises the importance of archiving these in such a way that they can be easily found for future reference.

We did

POINTS SPECIFIC TO CERTAIN RULES

The Collective Investment Schemes (Qualifying Professional Investor Funds)(Class Q) Rules

At rule 7.2(2) the requirement is for confirmation to be provided and it was requested that this drafting should be reflected throughout these Rules – replacing the requirement for a ‘certificate’ with the requirement for ‘confirmation’ at each point it occurs. 

The drafting of rule 7.2(2) reflects current practice and, on further consideration, the Commission did not feel that this applies to other parts of these Rules.  This amendment would make changes to the regulatory framework that are outside the scope of this Consultation Paper and it is not proposed that these changes are made at this point.

The Licensees (Capital Adequacy) Rules

Rule 2.1(1)(c) had lost its meaning due to formatting issues and this has been redrafted.

The definition of “audited financial statements” had been reinserted.

The Authorised Collective Investment Schemes (Class B) Rules

A question was raised over the redrafting of the guidance to rule 1.1.  This guidance was very lengthy, in the previous rules, and has been edited to ensure that it is clear.  After consideration of the comments the Commission considers the guidance to cover everything that needs to be explicitly set out.  The Commission would not typically expect a designated administrator to be responsible for investment management decisions where an investment manager is appointed but it was not felt that this needed to be explicitly stated in this section of guidance.

Rule 2.1 has been re-drafted and the fact that a scheme can be a company is included in the guidance.

As per the previous comments under The Class Q Rules, the Commission has considered the change from ‘certificate’ to ‘confirmation’ at rule 2.8(2) (now rule 2.9(2)) but has decided that this will remain as drafted.

Rule 2.16(5), in the current set of Rules, had been omitted from the draft.  This was a drafting error and the rule has now been reinserted.

The wording in rules 4.6(2) and 4.7(1) has been redrafted to ensure consistency.

The definition of ‘remuneration’ has been removed.

The Licensees (Conduct of Business) Rules

The rules and guidance have been drafted to reflect the current versions and, as such, the Commission do not feel that it is appropriate to add further guidance at this stage.

Guidance under rule 2.1 has been redrafted to harmonise with the other redrafted rules.

The Registered Collective Investment Scheme Rules

The addition of the requirement for the declaration of registration to name the designated custodian and the designated administrator have been included, as in other draft rules, to reflect the fact that this was previously set out in the enabling law and has now moved down to the level of the rules.

The Prospectus Rules

The drafting of rule 5.1 has been changed to reflect the more constricted drafting set out in the current rules.

For clarification, the ‘Red Herring’ rule can be found at rule 1.1(5)(d).

Insurance Business Rules

There were a number of requests, in the feedback to these draft rules, to insert further guidance and to alter the scope of a number of rules.  These requests are beyond the scope of this Consultation Paper and will not be addressed at this stage.

 

GENERAL POINTS ACROSS THE RULES

Definitions have been omitted where they can be found in the enabling Law.  In certain cases specific definitions have been reinserted where they bring clarity to the provisions.

Formatting and typographical errors, throughout the drafts, have been looked at and corrected where necessary.

A comment was received with regards to the replacement of the word ‘shall’ with the word ‘must’ throughout the Statutory Instruments.  This comment has been considered and it has been decided that the replacement is appropriate throughout. 

It was suggested that any referral to ‘notice of meetings’, throughout the Statutory Instruments, should be redrafted to bring into line with the amendments made to The Companies Law, 2008 in 2020.  This has been incorporated.

The change to ‘designated administrator’ across the relevant fund rules, has been introduced due to the addition, in the enabling laws, of the definition of this term and the way in which it is used across the laws.  This change ensures that the regulatory framework continues to operate effectively.  The notification requirement, which has been introduced across the rules, is considered to be no different to the current position whereby a change in designated administrator cannot take place until the Commission has confirmed the designation of the new administrator and, as such, no new forms are proposed at this stage.

Savings provisions, ensuring that modifications and exclusions granted by the Commission under the current framework continue to apply, have been inserted.

The Commission has published the updated regulations and rules, incorporating minor amendments which have been made in line with the comments received.

These Statutory Instruments will come into effect at the same time as the laws come into force.  Savings provisions have been inserted, into all the drafts, to ensure that the current status of firms and funds is maintained.  As these statutory instruments do not incorporate any policy changes, or changes to the way in which licensees are required to operate, there is no requirement for a transitional period.  

Some feedback received proposed further changes to the underlying regulatory framework.  The Consultation Paper clearly set out the parameters of this exercise and stated:

“The regulations and rules, under which financial services businesses are regulated, are not changing substantially.  The substance and meaning of the Statutory Instruments, and the way in which they operate, is intended to remain the same.  It has, however, provided an opportunity to update the language used, making it consistent with the New and Amended Laws, harmonise the layout and numbering across the rules, correct minor drafting errors and check that any internal and external references remain relevant when the New and Amended Laws come into force.

The Statutory Instruments included in this Consultation Paper have been reviewed and updated but they retain the meaning and purpose of the Statutory Instruments that they replace.”

The decision to keep this exercise limited, in this way, was made due to the large amount of work that had to be undertaken to ensure that all the statutory instruments could be properly considered. 

Substantive changes, to the way in which the regulatory framework operates, will not be considered at this time and would be more appropriate for future consultations.

We asked

We asked for feedback on proposals to revoke the Licensees (Conduct of Business and Notification) (Non-Guernsey Schemes) Rules 1994 (“the NGS Rules”) made under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the “PoI Law”).

You said

Seven responses were received from a cross section of industry.

Below is a summary of the feedback received, which is immediately followed by the Commissions response.

Q1: Do you have any comments on the proposed revocation of the Non-Guernsey Scheme Rules? 

All respondents supported the revocation of the NGS Rules.

Commission response

The Commission welcomes respondents’ support for the proposal and the NGS Rules are to be revoked. The effective date of the revocation shall be 11 May 2021 and from this date licensees will no longer be required to notify the Commission of, and seek prior approval for, a proposal to carry on the activities of management, administration or custody in connection with a specific non-Guernsey collective investment scheme. It will, of course, continue to be a requirement that such activities, when conducted by way of business in or from within the Bailiwick, are conducted by persons licensed under the PoI Law.

Q2: Do you have any views on the inclusion of additional data requests in the licensee’s annual return?

Respondents were supportive of the proposal to request additional annual data. One respondent noted that clear definitions and guidance would aid accurate and consistent reporting, while another highlighted the need for any additional data request to be reasonable and not too onerous to provide.

Commission response

The Commission has noted the comments provided and will engage further with licensees on specific proposals for changes to data reporting later in the year.

Q3: Please provide any further comments you may wish to share with respect to the proposals as set out in this consultation paper.

One respondent asked whether the revocation of the NGS Rules will result in automatic cancellation of NGS permissions under the PoI Law for licensees.

No further significant comments were made.

Commission response

Revocation of the NGS Rules will revoke the requirement for specific approval before providing services to a Non-Guernsey Scheme. Approvals previously granted will therefore no longer be required.

We did

The Commission has made rules revoking the NGS Rules from 11 May 2021.

This modification to the PoI Law framework represents risk based de-regulation. This step will make it quicker and less costly for firms to take on new overseas funds as clients while still ensuring that such activity falls firmly within the scope of the Bailiwick’s international standards-compliant regulatory regime.

 

Next Steps

With the revocation of the NGS Rules the reporting of quarterly statistical data for Non-Guernsey Schemes will no longer be required. Over the course of the next year, the Commission will engage further with licensees on additional data reporting under the PoI Law, including for example the number and value of open-ended and closed-ended Non-Guernsey Schemes and other relevant data.

 

We asked

We asked for feedback on a number of legislative proposals for regulating firms involved in lending, credit and finance.

Responses were received from a cross section of industry, trade associations, consumer and business groups/committees. 

Feedback was also obtained from attendees of presentations and one to one meetings with various stakeholders conducted on the content and subject matter of the Consultation Paper.

Overall the consultation has highlighted evidence of support, a willingness by stakeholders to continue to be involved and helpful suggestions to further the foundation built so far. 

You said

The majority of the feedback was supportive or strongly supportive of the proposals for the legislative and regulatory approach set out in the Consultation Paper.  The inclusion of indicative rules in the Consultation Paper was highlighted as being particularly useful in helping to make recommendations to strengthen the proposals.  We will consult again as the development of the rules and regulations evolve.  

Respondents strongly agreed with the need for the Bailiwick to provide financial consumer protection. This is evidenced through the suggestions made to improve the proposals outlined in the Consultation Paper.  It is further endorsed through recognition that the introduction of financial consumer safeguards can be a competitive advantage, which could be marketed to enhance customer propositions.

There was positive encouragement on the innovative financial aspects of the consultation.  Comment included recognition of the advantages gained through surety of the Commission’s technology neutral regulatory position.  Knowledge and clarity of the regulatory stance regarding technology was seen as an enabler for consideration of investment to raise and enrich market competiveness.  In response to this observation the Commission plans to highlight its willingness to use the Innovation SoundBox as a means through which the use of innovative financial technology can be discussed and approved. 

We did

At this stage we are heartened by the positive attitude to the proposals and the continuing support to progress development.  Expressions of encouragement included:

  • The  legislative and regulatory framework should encourage competition and growth;
  • Strong support for the consumer financial credit proposals;
  • Encouragement to implement a framework that portrays a positive approach towards progressing advances in the use of technology and the digital sector;
  • Support for enabling proposals that would be applicable to all lending, credit and finance businesses; and
  • Agreement with the proposal to repeal the NRFSB Law.

The following is a summary of the key points extracted from the consultation responses including instances where as a result of respondent recommendations modifications have been made to the original design:

  • The Regulated Activities Officer (“RAO”) does not need to be a Bailiwick resident only a senior official who is principally involved in the firm’s lending and credit activities;
  • Ensure consumers clearly understand the financial commitment and the terms, including fees, charges, interest, repayment requirements, early settlement and any other key factors;
  •  Protection against financial harm to consumers which will include clear and understandable controls relating to financial promotions and marketing, including for example publication of an APR;
  • A recommendation to include an appeal process should a licence not be granted;
  • An ability for applicants to demonstrate that they are operating in a jurisdiction with equivalent legislation and therefore achieve deemed compliance;
  • Define terminology through inclusion of definitions or guidance;
  • Clarify low risk activities and those activities which the framework is not intended to cover;
  • Enable identification of businesses offering or entering into regulated credit agreements (or offering ancillary services in relation to those agreements) which will require regulation; and
  • Include a right to cancel / cooling off period other than for where the circumstances make it impracticable to do so.

We would like to thank everyone who responded to the Consultation Paper and to those who participated and contributed at the various stakeholder engagement events.

The feedback received has played a helpful role in the LCF Project’s development.  The suggestions, and recommendations evidence a determination by business and consumer alike to implement a framework that stimulates growth and expansion while retaining practical and proportionate consumer financial protection.

Next Steps

The Consultation Paper sought to formulate a legislative framework which (1) promotes growth in respect of lending, credit and financial services, (2) provides compliance with international AML/CFT standards and (3) protects the interests of the consumer.  The support expressed demonstrates confirmation to further progress the Project objectives.  The next stage is for the Commission to liaise with relevant civil servants who will advise the Committee for Economic Development (“the Committee”) and the Policy & Resources Committee (“PRC”) in respect of the same.  It is envisaged that the Committee and PRC will then consider and, if felt appropriate approve a Policy Letter to be presented to the States of Guernsey, again for approval, asking the Law Officers of the Crown to produce a Projet de Loi giving effect to the proposals. 

Please note

This feedback statement is a project working document that summarises responses received to the LCF Consultation Paper.  The comments do not prejudge any final decision to be made by the Committee or the States of Guernsey.