Results updated 6 Jul 2021

Amendments to the Finance Sector Code of Corporate Governance (Results updated 10 Jun 2021)

Background

On the 11^th March 2021 the Commission published a Consultation Paper on its proposed addition to the Finance Sector Code of Corporate Governance (“the Code”), to take specific account of climate change considerations.  The consultation period ran for eight weeks until 5^th May 2021.

To recap, the proposal was to insert the following sentence into the Code as Principle 5.2.1 and Principle A:18 of Appendix 3:

The Board should consider the impact of climate change on the firm’s business strategy and risk profile and, where appropriate in the judgement of the board, make timely climate change related disclosures. 

 

General overall feedback and comments

Who responded?

Fourteen replies were received: mainly from licensees.   

What was the general message in the feedback?

One respondent took no position on the recommendation whilst including some observations. Ten were in favour. Three against. Of the latter, one argued that climate change was already implicit within the current Code. Another thought that climate change should be the concern of the government rather than the Commission, whilst another preferred the use of ESG.

Among the fourteen respondents, several included reservations over disclosure. However, these reservations varied significantly. One respondent thought the disclosure requirement was insufficiently prescriptive; another that it was overly prescriptive. One that disclosure was already covered within the current Code. Another that the inclusion of climate change disclosure made sense but was premature

 

What is the Commission going to do next?

Picking up on the above, it is a fair argument that climate change is already implicitly covered by the current Code. However, in the Commission’s experience, few boards currently act on this. It seems reasonable therefore to be specific.

On mandate, the emerging consensus is that climate change is a legitimate area of concern for central banks and financial regulators. Apart from the arguments around financial stability, climate change is of direct relevance to the business and risk profile of many licensees. 

In terms of nomenclature, there are several definitions in wide circulation apart from climate change. Each has their advocates and the popularity of each varies according to circumstance. However, the Commission identified climate change as its preferred nomenclature some time ago and intends to stick to it. Moving the goalposts mid-game makes scoring difficult.

The Commission agrees that the inclusion of disclosure is forward-looking and that clear global guidelines have yet to emerge. However, in time such guidelines are likely to fall into place and licensees need to be ready for this. The Commission, in any case, has left the judgment call on disclosure firmly in the hands of the board. Overall, the Commission considers that the phrasing around disclosure remains appropriate. 

Following the Consultation, the Commission has decided to re-issue the Code with the proposed amendments in place. A copy of the revised Code can be found below and on the Commission’s website.

Licensees will be expected to comply with the amendment for financial years starting from 1^st October 2021.

 

Specific Feedback

The replies also included some specific questions. These were (with Commission responses in italics):

1. Does the Commission expect companies to use sophisticated price adjustment tools and models for climate change?

No; unless there is specific business argument as in the case for example of catastrophe reinsurance where models are already used for weather.

 

2. The Code applies to boards of GFSC authorised and registered collective investment schemes that are formed as companies. Therefore, it appears that the additional climate change clause would apply to these entities as well as licensees, is that the Commission’s intention?

Yes.

 

3. Must disclosures be made in the financial statements of the entity?

Standards will evolve over time in this regard but at present the Commission considers that it is for each board to decide its approach. For example, as one respondent pointed out, in practice many relevant disclosures for the funds industry are likely to be made on the investment managers/promoters’ website.

 

 

Amendments to the Guernsey Green Fund Rules (Results updated 6 July 2021)

Feedback Statement on the Spring Green Consultation Paper Proposals to amend the Guernsey Green Fund Rules

We asked

We asked for feedback on proposals to make two relatively minor modifications to the Guernsey Green Fund Rules (“the GGF Rules”) made under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the “PoI Law”). It was proposed:

• in the case of the required Designated Administrator’s monitoring of closed ended funds against the notified green criteria and investment criteria that the minimum frequency be extended from a monthly to a quarterly basis; and
• to allow the requirement for disclosure of green status to be met through the use of a recognised stock exchange market announcement.

 

You said

Nine respondents to the broader consultation paper offered no comment, seven respondents were supportive of the proposals and two responses suggested further relaxation of the rules.

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

Comments on the proposed amendments to the GGF Rules

One respondent suggested that the review period for closed ended funds remained still too frequent and overly onerous and that the minimum period could be further lengthened or replaced by a form of reporting by exception.

Commission response

The GGF Rules place reliance on the licensed Designated Administrator to monitor against the relevant criteria, and then to take steps to ensure contraventions are rectified and appropriate notifications made where necessary. This function is critical to the integrity of the regime and maintaining investors’ confidence in the Guernsey Green Fund designation. The Commission therefore takes the view that frequent monitoring is an essential part of the regime and that the amendment proposed in the CP remains appropriate.

Another respondent, while supportive of the proposals, suggested that these proposals might be expanded more broadly to permit unlisted closed-ended scheme to meet disclosure requirements via website disclosure.

Commission response

The proposal in respect of disclosure in the CP originated from the findings of the Commission’s recent thematic review but no specific issue in respect of unlisted funds was identified. More generally the Commission is not minded to replace prospectus disclosure requirements with website disclosure.

 

We did

The Commission has adopted the Consultation Paper proposals in the Guernsey Green Fund (Amendment) Rules, 2021 made on 6 July 2021.

 

Next Steps

The revised GGF Rules will come into operation on 6 July 2021.

 

Files:

• Finance Sector Code of Corporate Governance, 337.2 KB (PDF document)

Links:

• Guernsey Green Fund (Amendment) Rules, 2021