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Financial Services Enforcement Process Babbé LLP Guernsey

Financial Services Enforcement Process

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The Guernsey Financial Services Commission is the regulatory body for the finance industry in the Bailiwick of Guernsey. As part of its supervisory role, the Commission undertakes onsite visits of licensees. Following these visits, the Commission may require that a licensee undertake a Risk Mitigation Programme to remediate any identified failings or to improve weaknesses in policies and procedures.  Additionally, the Commission may impose conditions on the licensee (e.g. no new business) and refer the licensee to its Enforcement Division for further investigation.

This Briefing Note outlines the process that may follow a referral to the Enforcement Division.

Investigation

The Commission has information gathering powers under The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 (the EP Law) which include the mandatory disclosure of documentation and information and requiring a director or employee of a licensee to attend an interview.  Once the Enforcement Division has completed its investigation, and it concludes there were regulatory failings, it will produce a Draft Enforcement Report which will be provided to the licensee and relevant individuals.

Draft Enforcement Report

The Draft Enforcement Report will set out the Enforcement Division’s factual findings with respect to identified regulatory failings and its recommendations as to the imposition of sanctions on the licensee and relevant individuals. 

The armoury of enforcement powers under the EP Law includes the suspension and revocation of license, the making of prohibition orders, the issuing of private reprimands, the acceptance of written undertakings, the imposition of discretionary financial penalties (up to £4 million[1] against a licensee or up to £400,000 against an individual) and the imposition of a public statement.  The Commission can impose any combination of these sanctions. If the imposition of a public statement is recommended, the Draft Enforcement Report will annex the proposed text of the statement.

The firm/individual(s) will then have an opportunity to make representations on the content of the Draft Enforcement Report. The representations will be considered, and the Enforcement Division will then provide the parties with a Final Enforcement Report.

Final Enforcement Report

The Final Enforcement Report will again set out the factual findings of the Enforcement Division, and the recommended sanctions, taking into account the representations received.  If the imposition of a public statement is recommended, the Final Enforcement Report will annex the proposed text of the statement. The findings and sanctions may of course be altered from the Draft Enforcement Report but that is not always the case.

At this point, the licensee and individual(s) can either accept the findings and enter into a settlement agreement with the Commission (see further below) or, if they do not agree with the findings and recommendations in the Final Enforcement Report, request that the matter is referred to a Senior Decision Maker.

The Commission applies an early settlement discount scheme in relation to any recommended prohibition orders and discretionary financial penalties. If a settlement agreement is entered into prior to a referral to a Senior Decision Maker, a discount of 30 per cent is applied to the term of any prohibition order and financial penalty.

As part of any early settlement, the firm or individual are expected to admit their failings and the applicable sanctions will be published on the Commission’s website.

Recent amendments to the Commission’s Explanatory Note[2] gives the Commission the right to publish the proposed public statement at the time of settlement, even if other parties subject to the Final Enforcement Report request a referral to a Senior Decision Maker.

Referral to a Senior Decision Maker

The Commission has a panel of Senior Decisions Makers (comprised largely of English King’s Counsel).

The appointed Senior Decision Maker has wide discretion to deal with the referral as they see fit, as they are the “master of their own procedure”. However, the Senior Decision Maker must act in accordance with the Commission’s own Explanatory Note with respect to such matters and must act in a fair and balanced way toward the parties.

In the usual course, the Senior Decision Maker considers the Final Enforcement Report and can request further information from the Enforcement Division and the parties.  It is important to note that the Senior Decision Maker is not bound by the content of the Final Enforcement Report and can depart from the findings of fact and sanctions recommended by the Enforcement Division. 

In accordance with the Commission’s Explanatory Note, the Senior Decision Maker should, within 30 days of the referral, consider whether written representations are necessary from the parties.

Minded to Notice

Following consideration of any further representations, the Senior Decision Maker will issue a Minded to Notice setting out their factual findings and the sanctions that they are “minded to” impose or setting out their reasoning as to why no further enforcement action is required against any party.

In accordance with the Commission’s Explanatory Note, the Minded to Notice should be issued within 70 days of the referral to the Senior Decision Maker. The Minded to Notice will also annex a copy of any proposed public statement.

Further Representations

The EP Law provides that, if the Senior Decision Maker proposes to impose a sanction against the licensee or individual, a notice must be served advising the party of their right to make written and/or oral representations on the Minded to Notice within 28 days of its issuance (or a longer period if the Senior Decision Maker considers it appropriate).

In the usual course, directions are made in relation to a round of further written representations by the parties (including the Enforcement Division) ahead of an Oral Meeting, convening the parties before the Senior Decision Maker, to provide for oral representations to be made.  Whether an Oral Meeting is set down, is solely at the discretion of the Senior Decision Maker.  The parties are permitted to have their legal counsel attend the Oral Meeting. 

The Oral Meeting is not intended to be adversarial in nature (but in our experience it usually is) and cross examination of witnesses by the Enforcement Division is not usually permitted (but again, in our cross examination of witnesses is routinely allowed).

Final Decision

After the Senior Decision Maker considers the written representation and after the Oral Meeting (if one is held), a Final Decision Notice will be issued.  Under the Explanatory Note the Final Decision Notice is to be issued within 180 days of the referral to the Senior Decision Maker.

Appeal to Royal Court

Under the EP Law, a person aggrieved by a Final Decision Notice has a right to appeal to the Royal Court of Guernsey. The Commission does not have a right of appeal against the Final Decision, as it is a decision of the Commission (through its Senior Decision Maker). Any appeal must be served within 28 days.

The grounds of appeal are that:

  • the decision was ultra vires or there was some other error of law;
  • the decision was unreasonable;
  • the decision was made in bad faith;
  • the decision there was a lack of proportionality; or
  • there was a material error as to the facts or as to the procedure.

The Royal Court may set aside the Final Decision or confirm the Final Decision (in whole or in part). If the Royal Court sets aside any part of the Final Decision, it may remit the matter back to the Commission with appropriate directions. Any referral back to the Commission may include a direction that a different Senior Decision Maker be appointed.

Appeal to the Court of Appeal

Any decision of the Royal Court on appeal can be further appealed (with permission) to the Court of Appeal on a question of law only.   The Court of Appeal may confirm the decision of the Royal Court or overturn it. If overturned, it may remit the matter back to the Royal Court or the Commission with appropriate directions. 

The team at Babbé have considerable experience in Commission enforcement including the high profile Domaille and Weighbridge matters.  If you have any questions about the financial services enforcement process, please do not hesitate to contact Advocate Todd McGuffin (Partner, Head of Disputes & Risk), Advocate Nick Howell (Senior Associate) or Rosanna Wright (Associate) at Babbé LLP.

[1] Any fines over £300,000 cannot exceed 10 per cent of a licensee firm’s turnover in the relevant accounting period

[2] Which does not hold the force of law but will generally be followed.

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