In his annual update to industry, director-general William Mason said that changes were being seen in financial services – governance issues and inappropriate operational risks were on the up, while incidents of conduct risk had declined.
Governance issues included a lack of understanding about a firm’s risk appetite throughout the business; weak non-executive directors and a lack of independent challenge in the boardroom; inappropriate direction from group boards towards Guernsey subsidiaries, including instructions counter to local law; lack of management of conflicts of interest in funds business; fiduciary firms not understanding the structures they administer; and wrong decisions taken for customers to meet short-term financial needs of the firm.
Conduct risks included failure to undertake reasonable compliance checks when transferring in customers from another firm, failure to properly safeguard the interests of underlying pension fund beneficiaries; poor advice to new clients; and 'palpably poor' investment choices.
On financial crime he highlighted poor quality business risk assessments and poor customer due diligence – in some firms, 90% of customer files had incorrect or absent due diligence information and poor compliance monitoring.
On operational risk, the GFSC was concerned about poor pricing processes for assets, poor documentation and control over outsourcing, firms trying to ‘do too much too quickly’, and staff who do not understand the processes they are meant to be following.
‘I’m talking about issues which arise which require mitigation by us at some of the firms we visit,’ said Mr Mason.
Full story in today's Guernsey Press