Island needs to take stock of how CI exchange was set up, by Nick Mann
BACKGROUND documents on the troubled Channel Island Stock Exchange show it is an organisation that touches on the reputation of the chief minister, elite names in finance, advocates, the States and the Guernsey Financial Services Commission.
BACKGROUND documents on the troubled Channel Island Stock Exchange show it is an organisation that touches on the reputation of the chief minister, elite names in finance, advocates, the States and the Guernsey Financial Services Commission.
It is one of those bodies, it seems, that might just be too important to fail.
At the start of last week the Exchange made the shock announcement that it had been under investigation by the GFSC for the last 20 months for historic arrangements – something that has now attracted national media coverage.
It stopped taking new listings, put aside £500,000 to cope with any claims that resulted from the investigation, and said it was working on a restructure of its governance arrangements.
Delve deeper into the set-up and it reflects badly on days gone by where conflicts, whether actual or perceived, were rife.
Chief Minister Peter Harwood has answered questions from the Guernsey Press about his involvement with the financial regulator at the same time that he was a director of the CISX – a body it was overseeing.
Deputy Harwood was a founding director of the CISX – and still a director when he was both a commissioner at the GFSC from 2004 and then chairman from 2006.
He left the CISX in February 2010 and the regulator in February 2012.
In his statement last Monday, Jon Moulton said that the GFSC's investigation had been ongoing for 20 months, dating its start to around February 2012, although the regulator has not confirmed the exact date.
'You are correct that I was a director of the Channel Islands Stock Exchange until February 2010,' said Deputy Harwood.
'While I was also a commissioner of the GFSC I was excluded from any discussions concerning the CISX. That exclusion also applied to any papers relating to matters concerning the CISX that were presented to commissioners. Similarly, minutes of meetings of the commissioners that I received were redacted to exclude the record of any discussions concerning the CISX.'
The latest publicly available annual return for the CISX was filed in January 2008.
This names nine directors, including three advocates.
It also confirms that the Policy Council retains a non-participating share in the organisation.
This States involvement dates from the Exchange and was set up in 1998 when the Advisory and Finance Committee had a £1 share but the status of that share changed in 2000.
A Policy Council spokesman said the non-participatory share only came into play in limited circumstances when the CISX board wanted to take certain decisions – for example they would need Policy Council approval if they wanted to relocate or change its name.
The Policy Council received CISX accounts as a matter of courtesy, said Deputy Harwood.
The 2008 document shows that there were a total of 2,020,000,000 ordinary shares issued in the CISX spread among 52 companies or individuals.
These include the biggest names in Guernsey's finance and investment industry.
There were also 51 'guarantee members' who have more voting power – nearly all would be liable for £10,000 should the CISX be liquidated – but this does not include the States.
Again these members are key players in finance.
The GFSC involvement can also be traced back to when the Exchange was established.
In July 1998, the States accepted recommendations from Advisory and Finance about the regulation of the Exchange.
That report shows it was the GFSC itself that triggered the establishment of the CISX, including commissioning a feasibility study by consultants, and recommending to A&F that it should go ahead.
The GFSC also proposed how it should regulate the CISX.
This pre-dated the splitting of the GFSC's role as both promoter and regulator of the finance industry.
The governance structure of the CISX is detailed in the memorandum and articles of association.
Underneath the board of directors sits a body called the Market Authority – this consists of the chief executive and other executives appointed by the directors.
The authority has significant power, including deciding on suspension of trading, who is admitted or cancelled as a guarantee member, and to supervise trading activities and compliance of members listed on the exchange with the rules.
It is understood that it is the role of the authority which is in the spotlight.
At the end of last week the CISX announced that it would consider taking new listings with no apparent suitability issues, although it would take longer than the usual 48-hour turnaround time.
'We would like to thank our members for their continued support during the process of restructuring and hope to be able to announce "business as usual" shortly,' it said.
Commerce and Employment minister Kevin Stewart welcomed that development.
'I know that the CISX is working hard to ensure business has the certainty it needs, and they have the Policy Council's ongoing support in doing that,' said Deputy Stewart.
The move by the CISX to go public last week may be motivated by the need to hurry the GFSC along – or it may be damage limitation.
But the fact it is restructuring tacitly acknowledges that there was something wrong with the governance arrangements, something only acknowledged publicly since Jon Moulton came on board.
Whether we will find out what that was – and can subsequently make judgements on why it was allowed to run unchecked for so long – is anyone's guess.
But reputation is key to the success of Guernsey's finance industry and with it the success of the economy.
Events like this – which ironically came at the same time as the deputy chief minister was away in Westminster telling MPs about Guernsey's role as a good global citizen – do nothing to enhance the island's standing.
