L’affaire Artemis puts regulation ‘on trial’

FEW people, I guess, will have read or given much attention to the 121-page, 73,000-word judgment handed down by Her Honour Hazel Marshall KC, Lieutenant Bailiff, sitting alone, in the matter of three senior figures from Artemis Trust, who were heavily fined and banned from working for regulatory infringements.

So far, so finance. What’s this got to do with me?

Well, quite a lot actually, if you have ever wondered who decides what sort of financial services sector the island wants or needs, and who or what looks out for the little guy who falls foul of the island’s authorities. These are huge issues, but rarely discussed.

As far as you and I can recall, finance just evolved after the island set an income tax rate of 20p in the £ back in the 1960s, and the following decade people were literally arriving in the High Street with suitcases full of cash to deposit here, no questions asked.

The sector has changed – rightly – out of all recognition since those Klondike days. But who steered it to become a closely regulated, globally respected jurisdiction and when did the States of Guernsey set out the levels of risk it was prepared to tolerate in order to reap a reward while retaining an appropriate reputation? In reality, it never has. Hence us hearing from time to time the plea, who regulates the regulator?

That’s why what we might call l’affaire Artemis has such significance – and which has really only just started.

Mrs Marshall’s judgment is immediately and strikingly different. Not just the length, or the near six months it took to write it, the laws, statutory instruments, Guernsey and UK and Wales cases considered, regulatory decisions reviewed, European Court of Human Rights issues contemplated or textbooks referred to. It is the attention to detail provided.

From this, we can conclude that her initial reading of the appeal papers suggested that the Guernsey Financial Services Commission had in her view acted significantly unreasonably in this matter of imposing massive fines and preventing individuals from working and, if she ultimately came to that conclusion (as she did), then her reasons for that needed to be jolly well set out.

In fact, I think we can go further. Some of the language used in her judgment and the criticisms made in it are unusually stark and, I suspect, made in the full expectation that her findings might themselves be appealed – as the GFSC has now confirmed.

So what’s at stake?

As Mrs Marshall herself puts it: ‘In sporting terms, [the regulator] writes a lot of the rules of the game, but then also acts as the referee. In more legal terms, in performing its enforcement function it operates variously as policeman, prosecuting authority, jury, and judge… and where there is such a concentration of functions within one institution, the importance of having some external and dispassionate check on the proportionality of the outcome is obvious.’

She, quite clearly, by quashing the prohibition orders on the Artemis directors and reducing fines, citing error of law, unreasonableness, and disproportion, is providing that dispassionate check on the regulator.

Or has she? In announcing its intention to challenge Lt-Bailiff Marshall’s judgment, the GFSC says it is doing so because ‘some of the reasoning and interpretation of the law contained in the judgment does not align with our understanding of our statutory duties and powers’.

In other words, the GFSC approach is correct and this conviction, it says, has been ‘endorsed by the Royal Court and Guernsey Court of Appeal in prior judgments concerning appeals against our enforcement actions’ and Mrs Marshall is therefore wrong.

Unless or until that challenge is heard and adjudicated by the Guernsey Court of Appeal, the jury – almost literally – remains out. That said, it’s clear from what I’ve outlined here that the Lt-Bailiff intends to go down fighting and, if the standard tests apply, the regulator will have to show that she made an error of law or fact, or that the decision was so unreasonable or unjust that the Guernsey Court of Appeal has to quash or modify it.

More importantly, however, if the GFSC challenge fails, it means its understanding of its statutory duties and powers is wrong and flawed. Where would that leave the regulator, and what response should Policy & Resources make?

If the appeal succeeds, however, it means Guernsey operates a regulatory regime in which people can be fined and prevented from working when there is no evidence, according to the Appleby team which represented Artemis, that any of the matters of which they were accused had caused any harm to clients, beneficiaries, investors, creditors or member of the public, nor to the reputation of the Bailiwick.

Can that really be right? The president of P&R is, of course, a lawyer. So we need to ask Peter Ferbrache whether this approach is fair and reasonable. Is it what the States of Guernsey intended in commissioning its regulatory environment? If not, how did government let such an environment arise? Who, if you will, has been regulating the regulator?

To be absolutely clear, I make no, nor imply, any criticism of the GFSC in this. These simply seem to me to be the issues posed by the Marshall judgment and her questioning where the external and dispassionate checks on the proportionality of regulation come from and (my addition) who in government keeps an eye on these things.

This is especially relevant, I think, because Mrs Marshall did not consider the human rights aspects raised by the Artemis directors – loosely that ending someone’s career with a ban infringes Article 1 of the First Protocol, which protects a person’s right to pursue a business trade or profession. That further challenge to the way the regulator operates remains open to a future hearing.

As she concludes: ‘The commission is understandably fervent in the performance of its functions of protecting the public interest and protecting and enhancing the reputation of the Bailiwick as a financial centre.

‘However, it seems to me that on occasions, the commission may overlook the fact that the reputation of the Bailiwick as a financial centre includes the reputation of the commission itself as a regulator.’

And it is that which will be on trial when the next appeal is heard.