Here's a puzzle for you. How can government and business spend a total of £550,000 preparing a supposedly warts-and-all report on developing the island’s financial services sector without it apparently containing a single word of complaint about the regulator? Or what industry considers to be its heavy-handed approach to enforcement and what the courts increasingly hear is not human rights-compliant?
There’s another twist to it too. What prompted the director-general of the Guernsey Financial Services Commission to deliver his frankly jaw-dropping talk at the end of last year in which he said (I paraphrase) that too much regulation was a bad thing and injurious to the health of the sector?
The answer, in a couple of words, is Oliver Wyman, the international management consulting firm that produced a strategy report for Economic Development on financial services entitled Driving Growth For Guernsey.
It gained headlines on release because it’s targeting a 3% increase in real GVA (an important economic metric) in the next five years, a £6,000 increase in real earnings in the sector in 2030 and around £25m. of potential additional government income in the same time-frame.
Ambitious or what?
What got most people interested in the report really going, however, was the easy ride it gave GFSC head William Mason. Considering all the criticism and complaints he’s faced – and I make no comment on whether it’s justified or not – how can that be? What credibility can such a report possibly have that appears to ignore the one thing – oppressive regulation – that unites sector practitioners?
Well, two things on that. Firstly, the regulator got roasted. Secondly, but we don’t get to read what was actually said about that, the concerns raised or the evidence of how the GFSC has held back the industry and damaged growth.
The report we have is a curated distillation that sets a direction of travel which will be overseen by something called the Financial Growth Forum, a permanent body made up from the States of Guernsey, GFSC, the promotional body Guernsey Finance, and the Guernsey International Business Association, which is the representative body of the financial services industry in Guernsey.
Yes, you say, but what does this all mean and why should I care? Potentially, it’s significant and meant to be a game changer. As Andy Niles, who leads for financial services on the Committee for Economic Development, says, ‘After the publication of this strategy, the focus will be on implementation. Delivery matters as much, if not more, than design.’
By using Oliver Wyman, Economic Development got a deep, swift and comprehensive overview of what’s holding back the sector and the forum’s focus is now on removing those barriers. And there are a lot of these so-called pain points, including Aurigny (‘connectivity challenges’) and regulation itself.
A particularly revealing passage explains the coded nature of the public report: ‘In recent years, the GFSC has taken a cautious approach to [anti-money laundering and countering the financing of terrorism] and technology-enabled models, aligned with Guernsey’s jurisdictional approach to AML/CFT, due to heightened international scrutiny and the Moneyval assessment.’
Unpick that a bit, while noting Deputy Niles’ growth ambitions really seek to take us back to where we once were, and you can read this for the quietly devastating critique of the regulator that it is – you’ve stifled growth.
Here’s a thing though. Guernsey had to get through the Moneyval inspection and to do so had to be seen to have robust regulation and an independent regulator free from any perception of government or other interference. We’ve done that, and done it well.
As a result of the Oliver Wyman process, it’s now clear that Guernsey’s financial services legislation is pretty effective compared to other jurisdictions and could equally be used to regulate for growth as to regulate for minimal or no risk.
That’s important. In other words, a different regulator could play better tunes within the same legal framework. Yet these are the same laws the GFSC has been using to impose in the report’s measured words ‘a cautious approach’.
So what the report tells us is the regulatory framework should support the ongoing competitiveness and sustainable development of Guernsey’s financial services sector, while maintaining the island’s reputation for robust international standards.
You can take that a bit further too. It’s saying that government is responsible for establishing the policy framework within which the regulator operates, while the regulator remains operationally independent in carrying out its statutory functions.
I’d actually push that interpretation a bit further as meaning, ‘We know what we want from the financial services sector and it’s for you to regulate so we get it.’
Given this, and the timescales of producing the growth strategy, is it a coincidence that Mr Mason unexpectedly told a finance gathering that ‘I have been concerned at the impact which over-regulation can have on productivity, growth and the general wellbeing of the population?’ Something that, apparently, had been bothering him for the 20 years he’s been regulating?
He also added, ‘That said, the quid pro quo of wishing your regulators to encourage sensible risk-taking is that you don’t come hunting for us every time a risk taken by a privately capitalised entity goes wrong.’
Well, that’s a marker too and the Financial Growth Forum will be where discussions about direction, innovation and risk will be had.
So used properly, the forum could be particularly effective at driving growth. And it’s got a lot on its plate. In all, 45 action points have been identified and, where they can be addressed directly by the bodies involved, won’t involve debate in the Assembly.
This, also in theory, should facilitate matters. The strategy report itself will not be debated and so needs no approval. The removal of individual pain points might require States’ involvement but that will be for narrow and specific issues and could be relatively swift.
So while there’s been some criticism of the Oliver Wyman process, my reading is that it has pretty effectively cleared the ground for government, in partnership with industry, to set the parameters for risk and reward in which the regulator should function.
Whether it turns out that way remains to be seen, but Deputy Niles has set out some clear milestones and timescales within the life of this States, which means all this can be monitored and challenged as required.
So, given some of the other problems around, it’s one reason to be cheerful I’d say.
