The document provides an overview of the Guernsey Financial Services Commission's (GFSC) supervisory approach and discusses the implications of Brexit for Guernsey. The GFSC uses a risk-based approach to supervision called PRISM that categorizes firms based on their impact and the probability of risks. It engages with firms at different levels depending on their risk profile. Brexit could impact Guernsey's access to EU markets but it also provides opportunities if Guernsey can negotiate replacement agreements. The document outlines Guernsey's current relationship to the EU and strategies for maintaining access to UK and EU markets after Brexit.

1. The Fiduciary Regulatory
Landscape
Presentation to ICSA
9 August 2016
Eamonn Finnerty & Andy Sloan
Copyright of Guernsey Financial Services Commission 1

2. Presentation Overview
• GFSC Supervisory Approach
• Lending, Credit & Finance Project Update
• BREXIT – a Guernsey perspective
Copyright of Guernsey Financial Services Commission 2

3. PRISM
Online
Services
Data
Management
Operating
Platform
Risk Based
Supervision

4. Supervision under PRISM
Risk
mitigation
plan
Internal
challenge-
RGP
Assess risk
probability
Engagement
level
Impact
category
• Check outcomes
• Re-assess firm

5. Definitions
• Impact – The degree of damage that a licensee, fund,
registered entity or group, could cause to its consumers,
the financial system in the Bailiwick and elsewhere, the
Bailiwick economy and the public were it to (a) fail; or
(b) fail to observe proper standards of conduct.
• Probability risk - Is the likelihood of a problem
occurring.

6. Impact and Engagement Levels
Engagement Level
High
Medium High
Medium Low
Low
Firm Impact
Continuous Assessment
Full Risk Assessment
Risk Assessment
Thematic &
Trigger
based
supervision

7. Probability Risk Categories
• Strategy/Business
Model Risk
• Governance Risk
• Conduct Risk
• Operational Risk
• Financial Crime Risk
• Credit Risk
• Market Risk
• Capital Risk
• Liquidity Risk
• Insurance Risk
• Environmental Risk

8. Guernsey Financial Services Commission
Financial Crime Risk
Governance Risk
Operational Risk
Conduct Risk
Strategy / Business Model Risk
Capital Risk
Overall Risk
Insurance Risk
Liquidity Risk
Environmental Risk
0 20 40 60 80 100 120 140 160
RMP actions since go live

9. Governance Risk
• Insufficient Oversight by the Board of outsourced functions;
• Insufficient oversight of risk management by the Board;
• Lack of suitable evidence (MI) provided to and reviewed by the
board. As a result the Board is unable to demonstrate that it has
effective oversight;
• Lack of independent challenge to the Board, lack of
independence from the group;
• Insufficient spread of experience and knowledge of the Boards;
and
• Lack of independence of key senior management roles, e.g.
compliance officer/MLRO;
• Poorly written (or non-existent!) minutes and Board Resolutions
Guernsey Financial Services Commission 9

10. Reactive Supervision
• Applies to all firms, particularly pertinent to the
supervision of low impact firms
• Some examples of triggers:
• From the firm – regulatory return
• From a customer – complaint
• From other external sources
• From Financial Crime Supervision & Policy
Division – e.g. following an AML/CFT visit

11. Fiduciary Duty
in respect of
Tax advice
Client
Money/Assets
Data Security RATS
Outsourcing
Trustee
Investment
Duty
Financial
Resources
Requirement
Client Take On
Copyright of Guernsey Financial Services Commission
Potential Thematic Reviews

12. Observations
• Really ‘know your client’
• CDD at the heart of the business
• Embedded compliance culture
• Risks understood, measured, managed and mitigated
• Collective understanding and knowledge in business
• Good governance is key

13. The Lending Credit & Finance Project
Copyright of Guernsey Financial Services
Commission
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Consumer Credit Focus
• Affordability
• Transparency
• Financial Promotions Advertising &
Marketing
• Education
Innovative FSB Focus
• Support & availability
• Regulatory landscape
• Innovation Soundbox

14. The Lending Credit & Finance Project
Copyright of Guernsey Financial Services
Commission
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Consumer Credit Focus
Group
Innovative FSB Focus
Group
Project Board

15. The Lending Credit & Finance Project
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Commission
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Repeal the NRFSB Law
Introduce a Lending Credit & Finance Law
Enhance Consumer Credit Lending Controls
Regulatory Certainty for Lending Innovative FSBs

16. The Lending Credit & Finance Project
Copyright of Guernsey Financial Services
Commission
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–Category 1
–Category 2
–Category 3
–Risk-Based Exemptions & Not Included
Discussion Paper outline

17. Consumer Credit Lending
Copyright of Guernsey Financial Services
Commission
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Guernsey Citizens Advice Bureau 2015 Annual Report
Total Enquiries in 2014 = 9,850
Of which 1,146 consumer related

18. Innovation
Copyright of Guernsey Financial Services
Commission
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19. Brexit:
a Guernsey perspective
Dr Andrew Sloan
Director, Financial Stability, GFSC
DISCLAIMER: The views and opinions expressed in this presentation are those of the
author and do not necessarily represent official policy or position of the GFSC
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20. Financial stability risks overblown
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Source: IMF / COURTIERS
Global GDP
2014 US $ Billions

21. Economics of Brexit
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Source:
City UK: UK financial and related
professional services, meeting the
challenges and delivering
opportunities, August 2016
• Short term: inevitable demand shock, consumer and investment
fall, offset by monetary and (potentially) fiscal policy
• Long term: depend on terms of trade negotiated by UK with EU
& ROW and various other supply side factors

22. The Three Brexiteers
‘15th July Reuters “BERLIN, July 15 (Reuters) - Germany's finance minister believes it is reasonable for Britain to
demand access to the EU market for London's banks, but Berlin will also make demands in talks on Britain's future
relationship with the bloc, a ministry spokesman said. The spokesman was clarifying comments made on Thursday by
Finance Minister Wolfgang Schaeuble, who said it was "very reasonable" of his British counterpart to want access to the EU
single market for financial institutions in London. "He used the word 'reasonable'," the spokesman said on Friday in
response to a question from Reuters. "But the sentence then goes on. He said the British would make demands that are
reasonable from their point of view, and from our point of view it is just as reasonable that we have demands," the
spokesman told a government news conference. "We will see what the result is of this negotiating process. An application
has not even been put forward yet and so everything we say about that is speculation," he added.
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23. UK ‘options’ (sic)
• Hard Brexit: outside single market and customs union
• EEA (Norwegian)
• Single market access at price of:
1. ‘four freedoms’
2. contribution to structural funds
• Ukraine: single market access with restricted movement of
people)
• Swiss: series of bilaterals, due to expire in 2017 as a result
of referendum result on free movement
• Canada: free trade agreement, not single market access,
limited coverage of services
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24. ‘City UK’ and the UK position
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Source:
City UK: UK financial and
related professional
services, meeting the
challenges and delivering
opportunities, August
2016

25. Four potential scenarios
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26. Guernsey and the EU
‘Protocol 3’
in for goods, out for services and people
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27. Guernsey and the EU
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"Guernsey should be seen as an island of stability during this period of
uncertainty. We're already a 'third country' for financial services and have
had an established 'third country' relationship with the EU for a considerable
time” Guernsey Finance Press Release, March 2016.

28. Guernsey and EU market access
Present much market access national regimes, particularly for UK, but:
• AIFMD funds regime, ESMA equivalence subject to EC confirmation
• MIFID II ‘investment services’ – to replace national regimes post 2018
but without definitive trigger to switch off national regimes.
Guernsey EU ‘equivalence’ under:
• Statutory audit
• Data protection (v. 1995 version, two year grandfathering under v2016
which comes into force 2018)
• CRDIV (for operational risk) for banking sector
• AIFMD (ESMA assessment requiring confirmation by EC)
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29. Guernsey: ‘mandate for UK negotiations’
• States’ instruction to executive:
(Billet d’Etat XXX, June, 2016)
i. protect Guernsey's interests in the UK exit agreement;
ii. replace Protocol 3;
iii. protect our constitutional relationship with the UK;
iv. look at, and take advantage of, new trading relationship
opportunities
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30. Guernsey future potential?
21 September 2015 Copyright of Guernsey Financial Services Commission 30
Source:
City UK: UK financial and
related professional
services, meeting the
challenges and delivering
opportunities, August
2016

31. Guernsey future potential?
“According to the results of a survey of firms collectively
administering over £35bn of alternative investments the
extension of the EU AIFMD passport to Guernsey would lead
to a general 10% increase in fund launched and marketed
into the EU and, potentially more significantly, an increase
in capital raising per fund by around 20% on average”
Guernsey fund flow submission to ESMA on market
impact of AIFMD passport.
Post Brexit telephone survey response suggests that, long
term, direct access to UK and EU markets through cloning
could lead to above assumptions being underestimate.
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32. Conclusion
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Could break either way!

33. Any questions?
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