self-assessment the fsc’s voluntary code...self-assessment the fsc’s voluntary code 4 specific...

Self-Assessment

The FSC’s Voluntary Code

Date of Paper : July 2013

Self-Assessment The FSC’s Voluntary Code

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Table of Contents

Introduction .......................................................................................................................... 3

Purpose of the Code ............................................................................................................. 3

Background and scope ......................................................................................................... 3

Specific obligations of the Code ............................................................................................. 4

Self-Assessment ........................................................................................................................ 4

Economic progress ................................................................................................................ 5

Risk Assessment ..................................................................................................................... 7

Advice and Guidance ............................................................................................................ 8

Inspections and other visits ................................................................................................ 17

Information requirements ................................................................................................. 19

Compliance and enforcement actions............................................................................... 20

Accountability ..................................................................................................................... 23

Published by:

Financial Services Commission PO Box 940

Suite 3, Ground Floor Atlantic Suites

Europort Avenue Gibraltar

Tel: (+350) 20040283 Fax: (+350) 20040282

www.fsc.gi


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Introduction This paper describes the Financial Services Commission’s (“FSC”) code for how it will conduct itself in meeting its Statutory Functions, Regulatory Objectives and Principles of Good Regulation contained within the Financial Services Commission Act 20071 and how it complies with the provisions of the Voluntary Code.

Purpose of the Code Effective and well-targeted regulation is essential in promoting fairness and protection from harm. However, the FSC believes that, in achieving these and other legitimate objectives, regulation and its enforcement should be proportionate and flexible enough to allow or even encourage economic progress.

The Code stresses the need for the FSC to adopt a positive and proactive approach towards ensuring compliance by:

• helping and encouraging regulated firms to understand and meet regulatory requirements more easily; and

• responding proportionately to regulatory breaches.

The Code supports the FSC's responsibility to deliver desirable regulatory outcomes.

This includes having effective policies to deal proportionately with behaviour which would have a damaging effect on legitimate businesses and desirable regulatory outcomes. The Code does not relieve regulated entities of their responsibility to comply with their obligations under the law.

Background and scope This Code is derived from Principles of the Hampton Report of 20052. The Commission has adopted the Principles (“Hampton Principles”) as the basis upon which the Executive and Staff of the FSC should take into account the Code’s provisions and give them due weight in developing its policies or principles or in setting standards or giving guidance.

The duties to have regard to the Code do not apply to the exercise by the FSC, or its staff, of any specified regulatory function in individual cases. This means, for example, that while an inspector or investigator should operate in accordance with the FSC’s general policy or guidance on inspections, investigations and enforcement activities, the Code does not apply directly to the work of that inspector or investigator in carrying out any of these activities in individual cases

The FSC is not bound to follow a provision of the Code if it properly concludes that the provision is either not relevant or is outweighed by another relevant consideration. The FSC, or its staff, must ensure that any decision to depart from any provision of the Code is properly reasoned and based on material evidence. Where there is no such evidence the FSC and its staff should follow the Code.

Compliance with the Code, of course, cannot override an requirement which is subject to the exercise of a legal requirement, including EC obligations.

1 Sections 6 & 7 - http://www.gibraltarlaws.gov.gi/articles/2007-03o.pdf 2 Reducing administrative burdens: effective inspection and enforcement – Philip Hampton –

March 2005 (https://whitehall-frontend-production.s3.amazonaws.com/system/uploads/attachment/file/695/file22988_Hampton.pdf). The report sought ways in which the administrative burden of regulation on business could be reduced and made recommendations to the UK Government on how this could be achieved whilst at the same time maintaining or improving regulatory outcomes.

https://whitehall-frontend-production.s3.amazonaws.com/system/uploads/attachment/file/695/file22988_Hampton.pdf

https://whitehall-frontend-production.s3.amazonaws.com/system/uploads/attachment/file/695/file22988_Hampton.pdf


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Specific obligations of the Code This part outlines the Hampton Principles on which this Code is based, and sets out the specific provisions that elaborate these principles. The Hampton Principles and the italicised statement at the start of each section do not form part of the Code’s requirements, but set the context in which the specific obligations set out in the below them should be interpreted.

Although compliance with this Code is voluntary, the FSC is required under statute to meet its Regulatory Objectives and Principles of Good Regulation as enshrined in the Financial Services Commission Act. This Code is complementary to the FSC’s Regulatory Objectives and Principles of Good Regulation but should a conflict arise between the two, the statutory provisions would take precedence.

Self-Assessment This paper outlines how the FSC meets each of the requirements of the Code and where it does not why it doesn’t or explains what steps it is taking to ensure that it does comply.

The following three findings have been used in the assessment;

MET The FSC considers that the criteria are fully complied with and that no additional improvements need to be conducted.

PARTIALLY MET The FSC considers that it largely complies with the criteria but some additional work needs to be brought into effect for full compliance or an explanation is provided as to why it considers it should not.

NOT MET The FSC considers that it does not currently meet this criteria and in such cases is providing a description of the work it will be conducting to bring it to compliance or providing an explanation of why it should not.

Principle

Description/Criteria FSC’s Response Finding

Economic progress

Hampton Principle: Regulators should recognise that a key element of their activity will be to allow, or even encourage, economic progress and only to intervene when there is a clear case for protection.

Good regulation and its enforcement act as an enabler to economic activity.

However, regulation that imposes unnecessary burdens can stifle enterprise and undermine economic progress. To allow or encourage economic progress, regulators must have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance about the exercise of regulatory functions.

The FSC should consider the impact that its regulatory interventions may have on economic progress, including through consideration of the costs, effectiveness and perceptions of fairness of regulation. It should only adopt a particular approach if the benefits justify the costs and it entails the minimum burden compatible with achieving its objectives.

The overarching requirement to take into account the economic impact of any regulatory measure is enshrined in the provisions of Section 7 (1)(a)(iii) and (1)(b)(iii) of the Financial Services Commission Act (FSCA), namely;

“7.(1) In discharging its functions under this or any other Act, the

Commission−

(a) shall, so far as reasonably possible, act in a way–

...

(iii) which the Commission considers most appropriate for the purposes of meeting those objectives; and

(b) shall have regard to−

…

(iii) the principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to

MET


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Principle


result from the imposition of that burden or restriction;”

This is translated on a day-to day basis when completing the Principles of Good Regulation checklist which accompanies all consultation, policies, draft legislation etc. This requires the FSC to answer the following question;

“3. The principle that a burden or restriction which is imposed upon authorised firms should be commensurate with the benefits expected to result from such action, so ensuring that the Authority is striking the right balance between achieving the statutory objectives and ensuring that the impact on those being regulated is not such as to be counterproductive;”

The FSC should keep under review their regulatory activities and interventions with a view to considering the extent to which it would be appropriate to remove or reduce the regulatory burdens it imposes.

The FSC has established this as a Strategic Objective within its strategy document.

MET

The FSC should consider the impact that its regulatory interventions may have on small regulated entities, using reasonable endeavours to ensure that the burdens of its interventions fall fairly and proportionately on such entities, by giving consideration to the size of the regulated entities and the nature of their activities.

The size of regulated firms is assessed as part of the FSC’s risk assessment methodology. The Impact Score, which is a critical component of the methodology, considers size of the regulated entity. The interfacing and remediation programme set upon firms is therefore largely dependent on the size of the firm in question.

MET


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Principle


Risk Assessment

Hampton Principle: Regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources in the areas that need them most.

Risk assessment involves the identification and measurement of capacity to harm and, if such capacity exists, an evaluation of the likelihood of the occurrence of the harm. By basing their regulatory work on an assessment of the risks to regulatory outcomes, regulators are able to target their resources where they will be most effective and where risk is highest. As such, in order to carry out comprehensive and effective risk assessment, regulators must have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance about the exercise of regulatory functions.

The FSC should ensure that the allocation of its regulatory efforts and resources is targeted where it would be most effective by assessing the risks to the regulatory outcomes. They should also ensure that risk assessment precedes and informs all aspects of its approach to regulatory activity, including:

data collection and other information requirements;

inspection programmes;

advice and support programmes; and

enforcement and sanctions.

The FSC has had a Risk Based Approach (RBA) to the regulation of all firms it supervises for a number of years. This governs the intensity of resources required to be applied to the supervision and the associated compliance costs.

The Methodology is publicly available from the FSC’s web-site: http://www.fsc.gi/firms/riskframework.htm

MET

Risk assessment should be based on all available relevant and good-quality data. It should include explicit consideration of the combined effect of:

the potential impact of non-compliance on regulatory outcomes; and

the likelihood of non-compliance.

The RBA looks at the risks to the FSC’s objectives as the main method through which supervision is conducted and the impact and likelihood that this would have on regulatory outcomes.

MET


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Principle


In evaluating the likelihood of non-compliance, the FSC should give consideration to all relevant factors, including:

past compliance records and potential future risks;

the existence of good systems for managing risks, in particular within regulated entities or sites

evidence of recognised external accreditation; and

management competence and willingness to comply.

These elements are constituent parts of the RBA and assessments of these are conducted for each regulated firm.

MET

The FSC should consult and involve regulated entities and other interested parties in designing its risk methodology, and publish details of its methodology.

The details of the methodology are available publicly and the FSC has provided industry outreach whenever it has developed the methodology to explain the consequences of the redesign.

MET

The FSC should regularly review and, where appropriate, improve its risk methodology. In doing so, it should take into account feedback and other information from regulated firms and other interested parties.

The FSC reviews the RBA at regular intervals and the RBA is the subject of a separate Internal Audit by the FSC. The FSC has also sought third party reviews of the RBA in order to ensure that it continues to be fit for purpose or to suggest further improvements.

MET

Advice and Guidance

Hampton Principle: Regulators should provide authoritative, accessible advice easily and cheaply.

Without knowing or understanding relevant legal requirements, regulated entities will find it difficult to comply. Regulators can, however, improve compliance through greater focus on support and advice. Regulators must, therefore, have regard to the following requirements when determining general policies or principles or when setting standards or giving general guidance on advice and information services.

The FSC should ensure that all legal requirements relating to its regulatory activities, as well as changes to those legal requirements, are promptly communicated or otherwise made available to relevant regulated entities.

The FSC publishes, on its web-site a complete and up to date list of all legislative as well as regulatory requirements including guidance notes, newsletters and Dear CEO letters. These are easily accessible by industry sector.

MET


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Principle


See http://www.fsc.gi/fsclists/publications.asp to view.

The FSC should provide general information, advice and guidance to make it easier for regulated entities to understand and meet their regulatory obligations. Such information, advice and guidance should be provided in clear, concise and accessible language, using a range of appropriate formats and media.

A vital objective for the FSC is to develop and sustain an open and responsive two-way relationship with the regulated community and the individual firms that make it up.

Open and responsive communication is a key to effective regulation designed to meet this objectives. It is also a key to a regulatory approach which supports the efforts of firms who see meeting regulatory standards as a matter of substance not mere form, and who integrate compliance into their business strategies, management structures and commercial operations. But it is equally important that firms, and those who manage their affairs, should take responsibility for assessing the implications of regulatory standards and requirements for their own business. Our approach to guidance and Concessions or Exemptions reflects these general considerations. Our aim is to be helpful and forthcoming, while furnishing firms with the means to stand on their own feet when working out how to meet regulatory standards and requirements.

The approach set out here is designed to avoid distortion of competition between firms, and to be innovation-friendly. It also reflects the need to use the FSC’s own resources in the most effective and efficient manner, and the importance of management responsibility in the firms themselves.

It is necessary to distinguish between:

1. General guidance. This is published material, containing guidance for any person in the relevant category or undertaking the relevant activity.

2. Individual guidance. This is guidance given to one

MET


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Principle


particular firm or other person in relation to their own particular circumstances or plans. It might be verbal or written and, if written, private or publicly visible. It will of course be open to the FSC to convert individual guidance into general guidance.

3. Concessions or Exemptions. These are dispensations which can be given to individual firms, if they pass the tests laid down in the Supervisory Acts. The effect of a waiver is to change or amend a statutory requirement applicable to the firm concerned.

See http://www.fsc.gi/firms/guidanceandwaivers.htm for a full version of this policy.

The FSC should involve regulated entities in developing both the content and style of regulatory guidance. It should assess the effectiveness of its information and support services by monitoring regulated entities’ awareness and understanding of legal requirements, including the extent to which those entities incur additional costs obtaining external advice in order to understand and comply with legal requirements.

The FSC is committed to carrying out its responsibilities in an open, transparent and accountable way.

We will usually consult on material changes in regulatory requirements, policy or procedure and on changes to fee structures. Where proposed changes arise from a requirement to comply with EU Directives, we will make this clear.

We will consult in order to:

obtain information and views to help the FSC take well-informed decisions, on costs, benefits, and practical implications of proposed changes to regulatory requirements;

consider alternative suggestions for achieving particular regulatory objectives;

promote understanding of the FSC's overall objectives, and the reasons for the policies and procedures it

MET


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Principle


adopts.

Consultation will generally be a public process, and will target the full range of interested parties, including:

the Government;

individuals, firms or groups with relevant expertise, or potential interest in a particular topic;

trade associations;

the Finance Centre Council.

The FSC will consult observing a number of general principles. It will seek to:

have informal discussions at an early stage with those likely to be directly affected;

consult at an early enough stage to enable it to take any responses into account;

produce reasoned proposals, expressed in plain, concise language appropriate for the audience;

allow those consulted adequate time in which to respond, usually two calendar months;

make all responses to formal consultation available for public inspection, or on the FSC's Website www.fsc.gi, unless there are particular reasons not to do so or confidential information needs to be protected;

after consultation on major policy issues, publish a reasoned explanation for our decisions.


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Principle


This consultation policy can be read at http://www.fsc.gi/firms/consultation.htm

The FSC should provide targeted and practical advice that meets the needs of regulated entities. Such advice may be provided in a range of formats, such as through face-to-face interactions, telephone and online guidance. In determining the appropriate formats, the FSC should seek to maximise the reach, accessibility and effectiveness of advice while ensuring efficient use of resources. There may remain a need for regulated entities with particularly complex practices to use specialist or professional advisors as appropriate.

In addition to the policy on the giving of guidance and concessions or waivers the FSC frequently publishes newsletters, guidance notes and Dear CEO Letters to compliment and explain regulatory requirements and expectations.

MET

When offering compliance advice, the FSC should distinguish between statutory requirements and advice or guidance aimed at improvements above minimum standards. Advice should be confirmed in writing, if requested.

General guidance has been a major part of the FSC’s regulatory approach since its inception. We will use it to indicate how regulatory requirements and standards apply to particular situations or problems. We will also use it to explain regulatory processes and arrangements, and to clarify the application of the new legislation itself.

The FSC has published numerous Newsletters, Guidance and Practice Notes as well as Administrative Notices to provide General Guidance to firms.

In particular:

1. If we intend our material to be compulsory, we will express it in the form of binding requirements.

2. The FSC’s supervisors will not operate on the basis of unwritten rules or unpublished standards. If there is a ‘rule of thumb’ about the interpretation of a general requirement, the FSC will publish the rule.

3. All the FSC’s general guidance will be placed on the

MET


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Principle


FSC’s web-site and ensure that this is maintained with the latest regulatory position.

4. The process of developing general guidance is the subject of the various regulatory objectives set out in Section 7 of the Financial Services Commission Act.

In particular, there will be both formal and informal consultation.

Demand for new guidance, which is often perceived as ‘free’, tends to outstrip the capacity of the regulators to supply it. Our decisions to expend resources on the development of new general guidance will therefore be shaped by such considerations as:

the need to respond to new developments of widespread significance in markets;

the extent to which the regulatory provision in question is susceptible to different interpretations and whether uncertainty about its meaning is impeding business or markets or impairing the protection of private consumers;

the scale and intensity of demand for guidance on the issue in question; and

the number of persons affected.

Trade associations and consumer organisations can often play a valuable role in identifying points on which there is a general (rather than one-off) need for guidance.

Firms often ask how much ‘comfort’ they can derive from


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Principle


following general guidance. The answer depends in part on the scope and comprehensiveness of the particular piece of guidance. Most guidance is designed to throw light on particular aspect of regulatory requirements, not to be an exhaustive statement of firms’ obligations. But if a firm acts in accordance with general guidance in the circumstances contemplated by that guidance, then the FSC will proceed on the footing that it has complied with the aspect of the rule to which the guidance refers.

Each firm knows its own business best, and is therefore well placed to consider the bearing of regulatory requirements upon its own particular circumstances and activities. General guidance cannot relieve firms of this responsibility. Equally, in the absence of general guidance on a particular activity, firms still have the responsibility to think through the implications of regulatory requirements for their involvement in that activity

The FSC should provide appropriate means to ensure that regulated entities can reasonably seek and access advice from it without directly triggering an enforcement action. In responding to such an approach, the FSC should seek primarily to provide the advice and guidance necessary to help ensure compliance.

There are bound to be occasions when users will need to go beyond the legislation or general guidance in order to reach a firmer understanding of the effect of its requirements in their own particular circumstances. Demand for individual guidance arises in relation to all sorts of regulatory requirements.

The giving of guidance on an individualised basis is an established feature of regulatory practice by the FSC. For the most part, individual guidance is given in relatively informal ways, for example, in the course of telephone conversations and supervisory visits. The dialogue between firms and the FSC’s front line staff, in particular, is a rich source of individual guidance.

MET


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Principle


Written guidance to particular firms is also commonplace. Much of it is contained in correspondence between firms and the FSC. Written case-by-case guidance is also regularly given to potential applicants for authorisation and their professional advisers.

The FSC sees open lines of communication between firms and regulator as a positive feature of its regulatory style which should be preserved and developed. The flow of individual guidance enhances the predictability of the regulatory environment from the viewpoint of individual firms, while enabling the flexibility of general rules to be retained. And it is a valuable source of intelligence for supervisors and policymakers, as firms explain their requests for guidance. Equally, however, formulating individual guidance is a resource intensive activity and firms cannot expect to obtain guidance on demand, without regard to the reasonableness of their requests.

The FSC will aim to respond quickly and substantively to reasonable requests (from persons who have made a bona fide effort to analyse the issue) for guidance on regulatory requirements. Individual guidance will continue to be given on a relatively informal basis.

This policy covers both spoken and written guidance, but it extends only to reasonable requests. Whether a request is reasonable or not depends in part on its nature and sometimes on the resources of the firm making it. An enquiry which probes a real ‘grey area’ or a difficulty in relating established requirements to innovative practices or products will have high priority. But firms should do some thinking of their own before approaching the FSC. So, in general, a large


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Principle


organisation with an interpretative query should resort to its own legal and compliance experts before it turns to the FSC. Professional advisers acting for clients should undertake their research and analysis before seeking to enter into a dialogue with the FSC. Small firms typically have less expert resource at their disposal, and this will be reflected in the FSC’s responsiveness to their queries.

Other factors may also influence the reasonableness of a request for individual guidance. For example, it is not reasonable to expect guidance on remote hypothetical scenarios, or to expect instant responses on complex issues. In considering a request, the FSC will always need to be given enough information for a proper evaluation of the situation, and enough time to analyse it.

A difficult issue is how far, and for what purposes, firms should be able to rely on individual guidance given to them. A number of factors are relevant, including the degree of formality that attended the formulation of the query and the giving of the guidance, the lapse of time and the alteration of circumstances since the guidance was given, and the extent to which the interests of third parties such as customers, or the wider market, are at stake. It can be said, however, that the FSC would not take regulatory action against a firm for behaviour in line with current written guidance to it in the circumstances contemplated by the guidance.

The FSC will not, except in highly exceptional circumstances, publish individual guidance in the form of correspondence between the FSC and another person. However, responses of general and lasting significance will be converted into general


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Principle


guidance and published as such.

The FSC should, however, take account of the needs and circumstances of smaller regulated entities and others in need of help and support.

The FSC applies the principle of proportionality. This principle is enshrined in EU legislation and takes into account factors such as size, complexity and activity of a firm. The principle is reflected in the guidance issued by the FSC.

Additionally, seminars, presentations and training delivered by the FSC have been tailored to suit the individual needs of different types of organisations and associations.

MET

Inspections and other visits

Hampton Principle: No inspection should take place without a reason.

Inspections can be an effective approach to achieving compliance, but are likely to be most effective when they are justified and targeted on the basis of an assessment of risk. In order to ensure the effectiveness of their inspection programmes, regulators must have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance on inspections.

The FSC should ensure that inspections and other visits, such as compliance or advice visits, to regulated entities only occur in accordance with a risk assessment methodology, except where visits are requested by regulated entities, or where a FSC acts on relevant intelligence.

The FSC’s Risk Assessment Methodology imposes a restriction upon the FSC staff from conducting certain types of on-site inspection work, reporting accountants and focused visits unless a particular risk score is achieved.

However, the FSC is able to act immediately upon intelligence to undertake on-site inspections where this is necessary for the protection of consumers.

MET

The FSC should use only a small element of random inspection in their programme to test its risk methodology or the effectiveness of its interventions.

When conducting on-site verification against regulatory compliance the FSC staff may use a random selection methodology. However this is only in relation to firms where a pre-notification has been given. The FSC therefore does not randomly choose firms to conduct on-site verification.

MET


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Principle


The FSC should focus their greatest inspection effort on regulated entities where risk assessment shows that both:

a compliance breach or breaches would pose a serious risk to a regulatory outcome; and

there is high likelihood of non-compliance by regulated entities.

The scope and breadth of any on-site element of the FSC’s risk assessment methodology is driven by the perceived or crystallised risks in given areas.

MET

Where the FSC visits or carries out inspections of regulated entities, it should give positive feedback to the regulated entities to encourage and reinforce good practices. Regulators should also share amongst regulated entities, and with other regulators, information about good practice.

The feedback given by the FSC after a risk assessment or on-site work generally is exception based on failings or where improvements can be made. The FSC does not generally commend specific good practice in order to avoid “regulatory capture.”

However, the FSC has published industry wide “best practice” on a number of subjects and informally discussed good practices with firms. The FSC practice in relation to good practice will continue.

PARTIALLY MET

Where two or more inspectors, whether from the same or different Divisions, undertake planned inspections of the same regulated entity, the FSC should have arrangements for collaboration to minimise burdens on the regulated entity, for example, through joint or coordinated inspections and data sharing.

The FSC has a Group Wide Supervision process in order to comply with this requirement.

MET


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Principle


Information requirements

Hampton Principle: Businesses should not have to give unnecessary information or give the same piece of information twice.

Effective regulatory work, including risk assessment, requires accurate information. However, there are costs to its collection both to the regulator and to regulated entities. It is important to balance the need for information with the burdens that entails for regulated entities. As such, regulators must have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance on data requirements.

When determining which data it may require, the FSC should undertake an analysis of the costs and benefits of data requests to regulated entities. The FSC should give explicit consideration to reducing costs to regulated entities through:

varying data requests according to risk, as set out in paragraph;

limiting collection to specific regulated entities sectors/sub-sectors;

reducing the frequency of data collection;

obtaining data from other sources;

allowing electronic submission; and

requesting only data which is justified by risk assessment.

The FSC is extremely cautious when requesting data from regulated firms so as to ensure that the information request is an actual requirement in order for it to fulfil its statutory functions. Be this for the purposes of regulatory or prudential requirements or general information requests.

FSC staff conducting risk assessments must justify and seek the consent of their Heads of Division when asking for additional information as part of the risk assessment process.

Regulatory returns are permitted to be submitted electronically.

MET

If two or more Divisions require the same information from the same regulated entities, they should share data to avoid duplication of collection where this is practicable, beneficial and cost effective.

The FSC has internal processes that ensure that the same information is not sought again from the same regulated firm.

MET

The FSC should involve regulated entities in vetting data requirements and form design for clarity and simplification. It should seek to collect data in a way that is compatible with

The FSC always seeks to replicate, where ever possible, information collection in a manner which is similar to other

MET


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Principle


the processes of regulated entities and those of other regulators who collect similar data.

regulators where regulated firms operate in.

Compliance and enforcement actions

Hampton Principle: The few businesses that persistently break regulations should be identified quickly and face proportionate and meaningful sanctions.

By facilitating compliance through a positive and proactive approach, regulators can achieve higher compliance rates and reduce the need for reactive enforcement actions. However, regulators should be able to target those who deliberately or persistently breach the law. To ensure that they respond proportionately to regulatory breaches, regulators must have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance on the exercise of compliance and enforcement functions.

The FSC should seek to reward those regulated entities that have consistently achieved good levels of compliance through positive incentives, such as lighter inspections and reporting requirements where risk assessment justifies this. The FSC should also take account of the circumstances of small regulated entities, including any difficulties they may have in achieving compliance.

The scope and breadth of the interfacing programme between the FSC and the Regulated Firm is completely dependent on the results of the firm’s risk assessment outcome. Any remediation programme and programme of regulatory visits is increased or decreased depending on this outcome.

MET

When considering formal enforcement action, the FSC should, where appropriate, discuss the circumstances with those suspected of a breach and take these into account when deciding on the best approach. This paragraph does not apply where immediate action is required to prevent or respond to a serious breach or where to do so is likely to defeat the purpose of the proposed enforcement action.

The FSC will generally discuss enforcement actions with regulated firms providing sufficient time for corrective actions to be taken by the senior management of the firm.

However, where the protection of the consumer is compromised, the FSC will seek to take remedial action on a more accelerated timescale.

MET


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Principle


The FSC should ensure that their sanctions and penalties policies are consistent with the following principles:

aim to change the behaviour of the offender;

aim to eliminate any financial gain or benefit from non-compliance;

be responsive and consider what is appropriate for the particular offender and regulatory issue, which can include punishment and the public stigma that should be associated with a criminal conviction;

be proportionate to the nature of the offence and the harm caused;

aim to restore the harm caused by regulatory non-compliance, where appropriate; and

aim to deter future non-compliance.

The FSC has limited powers of sanction and penalties under the Supervisory Acts. However, short of withdrawal of the authorisation the FSC generally has the power to impose conditions and directions. In certain cases it can also seek restitution orders.

The FSC also enters into “settlement agreements” with non-compliant firms and officers which provides a road map of corrective and disciplinary measures to address identified deficiencies.

The FSC, on occasion, publishes its enforcement action both to protect consumers of a firm and/or as a deterrent to other firms.

MET

The FSC should also:

publish an enforcement policy;

measure outcomes not just outputs;

justify their choice of enforcement actions year on year to interested parties;

follow-up enforcement actions where appropriate;

enforce in a transparent manner;

be transparent in the way in which they apply and determine penalties; and

FSC's Enforcement Policy

The FSC takes a risk-based approach in selecting which cases to pursue: this includes considering its Statutory and Regulatory Objectives and the Principles of Good Regulation. It considers carefully what course of action would be a proportionate response, exercise a common standard of fairness in the use of its powers and acts in a manner consistent with individual human rights.

The FSC's use of its enforcement powers to ensure compliance with the requirements of the Acts plays an important role in the pursuit of its regulatory objectives. For example:

1. in relation to the market confidence objective, the

MET


22

Principle


avoid perverse incentives that might influence the choice of sanctioning response.

FSC's powers to request the Attorney General to bring criminal prosecutions for insider dealing and misleading statements and practices offences, and to impose financial penalties for market abuse, help to maintain confidence in the financial system;

2. in relation to the public awareness objective, the imposition of disciplinary measures shows that regulatory standards are being upheld;

3. in relation to the protection of consumers' objective, the imposition of disciplinary measures helps to deter future contraventions, ensures high standards of regulatory conduct and protects consumers; in addition, the FSC's powers to impose conditions or directions may be used to require a firm to take urgent remedial action to protect the interests of consumers; and

4. in relation to the reduction of financial crime objective, the FSC's use of its powers under the Market Abuse Act helps to reduce financial crime; for example the detection of insider dealing acts as a deterrent.

The full enforcement policy can be viewed at http://www.fsc.gi/firms/enforcement.htm

The FSC should ensure that clear reasons for any formal enforcement action are given to the person or entity against whom any enforcement action is being taken at the time the action is taken. These reasons should be confirmed in writing at the earliest opportunity. Complaints and relevant appeals procedures for redress should also be explained at the same

The Supervisory Acts require that the FSC provide the firm with the reasons why formal powers are being invoked and give the firm a right to make representations against these, which must be considered by the FSC before taking any formal enforcement action.

MET


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time.

The FSC should enable inspectors and enforcement officers to interpret and apply relevant legal requirements and enforcement policies fairly and consistently between like-regulated entities in similar situations. The FSC should also ensure that its own regulatory, inspectors and enforcement staff interpret and apply their legal requirements and enforcement policies consistently and fairly.

Powers to interpret legislation is firmly seated in the Courts. However, on a day to day basis the FSC’s expectations of how regulatory requirements are given practical effect lies with the front-line staff of the FSC. Internal processes (e.g. Chief Executive Committee) ensure that enforcement action is subject to peer review so that these are applied consistently across divisions.

MET

Accountability

Hampton Principle: Regulators should be accountable for the efficiency and effectiveness of their activities, while remaining independent in the decisions they take.

By establishing effective accountability and transparency structures regulators will make their activities accessible and open to scrutiny. This should increase the legitimacy of regulatory activities and enable regulators and regulated entities to work together to achieve regulatory compliance. Regulators must have regard to the following provisions when determining general policies or principles or when setting standards or giving general guidance on the exercise of regulatory functions.

The FSC should create effective consultation and feedback opportunities to enable continuing cooperative relationships with regulated entities and other interested parties.

The FSC's approach to consultation

The FSC is committed to carrying out its responsibilities in an open, transparent and accountable way. This statement describes the approach that we will take to consulting often about our policies, and on regulatory and legislative development. We will keep this approach under review, in line with evolving good consultation practice.

We will usually consult on material changes in regulatory requirements, policy or procedure and on changes to fee structures. Where proposed changes arise from a requirement to comply with EU Directives, we will make

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this clear.

We will consult in order to:

obtain information and views to help the FSC take well-informed decisions, on costs, benefits, and practical implications of proposed changes to regulatory requirements;

consider alternative suggestions for achieving particular regulatory objectives;

promote understanding of the FSC's overall objectives, and the reasons for the policies and procedures it adopts.

Consultation will generally be a public process, and will target the full range of interested parties, including:

the Government;

individuals, firms or groups with relevant expertise, or potential interest in a particular topic;

trade associations;

the Finance Centre Council.

The FSC will consult observing a number of general principles. It will seek to:

have informal discussions at an early stage with those likely to be directly affected;

consult at an early enough stage to enable it to take any responses into account;


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produce reasoned proposals, expressed in plain, concise language appropriate for the audience;

allow those consulted adequate time in which to respond, usually two calendar months;

make all responses to formal consultation available for public inspection, or on the FSC's Website www.fsc.gi, unless there are particular reasons not to do so or confidential information needs to be protected;

after consultation on major policy issues, publish a reasoned explanation for our decisions.

The FSC should identify and explain the principal risks against which it is acting. It should, in consultation with regulated entities and other interested parties, set and publish clear standards and targets for their service and performance. These standards should include:

regulatory outcomes(capturing the principal risks);

costs to regulated entities of regulatory interventions; and

perceptions of regulated entities and other interested parties about the proportionality and effectiveness of regulatory approach and costs.

The FSC has published the principle risks that it is facing on its Annual Report and the Risk Based Approach to supervision is directly linked to the Risks to Objectives.

All new initiatives are required to address the Principles of Good Regulation and Statutory Functions before being submitted to Government for legislative amendments or when issuing new regulatory requirements.

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The FSC should measure their performance against the standards and regularly publish the results. To aid understanding, the FSC should also explain how they measure its performance.

The FSC has established a number of service level standards covering a large proportion of the activities it conducts. The FSC’s performance against these standards is published on a quarterly basis on the FSC’s web-site.

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The FSC should ensure that their employees provide courteous and efficient services to regulated entities and others. It

This is expected behaviour of all FSC staff as part of the general terms and conditions of employment. The FSC also

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should take account of comments from regulated entities and other interested parties regarding the behaviour and activity of regulatory, inspectors and other enforcement staff.

publishes adherence to Service Level Standards for all key functions with a regulated firm.

The FSC should provide effective and timely complaints procedures that are easily accessible to regulated entities and other interested parties. It should publicise their complaints procedures, with details of the process and likely timescale for resolution.

The FSC has published how a person may complain about the service he/she receives from the FSC on its web-site http://www.fsc.gi/consumer/aboutfsc.htm

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