End of Term Report

At the end of a busy week in the Assembly, Deputies head for a two month break from attending States meetings – not, I hasten to add, a break from their homework.   As I am sure you all know, we continue to have Committee meetings and presentations, we deal with parishioners’ queries and there is always a lot to read.

As the holidays begin, I thought I’d just do a summing up of what I see as the important decisions and discussions since January.

We started the year with a bang and the Motion of No Confidence in the Committee for Education Sport & Culture which they survived.  We will find out this week if the confidence they were shown by the majority of my colleagues was well-founded when we see their plans for the three school model.

February saw a debate on whether or not to allow people to burn their dry garden waste at any time.  The debate masked the introduction of some excellent new measures to prohibit emissions of dark smoke, to set standards for local air quality and prohibit uncontrolled burning of non-garden waste.

The culmination of the long running Waste Strategy also came to a head when confirmation was given for the tender process to be completed just in time before Mont Cuet fills up.  Since then, the Douzaines have got together to see if they can agree on streamlining the collection of the different types of rubbish and how parishioners will receive their bills.

The Finance and Business Support sectors have been much in our thoughts with the introduction of various bits of legislation to keep us at the forefront of international regulation.  One such piece was the introduction of the  Beneficial Ownership Register for legal entities from the 1st July this year.  This is a mighty piece of work, completed quickly, and setting the standard for all offshore finance centres.  It creates a secure database containing information which will greatly help law enforcement in their work to prevent financial crime.

Two commencement Ordinances were passed with different reactions.  The Same Sex Marriages legislation was heralded with great joy whilst the clamour against the Population Management Law was audible amongst businesses across the Island.  As with most changes, the PML has taken a lot more time and resources than initially forecast but the cries continue for more lax treatment for foreign workers.  BREXIT will clearly dictate what we need to do but at least the PML is a better foundation to deal with these unknowns than the previous housing licence regime ever was.

The work to enable the introduction of the new data protection regulation from the EU and Document Duty ant-avoidance legislation were also agreed upon.  New rules for the statements by Presidents of all committees was also introduced.  Two of the projects given to us on the Development & Planning Authority by the Island Development Plan debate last November came to fruition.  One more step was taken in the Fontaine Vinery saga and also towards having that cup of tea at Stan Brouard.

Lastly, this month, we had debates on the States Accounts and the P&R Plan Phase Two.  Whilst the discussion on the facts and figures of what happened in 2016 was illuminating, my frustration in respect of the Plan was profound.  Having spent weeks trying to find out what aspects of the many projects, plans and resource requests we were being asked to approve – high level or full detail – I was told in the dying moments that there will be a 6 page summary document produced.  Once seen, I will find out what of the 200 page document remains and, hopefully, I can endorse the refined document without fear of unforeseen consequences.

So to the summer and the continuation of the heated argument over what to do about the anti-tank wall at L’Ancresse.  I hope that we can find a sensible compromise taking into account both the views of local people and the cost to the taxpayers of Guernsey.

Wishing you all happy holidays.

International Standards – Giving Them Due Consideration

Web photo 2Yesterday, the States of Guernsey voted to bring in a private, central register of beneficial ownership of legal entities.  This was an important decision for us to make although it was tacked on to a long day talking about rubbish!  Before you start thinking I was being derogatory of my colleagues, I am referring to the debate on the Implementation of the Waste Strategy.

As I feel it is important that Guernsey is seen to give due consideration to other important matters especially those that affect our international reputation, I proceeded to give my speech despite the fact I stood up at 5.45pm.  For those of you who are interested below is the text of my speech.

“Sir, I will be supporting the proposition to establish a register containing beneficial ownership information for all forms of legal person.  We need this because it is essential that our law enforcement is provided with the tools to access this information as quickly as possible so that we can comply with international standards, fight crime and support our finance and business services industries.  I stand to give my support but also to give the subject the weight it deserves.  This is such an important move to take in the times we live in.

The proposal is for the Register to be open to those who need it and not publicly accessible.  This is, in my view, a sensible proposal.   Whilst there are calls for such registers to be open to the public, this is not based on a need to follow international standards but because of calls from pressure groups and the media.

From my involvement with industry, it is clear that they want us to follow international standards but not excessively which would put Guernsey at a competitive disadvantage.  I do not think the proposals do so.  In fact, I think they are a positive move supporting our commitment to law enforcement.

The widely accepted international standard on the recording of beneficial ownership is the one developed by the Financial Action Task Force or FATF which was first published in 2003 and further strengthened in 2012.  It does not require a publicly accessible register only that countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities.

This international standard has also been incorporated into the Global Forum on Transparency and Exchange of Information for Tax Purposes and is also followed in principle under the 4th Money Laundering Directive coming into force on the 26th June 2017.  I say in principle because, whilst the EU are seeking a central register, it requires a more extensive list of those who can access it than the FATF recommendation although, interestingly, it does not require the register to be public it merely suggests it as an option.

Whilst we are obviously not in the EU, not complying with the Directive may affect our ability to work with EU countries in the future.  This is not addressed in this Policy Letter and I would like reassurance that this aspect will be considered.

It is also important to remember that there are, already, extensive regulations in place which require all local trust and company service providers and other prescribed businesses and individuals to know the identity of the beneficial owners of Guernsey entities.  Those regulations also require the same information to be obtained for owners of entities incorporated in any jurisdiction in the world.

The recent 2015 MoneyVal report was most complimentary about the regulatory regime here but indicated they felt there were insufficient measures in place where no such provider was involved and the proposals in this Policy Letter are intended to improve these measures.

We also have, under Company Law, the role of Resident Agent whose responsibility, amongst other things, is to collect the information about beneficial owners albeit they do not need to establish the underlying natural person unlike under the Anti Money Laundering and Countering the Financing of Terrorism or AML/CFT requirements although both have a percentage ownership value below which identification is not required.   Propositions 7 and 9 will strengthen their role and accordingly I support these Propositions.

With all these ways of collating the information on beneficial ownership, why should we consider a public register?  Some say this is the way forward and point at the UK who have established a register last year.  But they’d be wrong.  The UK MPs calling for us to have such a public register of beneficial ownership probably don’t realise that the new UK legislation has not created such a register.

According to FATF, a beneficial ownership register should identify the natural persons who ultimately have a controlling ownership interest in a legal person but the UK register does not do that.  It does not even create a register of those who have ultimate control.  It merely creates an unverified register of those who have immediate control of a particular entity.  In my view this doesn’t even comply with the international standards so, as I have said before, why should we follow the UK down yet another path going in the wrong direction?

As well as not being required internationally, there are good reasons for keeping the details of beneficial ownership private.  These include a fear of kidnap or commercial sensitivity.  Some investment strategies made public could be impaired if this information was made public.  And who will prevent abuse of the information?

Most importantly, we all are entitled to a basic human right – the respect for private and family life – this is not secrecy but privacy: confidentiality.  As we said in the debate on the P&R Plan, regulation should be appropriate and proportional and this is an occasion when regulation should be no more and no less than what the international standard requires. The papers by the FATF and the OECD to the G20 Finance Ministers late last year made it clear that the focus is not on revising the standard but on implementation of the existing standard.  So I say let the ones who need to have the information, the Bailiwick’s law enforcement, have that information as speedily as possible.

However, that information must be kept securely; an important consideration for all of us in this age of cyber insecurity as highlighted by Deputy Lowe yesterday morning.  I am pleased with the choice of the Guernsey Registry as it will not only have the appropriate mechanisms in place to ensure the information is kept securely but, unlike the Guernsey Financial Services Commission, it will not be subject to a potential conflict of interest.

We do also need to ensure there are suitable legal gateways for the sharing of that information with domestic and foreign authorities for specified purposes.  Part II of the Disclosure Law which was brought into force on the 17th December 2007 and updated in 2014 sets out these various purposes and include criminal investigations and proceedings in the Bailiwick and elsewhere. Again I support this approach.

We then have Proposition 5 – to agree that P&R and Economic Development can appoint the Registrar.  As there is no mention in the Propositions that the appointment will be the Registrar of Companies as indicated in the Policy Letter, please can I have the reassurance that the Committees will not change their mind and, say, appoint the Commission instead?

The remaining Propositions are sensible recommendations especially in respect of the Resident Agents and bearer instruments.  The introduction of a statutory definition of beneficial owner will also be useful as is the alignment, after suitable consultation, with the anti-money laundering regime.   Similarly, the introduction of the right of directors to ask the Resident Agent to provide the beneficial ownership information on request but this could be enhanced if the Agent also has to provide the verification of such information.  I also note there is no provision to deal with the record keeping requirements when Resident Agents change – should the previous Agent keep the records to show they had fulfilled their role or should the documents belong to the company but accessible to the Agent?

Then there is the continuation of the ability for a statement being made that no beneficial owner has been identified.  This is necessary due to the complicated nature of ownership but I would ask for consideration that an explanation of why the owner cannot be identified to also be provided.

I am also concerned about the funding of the Registry.  Why does it have to come from the Bond?  We heard earlier that the implementation of the waste strategy would be better funded by the Bond as otherwise it would be paid for by the taxpayer and it would be more expensive if a commercial loan obtained but the Registry is a success story with more than £9 million transferred to General Revenue in 2015 so why can’t the costs be paid from their profits rather than the Bond with the inherent costs associated with such a loan?  In fact, why can’t the £214,000 loan outstanding at the end of 2015 be repaid too?  Whilst the Policy Letter seems to justify this I am not satisfied that this is commercially sound and an explanation would be appreciated.

However, I have also raised several times through the consultations, my concern as to why we are not being innovative in this field.  Why we are not being ahead of the curve for what is already a FATF standard and will also be a requirement in the future?  That is the register of trusts and other legal arrangements.

Pascal Saint-Amans, head of tax at the Organisation for Economic Cooperation and Development or the OECD, has said existing efforts to improve the sharing of information between countries – championed by David Cameron – needs to go further.  In particular, he said countries should look again at new registers of company ownership as these registers should also show similar information for trusts.

The FATF Recommendations state that the information available for legal entities should also be available in a similar way for legal arrangements – including trusts – with a view to achieving appropriate levels of transparency.

The 4th Money Laundering Directive states that “In order to ensure a level playing field among the different types of legal forms, trustees should also be required to obtain, hold and provide beneficial ownership information”.

Although David Cameron championed the public beneficial ownership register for legal entities, he acknowledged the important differences between companies and trusts indicating his reservations on such a register.  I am sure there are some in industry who may be fearful of my suggestion however, we need to be realistic and acknowledge that FATF, MoneyVal, and the OECD will get their way so let’s be proactive and design a register that is fit for our purposes and not wait to be told what we should do.  Be told by those who understand our finance and business services industries least.

I also note that two days ago New Zealand approved the recommendations of a report to introduce a private register of foreign trusts – trusts without a New Zealand resident settlor.  However, they are implementing it by using a manual spreadsheet database – we of course could be more sophisticated than that.

I should add that we do most of the work already under the AML/CFT regime so it would not be a stretch to start giving due consideration now to the question of whether to provide beneficial information on trusts to a private central register.  I believe that there are opportunities for our businesses if we lead the way so let’s grasp them.

So, Sir, despite recording my concern that that the Registrar is not stated in the Policy Letter to be the Registrar of Guernsey Companies and my disappointment that we are not being more progressive, I ask members to support these propositions. By doing so, we can fulfil the promises we have made to follow international standards and show our finance and business services industries that we support them by introducing regulation that is proportionate and appropriate.”

A Perfect Storm?

Web photo 1Listening to the wind howling through the eaves last night reminded me of 1987 and the storm which changed Sevenoaks to One Oak and my parent’s road from Pine Walk to No Pine Walk. Luckily ( as far as I can see), the damage here on Guernsey was no where near as bad but it was scary – both for me and my cat.

It also reminded me of Michael Fish’s forecast.  A woman phoned in that October morning many years ago and asked if there was a hurricane on the way and Michael replied “Don’t worry there isn’t but having said that it will become very windy.”

So from one forecast to another and the Budget debate at the beginning of November.  According to Vice-President Lyndon Trott, the forecast is that we will be in surplus this year.  This is good news but, to appreciate what it really means, it must be remembered that this is only the start.  For eight years we having been dipping into our own and our children’s piggy banks to pay for our weekly bills and the surplus means we can, hopefully, now start topping up those piggy banks again.

As well as those piggy banks, we also need to pay for the maintenance of our Island home.  It is estimated we should spend 3% of GDP on capital projects, on infrastructure, each year but again we will fail to do so to the tune of £24 million in 2016 alone.  We must, and can, do better.

Last week, the Policy and Resource Plan and the Fiscal Framework were debated.  Both are necessary to identify where we are going and the rules that will apply in getting there.  We did not, however, decide how the money should be spent – that will come later in Phase 2 – but we did agree on the overarching place we want to be in 20 years and our priorities for the next five.

All but one of us did approve the wording of the Plan.  As I said at the time, I would have written it differently but I believe in its aims and its restrictions. So we have a plan and a fiscal framework which means it is now down to the six Principal Committees and the Policy and Resources Committee to work together to get that meat on those bones.

One aspect of the debate which did get me a bit heated though was in relation to our regulations and whether they should be kept to a minimum.  On occasion, minimum regulation can be good but not always.  In the finance industry, it has been long established that regulation should not be introduced which purely allows us to scrape through the international requirements.  Our hard-fought reputation has been built on relevant, proportionate regulation and losing that edge would be something which our competitors would relish.

For those of you who are horrified that this market advantage could so nearly have been lost, don’t worry I offered to explain the necessity of removing the words “at a minimum” to those who voted for them to be retained.  Whilst I’m not holding my breath, do watch this space.

I should add that the P&R Plan is not just for the purposes of good government – it is for all of us.  It is a means by which we can contribute in our own particular way so we achieve a true surplus.  A surplus over and above our realistic annual commitments so we are able to invest in infrastructure and, even better, put the money back in the piggy banks that we have used in the last eight years.  Then we will truly be able to face a perfect storm even if it is not in the forecast.