In our recent article (available here) we reported that the Guernsey Financial Services Commission (the "GFSC") had been granted leave to appeal to the Court of Appeal. The GFSC obtained leave to appeal on the basis of a series of assertions that LB Marshall KC erred in misapplying Guernsey's anti-money laundering regime; in making findings on probity and prohibition orders and in her approach to the assessment of financial penalties.
On 18 January 2024, the Court of Appeal released a judgment in which it held that the GFSC's appeal was allowed and the decision of the Royal Court cannot stand. The Court of Appeal remitted the matter back to the GFSC, for it to appoint a Senior Decision Maker ("SDM") for the decision on sanction to be retaken in accordance with their judgment.
This briefing provides an overview of the key findings of this important Court of Appeal. The full judgment is available here.
The Court of Appeal's Judgment
The appeal to the Court of Appeal was pursued under section 107(1) of the Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 (the "EP Law"), and concerned a number of questions of law. These included how LB Marshall KC had approached the exercise of her powers in the appeal from the Commission's earlier decisions under section 106 of the EP Law, the possible misapplication of the Guernsey anti-money laundering ("AML") regime and possible errors of law in relation to the findings of probity and the assessment of the penalties.
In reaching its conclusion, the Court of Appeal made various noteworthy findings including:
- That the Royal Court's function under s. 106(1) is to hear an appeal by reference to all or any of the grounds listed in s. 106(3), and to exercise the powers conferred on it by s. 106(6); no more, no less. It is not the Royal Court's function to conduct a full, merits-based trial de novo, or to assume the primary fact-finding function or the expert, evaluative, regulatory decision-making function of the GFSC.
- That the Royal Court erred in substituting its own opinion for that of the SDM, instead of asking whether the decision of the SDM could properly be challenged by reference to the grounds listed under s. 106(3) of the EP Law.
- When hearing an appeal under section 106 of the EP Law, the Royal Court was not entitled to take into account its own understanding of the thought processes of the Enforcement Division in developing the allegations made in the course of any enforcement proceedings.
- That evidence of actual harm can amount to an aggravating factor, but the absence of any such evidence should not be regarded as a mitigating factor when assessing seriousness.
- When considering probity/integrity, the Court of Appeal stated that a person may act without integrity or probity where objectively viewed their conduct, on the facts as they were known to them, demonstrates a willingness to run a risk that they would be acting contrary to the standards of the profession in question.
- While a person who has no suspicion in their mind at all does not turn a blind eye, the failure to hold a suspicion may, in appropriate circumstances, amount to a want of probity.
- It is an error of law on the one hand to apply the single and uniform standard, expressed as proof on the balance of probabilities, but, on the other hand, where a finding concerns a matter such as dishonesty or want of professional probity, holding that the strength of the evidence which is properly required to make out such a finding may well need to be more compelling than for findings of fact which are morally neutral.
- That the Royal Court was incorrect to find that the prohibition order is public protection by the incapacitation of those who have demonstrated a lack of probity or extreme incompetence. The Court of Appeal concluded that this was contrary to the general wording of the EP Law and the specific ruling of the Deputy Bailiff in Bordeaux, and that prohibition orders are more likely to be made in a case where there is some lack of integrity, but it is not limited to such cases, nor is it limited to cases of incompetence to an egregious degree.
- They confirmed that in relation to the imposition of a financial penalty it is the current failure to meet the Minimum Criteria for Licensing ("MCL"), taking into consideration any relevant past conduct, which provides the power for the GFSC to exercise its powers to impose financial penalties.
- They also concluded that the requirement to have regard to previously limited powers to impose financial penalties relating to the failure to meet the MCL cannot be read into the legislative scheme, as to do so would create unnecessary complexity and is contrary to the plain wording of the statute.
Despite all of the above, the Court of Appeal still concluded that the decision of the SDM was flawed and cannot stand. As a result the matter is now to be remitted back to the GFSC for it to appoint a new SDM and for the decision on sanctions to be retaken in accordance with the Court of Appeal's judgment.
Walkers' comments
The Court of Appeal noted in their judgment that it is in Guernsey's best interests to be a location which observes the highest ethical standards and that it is legitimate for the GFSC to approach its role as a regulator with this in mind. Certainly, the GFSC will feel vindicated, at least to some extent, by the Court of Appeal's decision.
However, the fact that the matter is now to be remitted back to them for a new SDM to decide upon highlights the fact that aspects of the enforcement process can clearly be improved upon. The GFSC appeared to acknowledge this in their public statement which followed the judgment with William Mason the Director General noting that they will seek to learn from mistakes they make. It will be interesting to observe how the enforcement landscape develops from here and whether the GFSC feel emboldened by the judgment and return to "business as usual" or, alternatively, whether lessons are indeed learned from this case and in turn we enter into a new enforcement environment within which the regulated have more of a say.
For those involved with enforcement action (including individuals, licensees and their insurers) in similar circumstances, this case will draw into sharp focus the length of time that the process can take. They will need to consider whether they have both the energy and the resources to conduct similar litigation against the GFSC should the need arise, with the possibility of the process continuing across a number of years, or whether they would be better to accept a settlement at an early stage.
About Walkers’ Guernsey regulatory team
Walkers' Guernsey regulatory team can advise on all aspects of Guernsey data protection, including data protection policies, procedures, privacy notices, data subject access requests and data protection audits.
We have a team of regulatory experts spanning all practice areas who regularly advise on all aspects of Guernsey regulation, including financial services, AML, sanctions, data protection, consumer protection, competition, tax, economic substance, FATCA and the CRS. Our team can also provide training to staff on a broad range of topics.
This article was updated on 28 November 2024.
