Guernsey: Anti-Money Laundering And Combating Terrorist Financing: Guernsey Stays Ahead Of The Game

Last Updated: 22 May 2008
Article by John Greenfield

Most Read Contributor in Guernsey, September 2018

Originally published in Legal Week, March 2008

Guernsey's ongoing success as a vibrant international financial centre is largely due to the Island's continued ability and willingness to adapt to changing market conditions in order to ensure that the jurisdiction retains its strong position and reputation within the global arena. This flexible approach is clearly illustrated by the Island's ongoing review of its legislative and regulatory framework. In the past 12 months alone, the Guernsey Trust Law has been revised (coming into effect on 17th March 2008); the Companies Law is currently under review; the Island is considering the introduction of a new Foundations Law; the jurisdiction has introduced a fast-track approval process for all closed-ended funds.

The Island enjoys an international reputation as a well-regulated and secure environment in which to conduct business, but at the same time is a jurisdiction keen to create a practical approach to regulation without creating unnecessary and cumbersome over-bureaucratic procedures for bringing in new business. This combination of "the pragmatic" and "the secure" is manifested in one of the more recent changes—the review and extension of the local anti-money laundering and counter terrorist financing regulations.

During 2007, the Guernsey Financial Services Commission (GFSC) led a period of consultation with the local finance industry regarding proposed changes to the existing regulations. And as a result and following recommendations from the FATF, a new handbook containing reviewed rules and guidelines has now been produced.

There are a number of key changes that have now come into effect.

Financial businesses will now take a more risk based approach to their procedures and controls in relation to taking on new clients. This will avoid disproportionate time and effort being spent on "low-risk" business whilst, at the same time, ensure that high risk business and transactions (assessed as being high-risk through their complexity, geographic location etc.) will be subject to higher levels of due diligence and scrutiny. One of the aims of this approach is to balance the cost burden placed on individual businesses and their customers with a realistic assessment of the threat of the business being used in connection with money laundering or terrorist financing. It focuses the effort where it is needed and has most impact.

For many, the changes will already be best practice within their procedures. However, there is a new, explicit rule making it a clear responsibility of the Board (or equivalent for partnerships or firms) to review and discuss compliance issues at all regular meetings. They will be required to carry out risk assessments relating to the type of work undertaken (and to review these on a regular basis) and have clear written procedures to be adhered to by any staff engaged in taking on new business.

Additional changes are being made to AML legislation. The first relates to unregulated businesses (such as. bureaux de change). These types of businesses are currently required to report certain basic information to the GFSC. Under the new regime they will be subject to a registration system.

Perhaps even more significantly, the Guernsey parliament—The States of Guernsey—has approved changes to the existing primary AML legislation again following FATF requirements that rules in any handbook must be wholly enforceable.

In 2002 the recommendations by the FATF regarding AML measures, applied solely to financial services businesses. With the ever changing business climate, new FATF requirements will embrace a wider spectrum of businesses namely firms of lawyers, accountants and estate agents. Whilst the standards required for these "non-financial" businesses are slightly less stringent, a separate handbook and set of rules will be introduced by the Commission the contents of which will be enforceable by law once the new legislation is in place later this year.

The new standards will inevitably involve a not inconsiderable amount of work in some cases to get the correct procedures in place. However again it must be said that the Commission's approach is a pragmatic one and the focus is to avoid onerous paper trails and over engineered and duplicated processes. For example where an Estate Agent and Lawyer are involved in the same property transaction customer due diligence will only have to be undertaken once recognising the close relationship between estate agents and advocates in the Island. Parties will just be expected to liaise in writing to establish that one of them has verified the identity of the customer in question.

Equally, activities falling within the AML framework have been limited to a defined list. The theme will again be a "risk-based" approach and, for a number of reasons, it is not proposed to establish any retrospective know your customer programme again reducing the potential administrative burden for affected organisations.

Currently the Commission is considering, through a period of consultation with relevant industry sectors, how best to introduce this extension to its regulatory regime and to ensure that a practical framework is created within which we can all operate. A steering group has therefore been set up with representation from all affected sectors to ensure this happens and this group will also be asked to consider the draft legislation at an early stage. The new law is not expected to cover firms of advocates. They will instead be governed through a "Chambre de Discipline" process through the Guernsey Bar.

Estate agency, legal and accountancy firms are not regulated by the Commission. However it is proposed that any firm which undertakes the activities specified, should register with the Commission and that the latter should be able to require information and relevant documentation where reasonable and whilst it is not the intention of the Commission create a process of on-site visits but propose that legislation should enable them to carry out ad-hoc inspections if the requirement arises.

The next IMF review of Guernsey will take place late this year and will assess not only how financial services businesses meet AML requirements but also how this new group of organisations are fulfilling requirements under the new regime.

Clearly Guernsey's regulatory regime needs to be constantly reviewed in order to maintain the Island's excellent reputation within the international financial market place. However, it is clearly recognised by Guernsey' regulator to be of equal importance that any enhancement of the regulatory environment in which we operate is made under an umbrella of pragmatic implementation in order that we continue to be a "business- friendly" jurisdiction the Guernsey regulator in my view succeeds in maintaining this balance.

For more information about Guernsey's finance industry please visit

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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