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Regulation
Better consumer protection needs huge lift to ‘paltry’ fine limit
Gibraltar’s financial services regulator is seeking a huge increase in the amount of fine it can impose for breaches of license conditions, raising the present £10,000 maximum to a possible £200m by end-2016
victims and license holders. “We have a half dozen or so on-going
enforcement and monitoring investigations, apart from enquiries from different jurisdictions, which may, or may not result in enforcement action”, Lynch revealed. “It has been quite busy – more [cases] than I had expected.”
International tentacles
The FSC has signed seven Memorandum of Understanding (MOU) with other financial jurisdictions to “help get through statutory gateways and ensure good lines of communication when needed”. Work is progressing on “a very big international case involving the West Indies, Europe, South Africa and UK”, in which a Mauritius company in liquidation is suspected of pass- ing money in various ways through Gibraltar and on to other places.
As Barrass observed: “With firms and individuals having tentacles all over the place, including Gibraltar, there is a serious potential for criminal and unauthorized activity. Co-operation with other regulators allows us to get on top of individuals, who could be anywhere in the world, but who cannot easily be pinned down in any single jurisdiction.
The Gibraltar Supreme Court earlier this year upheld a groundbreaking FSC decision banning a local person from working in financial services, and curtailing another’s activities, following findings of an absence of “fitness and propriety”. That Advalorem Fund case, involving the loss of pension pots of 600-700 people, is seen as setting a precedent underpinning the authority of the Regulator and represents “a credible deterrent’.
As part of statutory reforms the FSC is considering whether there should be an independent appeals process, outside of the Courts. “The advantage now is that we have the opportunity to develop policies and our approach in consultation with the sector before we gain new legislative powers,” the Regulator affirmed.
The FSC had hoped to recruit locally a lawyer to become Director of Legal Enforcement & Policy, but after a year an international search is now underway.
Ray Spencer
Zoe Westwood and Mike Lynch looking to see “a credible deterrent”
The higher monetary penalty comes as part of law changes sought by the Financial Services Commission (FSC) to strengthen enforcement compliance measures for both individuals and entities. The aim is to better protect investors and consumers more generally.
“£10,000 as a fine is paltry and goes back a number of years; for some it is less than the annual license fee they pay”, noted Samantha Barrass, FSC chief executive. “The new maximum levels being proposed are, in effect, future proofing.”
Presently fines are limited to £400pw for late submission of accounts, up to £10,000 for the most serious offences. “We are looking for it to be much higher – possibly a £100m to £200m maximum fine - the aim being to have a maximum that does not constrain action against firms and individuals who have greatly enriched themselves through significant wrongdoing,” the Regulator maintained.
Higher fines are “an aspiration”, but “we want to be able to both look at the revenue and the benefit gained by firms or individuals in assessing the realistic size of any penalty”, she added. Advising the FSC is Zoe Westwood, an investigation and enforcement specialist formerly with the UK’s Solicitors Regulation Authority, who explained: “The objective is to create a strategy that will deliver a credible deterrent that is fair and consistent.”
Stakeholders will be consulted this winter as part of an overhaul of over 80 pieces of Gibraltar financial services laws and
multiple FSC guidance notes to produce a single Act and handbook. Jersey raised its maximum financial services fine to £4m in June.
The FSC plans to “set out a non- exhaustive list of what we will take into consideration when dealing with breaches by license holders” and for example, this would include: the number of clients affected; the extent of any consumer detriment; and the reputational risk to the jurisdiction, all in the context of the regulatory history (previous infringements and any lack of co-operation).
Of particular interest will be how a firm or individual reacts when there has been a problem –a firm discovers it has breached a capital holding requirement, for example, or engaged in an unauthorized activity - whether the infringement has been self-reported and measures taken mitigating the transgression, including whether those involved have been sacked.
“There will be some situations where the breach is so serious that enforcement is necessary; if consumers are affected or if Gibraltar’s financial services reputation could be harmed, then it will be treated more seriously”, Barrass warned.
Proportionate and open
The FSC response must be “proportionate and transparent”, she insisted, with enforcement action open to inspection on its website. “It may seem counter-intuitive, but having a broader range of fire-power gives us an ability to be more proportionate, when it might be a bit over the top to remove a license or declare somebody as not a fit and proper person,” Barrass pointed out. “But it must be a credible deterrent. We have some very big financial services providers in Gibraltar.”
Mike Lynch, a former police financial crime investigation officer who joined in May as FSC head of enforcement, said: “An infringement of license conditions happens quite a lot and sometimes comes to light when an annual return for the FSC is being prepared.” His team of four interviews both
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