Below is a transcript of the debate, it was taken straight from a recording and some words were difficult to hear, hence some question marks where those words would have appeared, otherwise the transcript is believed to cover the debate accurately. 

STATES DEBATE WEDNESDAY 28TH JULY 2010

BILLET DíETAT XVII  ITEM 7 Ė THE GUERNSEY FINANCIAL SERVICES COMMISSION 2009 ANNUAL REPORT. PAGE 984

Chief Minister Deputy Lyndon Trott opens . Sir I have received no advanced notice of any questions and therefore move the proposition shown on page 985, namely that the assembly note the report, approve the accounts of the GFSC for the year ending 31st December  2009 and Sir , retain the firm of KPMG as channel islands auditors for the year ending 31st December 2010, that third proposition has the support of the accounts committee.

Bailiff: Deputy Gollop, then Deputy McManus

Deputy Gollop: Surely we can make comments about the report if not necessarily ask a question because it would appear that there is an issue that at decisions made perhaps for good reason by the Guernsey financial services Commission, not only of course occasionally effect the competitiveness of individual Guernsey Financial businesses but there has been a decision made to gradually reduce and eliminate the funding for the Guernsey training agency and I would hope that some accommodation is reached with Commerce and Employment that that esteemed body continues to provide the quality of service and that the Guernsey Financial Services Commission or some other umbrella group for the finance industry reconsiders that stance to ensure that training is an integral part of the future of the financial economy. We cannot rest on our laurels because if you read the report you do see a slight decline in the number of deposits, a definite longstanding decline in the number of banks and we do have to be prepared to, as Mr Roffey said yesterday in a press article, to look for new leases and be competitive on the global stage and I feel that training and a moderate attitude to regulation are two important factors but I have the greatest respect for advocate Harwood and Advocate Van Leuvan, the best possible people for the job.

Deputy McManus: Sir members of the assembly, nice booklet, pretty pictures, shame about the depopulating chamber I think. Youíve heard this morning already from Her Majesties procurer about the importance of Guernseyís stance internationally with regards to regulation and I notice sir that you were at pains to point out that some of us were not kind voice in relation to our passing some of the earlier business. It seems to me a slight concern, an apparent lack of interest in some of the more important financial regulation that underpins our importance as a financial centre. I broadly welcome this report, I take particular note of the Chairmanís statement on page 10 where in the final paragraph on that page wherehe acknowledges the importance of establishing effective regulation at macro level and maintain active cooperation and assistance amongst national regulators and goes on to say, in the light of his own experiences, the GFSCís  experiences ????, in dealing with Northern Rock and Landsbanki. However in the light of Commissions experiences of the landsbanki affair I might go rather further than the Chairman of the GFSC feels able to do on page eleven of his report in his statement of ???? accountability. He points out on page 12 sir, preservation and enhancement of our international reputation, is even more vital now than before, and in the light of the IMF attention on the Channel Islands  I ??? ??? ???. The Director General goes on to point out the international scrutiny of our operation will increasingly become the norm for the financial services sectors of the smaller independent jurisdictions, again quite. Sir not withstanding the entirely understandable call for a more comprehensive examination into communicates passing between London and Guernsey during the all too regrettable Landsbanki Affair I especially welcome the Director Generalís very positive comments regarding the regulatory framework evolving locally. For the record, I would not be uncomfortable for a truly independent investigation into the shortcomings of a seemingly one-sided relationship between the British FSA at the time and the GFSC during that unhappy period for all concerned, if only to ensure that never again are innocent depositors are left exposed , the results of which in our regulatory model and to demonstrate the GFSC were not the naÔve or subordinate partners in a relationship with the British regulatory authorities. This matter was discussed by Catel Douzainairs  recently and Thereís a couple of concerns I know they would wish me to air, They certainly didnít share any enthusiasm for regulation, but the cost of the GFSC was identified as a concern by several I think particularly in relation to the insurance sector. They also identified concern about the apparent inability or perhaps lack of willingness to deal with what was  perceived to be known local operators whose modus operandi leaves much to be desired and sir perhaps to detract from Guernseyís otherwise solid reputation for very sound business methodology. There were some concerns expressed about the pensions issue in relation to the  ????? GFSC, not a concern that I share necessarily, because I think the details are set out quite effectively on page 52 & 55 of that report, but I would echo the remark made earlier by deputy Gollop in respect of the GTA I think there are genuine concerns relating to that and given the importance to Guernsey of financial education in the broader sense , I think the detailed courses, preparation for life in the business community that provides , it stands on a very very solid record, sir I think there are many in this chamber and beyond it who would not wish to see ????? of that report. The Director General of the GFSC quotes the very well known Kenneth Gailbraith and saysĒ that inaction would be advocated in the present even though it means deep trouble in the futureĒ.Despite the attempts on page 17 & 18 to afford a justification for the GFSCís stance on landsbanki, I suspect that the overall thrust of this report does indicate a genuine willingness to tackle areas of concern and in the full expectation that the GFSC are willing to avail themselves of advice from those inside the financial sector locally as well as from a mere Catel deputy echoing constituency calls for greater accountability, sir I will be supporting each of the three items on page 985 of this billet.

Deputy Jones : Thank you Mr Bailiff, I too share deputy gollops views on the funding of the Guernsey training agency although it has to be understood that the GFC , GFSC is merely a post box for funding and what concerns me more is that if they wish to give it up what the transition will be for funding in the future. Its something that Commerce and employment are looking at closely and I will be interested in that report when it comes out. I have other concerns, this is a regulatory body now that has £10 million in income and it has seven million plus going out in salaries and administration, now to me thatís a bit of a worry, thatís a huge income and I think those proportions are wrong, Iím not telling anything I havenít raised with several chairmenís over the years about the growing numbers of people who are working for this regulatory body and I understand that regulation is essential of course it is, but we do seem to be in many ways gold plating it and some of the ridiculous questions we are asked these days with ď know  your customerĒ and all the rest of it drives me mad when your trying to get anything done in a bank or anywhere else and their the sort of domestic problems that need to be sorted out on the ground, but I also worry about the cost of regulation in a very competitive business, the finance industry is competitive not only in Guernsey but is competing with everybody else and if we keep tying these companies up in more and more red tape and ever increasing costs that they have to pay for that red tape then I donít think it will be too long before we regulate ourselves out of business and that would be unfortunate. The other problem Iíve got , its almost as if a lot of this regulation is being driven, being governed from elsewhere, we do lots of things and we rush legislation through because of the IMF, some of its done because of the worries of the OECD and an awful lot of it is done because of the wretched EU, which we wonít go into, and thatís another real problem Iíve got, you know weíve lost control in many areas at governing our own financial industry and our own Island and we had quite a lively exchange of views, the Chief Minister and I on Monday on this very point on an issue that will be coming up to the States shortly, but I just think we have to keep a close eye on the GFSC, we have to ensure that it is justified in charging the rates that it is charging and we have to reign it in or protest vehemently  when we believe  that they are going too far and they are bringing  in a regulation that is not in the best interest of Guernsey and is regulation that lots of other jurisdictions have not found the need for, so their really the points I wanted to make and I think itís the only real opportunity we get when their annual report comes to the States.

Deputy Delisle:  Sir I welcome the opportunity to have this report aired in the house, I note in the report concerns over risks to Guernsey, potential reputation damage from the failure of a Guernsey Bank and the reference to the Hunt strategic review of Guernseyís banking industry in that clearly the Northern Rock experience from Landsbanki Guernsey going into administration gave rise to reputational damage and the conclusion on page 21, that there continues to be significant risks to Guernseyís reputation and the new deposit compensation scheme  from activities of deposit gathering banks. Now one has to reflect on the fact that Guernseyís £100 million depositor protection scheme over a five year pay out period will not go very far. The loss of £117 million potential in one bank is an indication of that and these are issues that the commission needs to enhance. I also note that there is a call for more effective communications between Guernseyís Government and the Commission particularly on strategic, economic and commercial issues, Issues related to the Bailiwickís financial services sector and in terms of maintaining confidence in that sector, this suggests that something may be amiss, with respect to the exchange of information between this Government and the GFSC, this is referred to in the second paragraph first column page 13. Perhaps as a result I can ask the Chief Minister and Policy Council and the Economic and Fiscal Policy group of policy Council in their talks with the Commission to bring forward significant improvements to the capitol value of protection in the Deposit protection Scheme and instigate an independent inquiry into the Landsbanki Guernsey banks failure and thereby begin to redress reputational damage from the failure and losses of a Guernsey Bank.Can the Chief minister in his winding up tell this assembly what he intends to do through policy Council and renew discussions with GFSC to improve the Deposit Compensation scheme, because as I said the current guarantee wonít go far in a crisis and whether he has mind to support compensate Guernseyís savers for their losses in Landsbanki after all.

Deputy Carla McNulty Bauer: Point of Correction, it is slightly misleading the house, the depositors compensation scheme is the responsibility of this assembly and has nothing to do with the GFSC.

Deputy Barry Brehaut: I wanted to talk about what Ďs not in the report and I think in the future should be there and Iím sorry members Iím going to refer to e-gambling  and allow you to take a collective sigh when I do. E-gambling, E-gaming is becoming a significant part of Guernseyís economy, the Minister of Commerce and Employment, I think, in a press piece and Television put an estimated value on e-gaming at £50 million and I see cable & Wireless did a piece mid week on how they service the industry, they have recognition world wide for the servicing of e-gambling on Guernsey and the provisions of those services is advantageous, in fact, world leading. My concerns are that this is now regulated , a significant part of Guernseyís economy is regulated  from somewhere else and Iím trying to think of another example of where we would allow that, a crucial, a crucial , now an integral part of our economy regulated by the Alderney Gambling and gaming Commission and whether that is still appropriate, that does give me concern. Another area that does give me concern, the point Iím making obviously, at some point the Guernsey Financial Services Commission, bearing in mind I donít approve of e-gambling, should take e-gambling under their umbrella, Iím seriously concerned, its not good enough to take the major reputational issues, that thatís a few miles to the North and say it wonít effect Guernsey , I have concerns about that. I also wanted to talk about risks and managing risks and the independence between the Guernsey Financial services Commission  and the Government, it is a very simple question in essence. Do the Guernsey Financial Services Commission ever alert the Policy Council to potential risks and do the Policy Council in turn have input that will effect a licensing, I donít know, not of e-gambling, company registration or anything of that matter sir.

Deputy Matthews: Thank you Mr Bailiff, I havenít given any advanced notice to the Chief minister of any questions but I did consider whether or not I should do, I havenít because really Iím  perhaps Iím just looking for a comment and Iím sure he is capable of commenting on what I will refer to in the report without advanced notice. I have as members will know been interested in consumer protection for quite a long time and I was a chairman of the Guernsey consumers group before it became defunct, not I trust causing it to become defunct but was succeeded by other chairmenís who may perhaps have led to it or maybe it was that, however  at that time ten years ago we were lacking in consumer protection other than a very minimal amount and we still are and that does extend to financial areas and I would draw the Chief Ministerís and members attention to the Director Generalís statement on page 13 top of the first column, if I may read out a few lines, ď the Commission has long felt that the States should establish a financial Services Ombudsman, but the States in that process need to recognise that Guernseyís legal regime is inadequate to be protected or supportive of the retail consumer, not only in financial services and anticipating this greater focus on retail services I have constituted a working party within the Commission to consider the possibility of establishing a retail services Financial services division to address the sectors particular circumstances, problems and requirements, and so on. I am very much in support of there being more protection for consumers and I think it well overdue and I would appreciate hearing the Chief Ministerís comments on that particular item in the statement. There are other things that one could comment on, but members have mentioned the landsbanki matter and the Guernsey training agency which I am also concerned about but Iíll leave it at that and just say I will be supporting all three propositions, but I will welcome to hear the Chief ministers comments on that particular paret of the Director generalís statement

Bailiff: I see no one else trying to attract my attention so I call the Chief minister to reply on the debate.

Chief minister Lyndon Trott: thank you sir, maybe I should start with the comments made by deputy McManus and remind the assembly in detail what the Director general writes in the report. He tells us that at the start of 2009 the Promontory report produced by Mr Michael Foot CBE on the Commissions handling of the events leading to the administration of Landsbanki Guernsey Ltd was put in the Public domain, that report concluded the Commission had acted appropriately, had measured up to good practice and that there had been no regulatory failure, so it is difficult to answer a question that was posed later I think by Deputy DeLisle to understand sir what justification there could be for an independent inquiry, however there has on occasions bee an attempt to personalise the dialogue between myself and the Landsbanki action group, if members of this assembly wish , in sufficient numbers as is their democratic right, for there to be an independent inquiry, an independent inquiry there will be, up until now there has been no appetite for such an inquiry in sufficient numbers and I sir have drawn the conclusion personally following consultation with policy Council Collegues in particular, that is because there is an acceptance in this house that there was no regulatory failure and that the advice we have received is accurate.

 Now moving on if I may to the Issues of compensation because in this report we are reminded that landsbanki depositors have received already sixty seven and a half pence in the pound back and the independent Royal court appointed administrators have advised landsbanki Depositors that it is projected that they may receive up to 91pence in the pound, that is an encouraging position to be in.

Deputy Matthews asked me about the introduction of an ombudsman , I speak purely from a personal perspective having not had the opportunity to discuss this with policy Council Collegues in any details of this matter yet. I sir would favour the introduction of an ombudsman, I think it is a natural extension of good practice and it would be interesting to see whether the introduction of that office had any pan island relevance and I think that would be an appropriate initiative.

Sir Deputy Brehaut asked if a dialogue exists between us and the GFSC with regard to certain startup businesses, there is dialogue, those are considered by policy Council very carefully when the need arise and there was another question, I think it was to do with, from deputy DeLisle regarding liaison with the GFSC and policy Council, under the very able Chairmanship of deputy McNulty Bauer something called the finance sector group meets regularly, thatís populated by the key members of the international business community in the island, representatives from GIBA and the Association of Trustees, banking industry and so on and the Director General of the GFSC has a seat around that table and hears at hand the concerns expressed by those representatives officers and a very sensible and productive dialogue exists as a result of that and I think the Director General does refer to that in his report in a positive way. There is always room for improvement within the boundaries and acknowledgement, the acceptance that the GFSC is a fully independent Commission that cannot be and should not be influenced by this assembly, but we have an obligation to ensure that they are aware of international developments and I think that the FSG sir has that organ.

Iím not sure if there were any other questions of me sir and I see no oneÖÖ..

Deputy DeLisle (interrupts): Sir just to refresh the Deputies mind with regard to my second question which was with regard to improvements through the dialogue that he was talking about between the Government and the GFSC to improve the Deposits Compensation Scheme, I donít think he referred to that although I thank him for making the point that he would in fact welcome an independent inquiry into the Landsbanki issue.

Deputy Trott: Not What I said sir and its important  that my word are not deliberately misconstrued, I suspect that on this occasion they were. I said that this is not a matter for me and there have been several occasions where there has been an attempt to personalise this, if sufficient numbers of members of this assembly wish for there to be an independent inquiry, there will be a requete brought forward the funding will be allocated, if the majority wish an independent inquiry to be carried out. What Iím saying I have seen no evidence to suggest that an independent inquiry is necessary. With regard to the depositors Compensation Scheme, thatís a matter for the Commerce and employment department and indeed in the near future, Commerce & Employment department will be presenting to this assembly their views on how that scheme should be improved going forward and at that time deputy DeLisle and other members will have an opportunity to express their views.

THE GFSC REPORT IS NOTED BY THE STATES WITH NONE AGAINST

                                Comments

          

           Cover plate of GFSC 2009 Annual Report

The Promontory Report by Michael Foote
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There is without doubt a disinterest within the States amongst a large majority when it comes to reading reports and actually taking them in. Deputy McManus comments as he opens, " shame about the depopulating chamber" meaning the States Chamber was emptying, a disinterest in the report on the GFSC, the Islands Financial regulator, one of the most important areas of the islands income. Unbelievable!!
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For areas of the report covered by Deputy McManus to the left of this comment please follow the the link. READ MORE 
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Deputy McManus is a sound analyser of reports and has read in depth the paperwork and reports that surround the Landsbanki Guernsey affair. He would not lightly suggest a truly independent investigation into the shortcomings of a relationship between the GFSC and the FSA. The landsbanki Guernsey depositors Action Group have produced much genuine evidence to show the need for such an inquiry and this has been backed by the UK Treasury Select Committee hearing on the banking crisis, The Isle of Man Select Committee hearing, The UK Ministry of Justice Select Committee Hearing & The Icelandic inquiry. We are not sure what else The Guernsey Government needs to push them into their own select Committee type inquiry. Guilt i suspect that we have been right all along.
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Reputational damage happens on a daily basis and spreads around the world again and again. 1600 depositors initially lost £117 million, 600 were Guernsey residents, 1000 were spread around most of the world with their families, that makes a lot of people who are totally cheesed off with Guernsey and its Government and will certainly not be recommending that anyone touch Guernsey with a barge pole.
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details on the Guernsey depositors Compensation scheme can be seen HERE with any updates and comments on the latest news. The Chief Minister did let slip in the debate that Commerce and Employment under Minister carla McNulty Bauer would be bring something to do with the scheme back to the States in the near future.
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When looking at the Chief Minister's replies on the Landsbanki problem, one must realise by now that his replies have been standardised for the past eighteen months or so and very little can be gained from them.

He tends to use the Promontory report as the main stay for his argument and always fails to address any new points or arguments raised.

The fact that he feels that things have been personalised can only be laid back at his door, as from the time Landsbanki Guernsey went into administration, he has personally taken on the political responsibility role and failed to, right from the start, keep Deputies appraised of the full situation.The depositors have not had a Government Political update for one year, since his last brief press release after the visit to Iceland in Aug 2009.

It must be repeated, that the Promontory report was instigated two months after Landsbanki Guernsey went into administration in Oct 2008 (it appeared Jan 2009). Instigated by the GFSC, under their own terms of reference and paid for by them, although the cost of that report is hidden within their accounts. That report cannot be regarded as independent under any circumstances. No statements under oath, no independent witnesses called, no third party questions asked, no documents produced by independent third party request. The final superficial report to say exactly what the GFSC wanted it to say in its conclusions. "No bad faith", "no unreasonable actions," "no regulatory failure,". Those words protected the GFSC from legal action against them.

It is interesting to see in the opening Promontory Notes that, Item 4, Promontory's work on this engagement is limited in nature and may not comrehend any or all matters that might be pertinent or necessary to the receiptient's evaluation of any issues or transaction.

Which perhaps explains the superficial nature of the report and with the mounting mass of evidence already submitted and ignored by both Chief Minister and Policy Council, to contradict the Promontory report, the Chief minister's arguments become weaker over time.

His statement " up until now there has been no appetite for such an inquiry in sufficient numbers and I sir have drawn the conclusion personally following consultation with policy Council Collegues in particular, that is because there is an acceptance in this house that there was no regulatory failure and that the advice we have received is accurate."

is making a decision for the house that they have never been consulted on, not with any in depth accurate information, most i would say  haven't got a clue as to the evidence out there that shows that there should be a fully independent Select Committee type inquiry, they have been brainwashed and take the easy way out. An inquiry of that nature may very well prove embarassing to Guernsey's Government and the GFSC, and in particular the Chief Minister who has tried to surpress the issue right from the start.