Top regulator is to investigate GFSC
Saturday 1st November 2008, 9:29AM GMT.
A FORMER Bank of England executive director will lead the inquiry into the Guernsey Financial Services Commission’s handling of the banking crisis.
GFSC commissioners have appointed Promontory Financial Group (UK) Ltd to conduct an inquiry into how it handled events relating to Northern Rock (Guernsey) Ltd and Landsbanki Guernsey.
The team will be led by chairman Michael Foot.
Mr Foot was the inspector of banks and trust companies at the Central Bank of the Bahamas from 2004 to 2007 and, before that, managing director of the Financial Services Authority, Britain’s centralised regulator of banks and investment companies.
He was also employed by the Bank of England as one of four executive directors, responsible for banking supervision.
‘I am delighted we have been able to identify and engage a firm such as Promontory and someone of Mr Foot’s undoubted international standing, reputation and expertise to conduct this inquiry,’ said GFSC chairman Peter Harwood (pictured).
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So, GFSC have themselves appointed someone to investigate themselves. That makes sense…NOT!
How can Mr Foot be impartial when he is working for the people he is investigating?
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1)I would like Mr Foot to find out why GFSC thought it was unnecessary to restrict Landsbanki deposit-taking post the period when GFSC had grave concerns over Landsbanki’s operation in Guernsey.
This would not have caused a run on the bank – since Landsbanki could have been told to state that its fixed rate bonds were fully subscribed.
Indeed by letting Landsbanki continue to take fresh deposits for fixed term bonds which GFSC knew had no prospect of running to term, GFSC could be said to have aided and abetted the provision of liquidity for a payout to Landsbanki’s corporate investors.
2) I would like Mr Foot to find out why GFSC made no attempts to publicise its stance on retail depositor compensation…. that unlike other banking domains we can now see that Guernsey does not see the retail depositor as a priority for compensation. If this stance had been made public I would have been able to make an educated decision about whether I wanted to deposit money in Guernsey.
3) I would like Mr Foot to find out why GFSC not only faciltated the use of small retail depositors funds to repay a 30%+interest+early maturity payout to Landsbanki corporate investors but allowed this within 7 working days of the Administrator being appointed. I hope Mr Foot finds out when the first large repayments were made to corporate investors since the creditors were given no choice over the action.
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An independent investigation. OK! Certainly hope so!!
It certainly is good news to hear that an independent investigation is soon to be launched.
Will all the findings be made piublic?
I like many others have little prospect of recovering my savings which were deposited in the Landsbanki Guernsey branch in the belief that that bank like all others were properly regulated by apropriately qualified and experienced personnel apointed in accordance with established UK banking supervisory procedures and policy.
The sudden failure of the Landsbanki Guernsey branch of the Landsbanki bank which has illuminated only too clearly that questions concerning whether this institution, (& quite possibly several others currently operating on Guernsey soil) have been and/or are now being properly supervised/regulated by those parties who are responsible for such activities.
My guess is – that this investigation shall find that the personnel responsible for the oversight and regulation of banking activities within their area(s) of responsibility simply “presumed” too much and took too much for granted.. That infact, they failed to perform thorough and appropriately focused inspections as should have been the case; and that as a result were simply as shocked as everyone else when this disaterous event recently occurred.
That said, letrs eagerly await the outcome of this investigation and see whether it will indeed be conducted as “independently” as we are hoping it shall be.
Afterall, should person or persons working for the Guernsey Government have not properly performed the duties assigned to them and as a result a bank failure occurred, (read the failure of Landsbanki Guernsey) and that these same personnel by not performing their duties appropriately allowed a situation to occur that resulted in the bank which failed having insufficient funds available to it to return deposits to those trusting depositors mentioned above, then surely the Government of Guernsey would be responsible and have no other alternative than to offer 100% compensation lost to these same depositors as a result of having been at fault?
Hummm… Lets see how the cards fall folks!
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If Mr Harwood and Mr Neville want to have their own “In house independent review” conducted by someone appointed by themselves, that is their business.
The wider and real world outside the GFSC will want a vigorous examination of the GFSC by someone not unconnected at some time with the Bank of England and FSA, both of whom are themselves under much criticism for their performance in the present crisis.
Is MR Foot sufficiently distanced from the institutional culture of organisations such as GFSC?
Only an independent review by the States will be seen as having any real credibility.
It is crazy for an organisation under criticism to appoint its own inquiry and its own nominee.
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For an inquiry to be truly independent it should be appointed by the States of Guernsey and not the GFSC itself.
How much are they paying Mr Foot to tell them the obvious: that the GFSC should never have authorised the transfer of secure Cheshire building society savings to an Icelandic bank that none of us had ever heard of.
One thing is Landsbanki setting up its own subsidiary and soliciting its own deposits. But allowing them to acquire safe building society savings in inexcusable.
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Actually the heading to the story says it all. Effectively it means “Regulator to investigate regulator”
Lesley Sandles asks some interesting questions. I wonder if Mr Foot will ask the questions and whether the public will be told the answers.
Nothing in the headline post to indicate if the report will be made public. State deputies should insist it is made public, and better still organise their own comfort free inquiry into the activities of GFSC.
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This is ridiculous. A regulator investigating a regulator? As likely to be as conclusive as the Devon & Cornwall Police investigating the stolen £20000 from Customs and Excise.
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The GFSC will already know what the problem is and where the blame lies, but often by appointing someone independent (not) paid for by themselves it gives them (GFSC) an opportunity to pick and choose what extracts come from the report.
For example the entire report might slate GFSC for being niaive but have some reference to the well structured department and excellent open culture – what do you think GFSC will publish?? OF course it will be the latter.
There is no such thing as an independent enquiry when the payment is coming from those being investigated – utter codswallop.
As for the suggestion that the States should investigate GFSC – are you serious? The States hardly has an credible, qualified employees nowadays as over the last 4 years they have made a point of encouraging leavers, retirements, recruitment freezes etc in order to reduce States employee levels.
I said it at the time, that the reduction in States employees = inability to provide effective management of basic infrastructure for the island, finance is of course part of any basic infrastructure.
Short sighted and poor leadership. Let me see, who was managing T&R at the time – Mr Trott.
I’m sure he will come up with something really useful for those of us who have suffered, like, ‘ah ha, however we can now afford a new machine that takes x-rays of peoples toes instead of returning money owed to investors’.
How much money did the States have invested in this bank?? This should be made public immediately as it is taxpayer funds and there should also be a statement advising what realistically might be recovered.
I don’t think it is any co-incidence that £230m was wiped off the pension scheme.
I also suspect someone was probably taking ‘advice’ i.e. incentives, i.e. backhanders, to invest in a particular area.
Guernsey Govt is hopeless.
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Whilst watching the US election results I was browsing through a recent copy of Private Eye. The following comment about a financial regulator met my eye. For a moment I thought I was in a time warp and was reading the key findings of the review into the conduct of the GFSC in the regulation of Landsbanki Guernsey.
The comments were “A lack of sufficient supervisory engagement with the firm……a lack of adequate oversight and review…inadequate specific resource……a lack of intensity by the FSA”
These findings from the FSA internal audit division report into Northern Rock, March 2008 would, on the available evidence, seem appropriate comments on the GFSC regulation of Landsbanki Guernsey.
You never know, Mr Foot, the regulator reviewing a fellow regulator, and appointed by the regulator he is reviewing; might have the same fortitude as the FSA internal audit division, and be critical of his paymaster.
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What a lovely vision of juxtaposition….reading the Private Eye and watching the US elections…bit like reading War and Peace whilst hammering a nail into wood.
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I must admit as someone who works in the Financial Services industry in Guernsey i find all of this hilarious. The GFSC is all over every single trust company on the island to the extent that they have made the job incredibly frustrating. if you want to distribute 5ok to a 90 year old granny for a hip replacement its as if she was a prime terrorist activist. And yet where were the GFSC when they were needed. ABSOLUTELY NOWHERE CAUGHT WITH THEIR PANTS DOWN!
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Some superb comments on this issue.
Many of us us having been saying from the outset of this crisis that the States need to set up their own independent enquiry.
The GFSC should regularly review themselves but just how much is this internally driven investigation going to cost ? The cost will presumably be paid for out of licence fee income and/or from the States. Is this really good governance by the Commissioners ?
To have any form of credibility the States needs to set up a full indpendent enquiry to investigate not just GFSC but the Commissioners, and indeed the key politicians and other public servants involved.
Who is going to demand this happens ?
Our Chief Minister, our Treasury Minister, our Commerce and Employment Minister, our Policy Council ? They should be, but are they going to ? Is it going to be left to other politicians ? Some of our People’s Deputies have got to take action now.
Who regulates the regulator ?
Or who should regulate the regulator ?
The answer is that it is the States of Guernsey whose job it is to do this.
We really cannot have a rudderless ship with the regulator having no controls on them and no political direction.
It is the politicians who were elected to be in charge. Let them now do their job and show some proper leadership.
Tony Webber
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It must be presumed that Mr Foot the GFSC appointed expert to review its conduct in the Landsbanki Guernsey fiasco, is aware of the Treasury Select Committee’s Fifth Report on Northern Rock..
If this presumption is correct, I just wonder if he will ask whether the GFSC had learnt any lessons from this – lessons that should have been applied to the regulation of Landsbanki Guernsey..I would also be interested in Mr Foot’s views on this part of the Treasury Select Committee’s report
“268. The FSA told us that it was conducting its own review of lessons to be learned from its regulation of Northern Rock. This is intended to be published in March 2008, but may not be published in full. We think it wrong in principle that the Financial Services Authority should be investigating its own failure. We recommend that the FSA ensure that there is an independent component in the analysis of the decision-making of the FSA in relation to Northern Rock.”
The Treasury Select Committee explored potential warnings of the Northern Bank failure. One warning was the rapid growth of the Northern Rock
Other missed warnings included the Northern Rock business model. Whilt not being the same as Landsbanki Guernsey there were numerous warnings such as the extent of upstreaming, the well documented views on the stability of Icelandic banks and their increasing risk of default.
Of some interest to the Treasury Select Committee was the view of the Chancellor of the Exchequer who that it was reasonable for regulators to look at companies that appeared to be expanding quickly. He told them:
I have said before that regulators should concern themselves not just with institutions that do not appear to be doing terribly well but also with institutions that do appear to be doing terribly well because, if they are out of line, it may be they are doing a very good job but they ought to just be sure that that is the case
I also wonder if Mr Foot will feel that the GFSC should have learnt the lesson from the Northern Rock report and its section on dealing with failing banks
“We recommend a series of measures for handling ‘failing’ banks in an orderly manner and in a way that insulates taxpayers and small depositors from the risk of banks failing. We recommend that a relevant authority be given power to acquire information relating to individual financial institutions and to take action in relation to an institution in specified circumstances. We also propose a special resolution regime for failing banks to enable smooth administration of such a bank to be combined with arrangements to ensure that insured deposits are safe and accessible.”
We must wait and see if the GFSC has sufficient sense of public responsibility to make the report of Mr Foot public.
In view of the Treasury Relect Committee’s report perhaps deputies will ask for a truly independent review.
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Can’t say I had heard of Mr Foot or Promontory Financial Group (UK) Limited – perhaps there should be an independent inquiry as to how and why that particular firm was appointed.
In fact, why don’t the GFSC carry out this inquiry?
There would be a certain insane symmetry to the idea of the GFSC conducting an inquiry into a company they have appointed to conduct an inquiry into themselves.
The idea is only slightly more ridiculous than what is actually happening.
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CD
Both Mr Foot and Promontory hsve good pedigree.
If Mr Foot had been been appointed by the States many of my concerns would not have surfaced.
My problem is in the process by which Mr Foot and his company were appointed, and by whom they were appointed.
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Great posts bove.
Guernsey FSC, you were responsible for ensuring that the Landsbanki Guernsey bank operated in a responsible and acceptable manner. Yet it appears that you failed to do so.
Therefore, clearly you have aresponsibility to offer compensation to the many depositors who are now suffering a s a result of having trusted in your reputation.
The logic is simple. Pay up so the the depositors may be compensated and then seek compensation for doing so from the Icelandic government.
Guernsey! Stop trying to avoid the issue. Compensate apprpropriately and maintain your financial reputation or continue trying to avoid doing so and lose the reputation which it has taken you so long to build up.
Do the right thing
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Well I guess the age old question of “who regulates the regulators’ has been answered. It’s the..er….um…regulators.
So who regulates the regulators that regulate the regulators?
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Steve the UK Ex-Pat
Word perfect. Your thoughts are that of many. The only critism from me is I think you need to recharge your keyboard?
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Jackie
The expensive answer is that no one regulates the regulators.
Regulators frequentrly fail and when they do they blame everyone barthemselves.Note the GFSC “we done nothing wrong, Guv” comment when they appointed theirm own nominee to review their performance.
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