NEWS that the cost of regulation for licensed institutions is set to rise by more than 25% over the next two years is indicative of a wider problem involving the island’s financial services sector and the Guernsey Financial Services Commission.

While the industry itself might indicate that the matter is closed, its mildly-worded statement masks the reality that relations between sector and regulator have never before been so strained.

Fee increases are never welcome – and many islanders will have little sympathy for ‘fat-cat directors’ having to find a few thousand extra – but there are some important principles at stake.

The rise will actually be a double-whammy – the fees themselves and, if the commission can get away with it, a withholding of the money the sector already pays towards training through the GTA University Centre.

Additionally, there are concerns about the competitive effect the higher costs will have. The commission says they are in part due to fewer licences being granted. So although it has less work, costs continue to go up and, in classic British Rail style, those left standing pay more.

The commission’s move into plush new offices is also questioned, particularly at a time when it has a £3m. black hole in its civil service-based gold-plated pension scheme, a deficit that appears to be worsening.

More worrying for the industry, however, is the growing feeling that regulation under the new regime at the GFSC is expanding for the sake of it.

Who, leading practitioners will question in private, is benefiting from the extra cost and bureaucracy? The draft code on corporate governance, roundly criticised at a recent Institute of Directors event, is a case in point.

Is it a much-needed and sensible document aimed at ending clear problems – or largely unnecessary red tape from a regulator looking to make work for itself?

The concerns should not be underestimated: the industry was prepared to challenge the fee increases in the States but decided against open warfare while the IMF inspection is in full swing.

While pragmatic, that decision means one key question remains unanswered: who ensures that the level of regulation is proportionate to the island’s needs and benefits the island’s economic interests rather than those of the regulator?