AN ADMISSION this week from the Guernsey Financial Services Commission that, yes, it had become disconnected from the sector it regulates was an important first step towards re-establishing a better relationship with those in financial services.

It was also a recognition of what this newspaper has been highlighting this year, that all elements of the industry were close to mutiny over the way they perceived the commission to be discharging its duties.

No regulator is ever going to be best friends with those he supervises – unless doing the job badly – but there has to be an understanding on both sides of what the controls are trying to achieve and why.

With the benefit of hindsight, it is tempting to say that the deterioration in the relationship was inevitable given the global financial melt-down and the absence of current guidelines within which the GFSC should operate.

Without direction, all any supervisory body can do is to apply the rules it is tasked with maintaining. And, given the blame that would fall on the GFSC in the event of a hostile review by, say, the International Monetary Fund, the tendency to tighten the screw to the maximum is perhaps understandable.

While the latest disagreements between industry and regulator have been damaging, there is the potential for some benefits to emerge.

The first is political involvement and the production of an updated direction of regulatory objectives, which will provide the context in which an independent regulator is to operate. The second is a review of the value of regulation and its purpose, which will help to redefine what Guernsey wants out of regulation – the minimum intervention to help retain a premier division finance sector – and the GFSC’s role in that.

So far, so good. But the industry has been particularly bruised by recent events and will need to be convinced that the regulatory leopard can indeed change its spots.

They will need convincing that the terms of reference of the review and whoever conducts it are sufficiently robust to guarantee change and are not simply chosen to reinforce the existing unhappy regime.