Introduction

A vital objective for the FSC is to develop and sustain an open and responsive two-way relationship with the regulated community and the individual firms that make it up.

Open and responsive communication is a key to effective regulation designed to meet this objectives. It is also a key to a regulatory approach which supports the efforts of firms who see meeting regulatory standards as a matter of substance not mere form, and who integrate compliance into their business strategies, management structures and commercial operations. But it is equally important that firms, and those who manage their affairs, should take responsibility for assessing the implications of regulatory standards and requirements for their own business. Our approach to guidance and Concessions or Exemptions reflects these general considerations. Our aim is to be helpful and forthcoming, while furnishing firms with the means to stand on their own feet when working out how to meet regulatory standards and requirements.
The approach set out here is designed to avoid distortion of competition between firms, and to be innovation-friendly. It also reflects the need to use the FSC’s own resources in the most effective and efficient manner, and the importance of management responsibility in the firms themselves.

It is necessary to distinguish between:

General guidance. This is published material, containing guidance for any person in the relevant category or undertaking the relevant activity.
Individual guidance. This is guidance given to one particular firm or other person in relation to their own particular circumstances or plans. It might be verbal or written and, if written, private or publicly visible. It will of course be open to the FSC to convert individual guidance into general guidance.
Concessions or Exemptions. These are dispensations which can be given to individual firms, if they pass the tests laid down in the Supervisory Acts. The effect of a waiver is to change or amend a statutory requirement applicable to the firm concerned.

This policy statement covers in the context of individual guidance, firms’ professional advisers.

General guidance

General guidance has been a major part of the FSC’s regulatory approach since its inception. We will use it to indicate how regulatory requirements and standards apply to particular situations or problems. We will also use it to explain regulatory processes and arrangements, and to clarify the application of the new legislation itself.

The FSC has published numerous Newsletters, Guidance and Practice Notes as well as Administrative Notices to provide General Guidance to firms.

In particular:

If we intend our material to be compulsory, we will express it in the form of binding requirements.
The FSC’s supervisors will not operate on the basis of unwritten rules or unpublished standards. If there is a ‘rule of thumb’ about the interpretation of a general requirement, the FSC will publish the rule.
All the FSC’s general guidance will be placed on the FSC’s web-site and ensure that this is maintained with the latest regulatory position.
The process of developing general guidance is the subject of the various regulatory objectives set out in Section 7 of the Financial Services Commission Act[1].

In particular, there will be both formal and informal consultation[2].

Demand for new guidance, which is often perceived as ‘free’, tends to outstrip the capacity of the regulators to supply it. Our decisions to expend resources on the development of new general guidance will therefore be shaped by such considerations as:

the need to respond to new developments of widespread significance in markets;
the extent to which the regulatory provision in question is susceptible to different interpretations and whether uncertainty about its meaning is impeding business or markets or impairing the protection of private consumers;
the scale and intensity of demand for guidance on the issue in question; and
the number of persons affected.

Trade associations and consumer organisations can often play a valuable role in identifying points on which there is a general (rather than one-off) need for guidance.

Firms often ask how much ‘comfort’ they can derive from following general guidance. The answer depends in part on the scope and comprehensiveness of the particular piece of guidance. Most guidance is designed to throw light on particular aspect of regulatory requirements, not to be an exhaustive statement of firms’ obligations. But if a firm acts in accordance with general guidance in the circumstances contemplated by that guidance, then the FSC will proceed on the footing that it has complied with the aspect of the rule to which the guidance refers.

Each firm knows its own business best, and is therefore well placed to consider the bearing of regulatory requirements upon its own particular circumstances and activities. General guidance cannot relieve firms of this responsibility. Equally, in the absence of general guidance on a particular activity, firms still have the responsibility to think through the implications of regulatory requirements for their involvement in that activity.

Individual guidance

There are bound to be occasions when users will need to go beyond the legislation or general guidance in order to reach a firmer understanding of the effect of its requirements in their own particular circumstances. Demand for individual guidance arises in relation to all sorts of regulatory requirements.

The giving of guidance on an individualised basis is an established feature of regulatory practice by the FSC. For the most part, individual guidance is given in relatively informal ways, for example, in the course of telephone conversations and supervisory visits. The dialogue between firms and the FSC’s front line staff, in particular, is a rich source of individual guidance.

Written guidance to particular firms is also commonplace. Much of it is contained in correspondence between firms and the FSC. Written case-by-case guidance is also regularly given to potential applicants for authorisation and their professional advisers.

The FSC sees open lines of communication between firms and regulator as a positive feature of its regulatory style which should be preserved and developed. The flow of individual guidance enhances the predictability of the regulatory environment from the viewpoint of individual firms, while enabling the flexibility of general rules to be retained. And it is a valuable source of intelligence for supervisors and policymakers, as firms explain their requests for guidance. Equally, however, formulating individual guidance is a resource intensive activity and firms cannot expect to obtain guidance on demand, without regard to the reasonableness of their requests.

The FSC will aim to respond quickly and substantively to reasonable requests (from persons who have made a bona fide effort to analyse the issue) for guidance on regulatory requirements. Individual guidance will continue to be given on a relatively informal basis.

This policy covers both spoken and written guidance, but it extends only to reasonable requests. Whether a request is reasonable or not depends in part on its nature and sometimes on the resources of the firm making it. An enquiry which probes a real ‘grey area’ or a difficulty in relating established requirements to innovative practices or products will have high priority. But firms should do some thinking of their own before approaching the FSC. So, in general, a large organisation with an interpretative query should resort to its own legal and compliance experts before it turns to the FSC. Professional advisers acting for clients should undertake their research and analysis before seeking to enter into a dialogue with the FSC. Small firms typically have less expert resource at their disposal, and this will be reflected in the FSC’s responsiveness to their queries.

Other factors may also influence the reasonableness of a request for individual guidance. For example, it is not reasonable to expect guidance on remote hypothetical scenarios, or to expect instant responses on complex issues. In considering a request, the FSC will always need to be given enough information for a proper evaluation of the situation, and enough time to analyse it.

A difficult issue is how far, and for what purposes, firms should be able to rely on individual guidance given to them. A number of factors are relevant, including the degree of formality that attended the formulation of the query and the giving of the guidance, the lapse of time and the alteration of circumstances since the guidance was given, and the extent to which the interests of third parties such as customers, or the wider market, are at stake. It can be said, however, that the FSC would not take regulatory action against a firm for behaviour in line with current written guidance to it in the circumstances contemplated by the guidance.

The FSC will not, except in highly exceptional circumstances, publish individual guidance in the form of correspondence between the FSC and another person. However, responses of general and lasting significance will be converted into general guidance and published as such.

We will develop appropriate service level standards for our staff to ensure that they have a common understanding of how to behave in response to requests for individual guidance, based on appropriate criteria.

Concessions or Exemptions

The FSC will apply its general requirements in a way that allows them to be tailored to fit the circumstances of particular firms, in accordance with our commitment to a flexible and differentiated risk-based approach. This will generally be achieved through the exercise of regulatory judgment and through good relations with firms. But the scope for Concessions or Exemptions will also facilitate this approach.

The FSC can give a waiver if satisfied that:

compliance by the authorised person with the rules, or with the rules as unmodified, would be unduly burdensome or would not achieve the purpose for which the rules were made; and
the [waiver] direction would not result in undue risk to persons whose interests the rules are intended to protect; and
the Supervisory Acts permits such Concessions or Exemptions to be granted.

Since Concessions or Exemptions can alter the legal rights of third parties, including private consumers, it is vital that their interests should be fully considered, and that the exercise of the waiver power should not leave the extent of their rights obscure. For this reason we regard it as very important that both the fact of a waiver and its effect should be fully transparent. The FSC may also be under a statutory obligation to publish Concessions or Exemptions given (subject to a limited confidentiality exception).

We will develop service level standards to underpin the efficient and flexible operation of the waiver mechanism.

Seeking a Concession or Exemption from the FSC

All requests for waivers or relaxation of regulatory requirements MUST be made formally in writing to the FSC and cover the following;

State the nature of the legislative or regulatory requirement that the FSC is being asked to relax or disapply.
The precise nature of the relaxation or dis-application sought.
A rationale for why this is being sought.
Address any regulatory concerns.
What Guidance Notes, Newsletters or other General Guidance already apply to this requirement.

[1] http://www.gibraltarlaws.gov.gi/articles/2007-03o.pdf

[2] See the FSC's Consultation Policy Page for the FSC’s consultation policy.