The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 as amended (“the Financial Services Commission Law”);
The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000, as amended (the “Fiduciaries Law”);
The Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended (the “POI Law”);
The Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002, as amended (the “IMII Law”);
The Banking Supervision (Bailiwick of Guernsey) Law, 1994, as amended (the “Banking Supervision Law”); and
The Insurance Business (Bailiwick of Guernsey) Law, 2002, as amended (the “Insurance Business Law”) (together “the Regulatory Laws”)
Mr Bruce David McNaught (“Mr McNaught”) - Born: 10 September 1961
On 8th June 2018, the Guernsey Financial Services Commission (“the Commission”) decided:
• to impose a financial penalty of £13,000 under section 11D of the Financial Services Commission Law on Mr McNaught;
• to make orders under section 17A of the Fiduciaries Law, section 18A of the IMII Law, section 28A of the Insurance Business Law, section 17A of the Banking Supervision Law, and section 34E of the POI Law, prohibiting Mr McNaught from: (i) holding the position of director, controller, partner, manager, financial adviser, general representative or authorised insurance representative (as applicable); and (ii) acting as Money Laundering Reporting Officer (“MLRO”) or Compliance Officer, within a person licensed under any of the Regulatory Laws, for a period of 4 years;
• to disapply the exemption set out in section 3(1)(g) of the Fiduciaries Law in respect of Mr McNaught for a period of 4 years; and
• to issue a public statement under section 11C of the Financial Services Commission Law.
On 9th August 2019, the Commission decided that the public statement under section 11C of the Financial Services Commission Law would be issued in the current form.
The Commission considered it reasonable, proportionate and necessary to make these decisions having concluded that Mr McNaught failed to fulfil the minimum criteria for licensing (and in particular was not a fit and proper person to hold the positions of director, controller, partner or manager of an applicant or licensed fiduciary) under Schedule 1 to the Fiduciaries Law (and also was not a fit and proper person in terms of Schedule 4 to the POI Law, Schedule 4 to the IMII Law, Schedule 3 to the Banking Supervision Law, and Schedule 7 to the Insurance Business Law, which set out the minimum criteria under these Laws).
Mr McNaught became a Non-Executive Director of a Guernsey entity licensed under the Fiduciaries Law (“the Licensee”) in June 2000, and was then employed by the Licensee as an Executive Director in May 2010. In 2013, he became a controller of the Licensee, and in 2014, MLRO.
As part of his terms and conditions of employment with the Licensee, among other things, Mr McNaught was not permitted to accept any other work, or have any interest in any other business or occupation, without the express permission of the Licensee.
In February 2010, Mr McNaught had established Candie Accounting (which after a time, also used “The Guernsey Accountants” as an alternative trading name). He considered himself to be the proprietor/principal of that entity. Candie Accounting was registered as a Prescribed Business in October 2014, with Mr McNaught as the MLRO.
In the period from May 2012 to February 2016, Mr McNaught incorporated 12 Guernsey registered companies for clients of Candie Accounting. However, in each instance, Mr McNaught made use of the Licensee’s registration with the Guernsey Registry (i.e., he used the Licensee’s online log-in details) in order to carry out the company incorporation. Whilst Mr McNaught did carry out due diligence with respect to these various Candie Accounting clients (and later provided copies of that paperwork to the Commission), the material was held by Mr McNaught at his house.
In February 2016, the Licensee commenced a disciplinary investigation into Mr McNaught, with regard to his Candie Accounting business. During this process, in April 2016, Mr McNaught tendered his written resignation from the Licensee.
In March 2016, Mr McNaught had contacted the Commission. He indicated that he had occasionally incorporated a Guernsey company for clients of Candie Accounting, and had invoiced for that service through Candie Accounting rather than the Licensee. He thought that he might be in breach of the Prescribed Business Regulations, for which he apologised, and asked what the Commission wished done. Mr McNaught also indicated that an exchange of emails with the Guernsey Registry earlier that month had led him to realise that he may be in breach of the Regulations. Company formation is a regulated activity that may only be carried out by the holder of a full fiduciary licence.
The Commission’s investigation focussed on:
• whether Mr McNaught contravened the Fiduciaries Law by (i) incorporating companies for clients of Candie Accounting, so that he conducted (by way of business) the regulated business of company administration without the appropriate license under the Fiduciaries Law; and (ii) offering to carry out company formation service (by way of business) without having the appropriate licence; and
• whether Mr McNaught fulfilled the minimum criteria for licensing, and in particular whether he was a fit and proper person to hold the positions of director, controller, partner or manager of an applicant or licensed fiduciary, under Schedule 1 to the Fiduciaries Law (and also whether he was a fit and proper person in terms of Schedule 4 to the POI Law, Schedule 4 to the IMII Law, Schedule 3 to the Banking Supervision Law, and Schedule 7 to the Insurance Business Law).
The Commission found that Mr McNaught failed to fulfil the minimum criteria for licensing in the Fiduciaries Law, and in particular that he is not a fit and proper person in terms of each of: (i) the Fiduciaries Law; (ii) the IMII Law; (iii) the Insurance Business Law; (iv) the Banking Supervision Law; and (v) the POI Law.
Schedule 1 of the Fiduciaries Law sets out the minimum criteria for licensing, with regard to that legislation. These require, for example (and in broad terms):
- the carrying on of a licensed business with prudence and integrity; with appropriate professional skill; and in a manner which will not tend to bring the Bailiwick into disrepute as an international financial centre (Sch 1, para 1(1)).
- in conducting licensed business, acting in accordance with the Commission’s rules, codes, guidance, principles and instructions (and any other applicable enactment) (Sch 1, para 1(2)).
- key individuals involved with licensed businesses being ‘fit and proper’ persons (Sch 1, para 3). In determining this, regard must be had to a number of matters, which include: probity, competence, experience and soundness of judgement; and knowledge and understanding of the legal and professional obligations. Regard may be had to previous conduct and activities, in particular any evidence of (amongst other things): (i) contraventions of the Fiduciaries Law; (ii) engagement in business practices which are improper or reflect discredit on his method of conducting business or his suitability to carry on regulated activities; and (iii) engagement in business practices, or conduct, which casts doubt on competence and soundness of judgment.
The Commission found that when Mr McNaught incorporated the 12 companies for clients of Candie Accounting, he was doing so as the principal of Candie Accounting. It was an activity regulated by the Fiduciaries Law and carried on by him by way of business - and accordingly he required a licence to do so. Mr McNaught did not hold the appropriate licence as the principal of Candie Accounting. For a period between August 2015 and March 2016, Mr McNaught offered on the Candie Accounting Website, the service of Guernsey company formation. In doing so, he offered to carry on a regulated activity, by way of business, without the required licence. Accordingly, the Commission found that Mr McNaught had contravened the Fiduciaries Law in these respects. Even had the incorporations been carried out in his capacity as a director of the Licensee and with their awareness, the Commission considered that the manner in which Mr McNaught carried out the company incorporations would in any event have placed the Licensee in breach of obligations under the Bailiwick’s AML/CFT Regulations (the “POC Regulations”) and the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing (the “Handbook”).
Mr McNaught’s position that he did not ignore, but was not sufficiently conversant with, the legislation applicable to the activities which he was carrying out (i.e., the applicable rules on who was permitted to carry out company incorporations), indicated a lack of the necessary knowledge and understanding of legal and professional obligations, and a lack of prudence.
Mr McNaught was not fully candid with the Licensee about his incorporation of the 12 companies, and the full circumstances and purpose of those incorporations. Given that Mr McNaught was using his access to the Guernsey Registry as a director of the Licensee to carry out the incorporations, this was a serious matter.
Despite being a director of the Licensee, Mr McNaught failed to act in the company’s best interests. For a period of around 6 years he carried on personal business as the principal of Candie Accounting, without the Licensee’s permission - and making use of his access to the Guernsey Registry as a director of the Licensee. Furthermore, whilst it was of comfort that Mr McNaught did carry out due diligence on the Candie Accounting clients for whom the companies were formed, that material was held by him at home and was not held by the Licensee. There was no record on the Licensee’s system as to where that documentation could be obtained, and it was not therefore readily retrievable. The Licensee could not carry out the periodic review of ease of retrieval required of Licensees. Further, Mr McNaught’s actions involved conducting business using the Licensee’s resources that he knew was not covered by the Licensee’s Business Risk Assessment (“BRA”). All of this was done to benefit Mr McNaught’s personal interests as the principal of Candie Accounting.
Mr McNaught was unable to explain how he came to offer services on his website, which he ought not to have offered.
After the incorporation of the 12 companies came to light, Mr McNaught was in communication with the Commission and was interviewed, and his legal representative also made written representations on his behalf. Inconsistencies in the various accounts which Mr McNaught offered of what occurred, caused the Commission concern about Mr McNaught’s openness and honesty during the investigation.
Accordingly, the Commission considered that doubt is cast on Mr McNaught’s competence, and also on his probity and the soundness of his judgment. Further, the Commission considered that he engaged in business practices which were improper, and reflect discredit on his method of conducting business and his suitability to carry on regulated activities.
• There is no suggestion that an individual or corporate client sustained financial loss as a result of Mr McNaught’s contraventions of the Fiduciaries Law. Mr McNaught made only a modest amount from the company incorporations, although this must be balanced against the licensing costs which a licensed fiduciary would have paid over the period.
• Mr McNaught did voluntarily attend an interview with the Commission, and provided certain documentation.
• Mr McNaught did offer to take any necessary steps, and provided an assurance that the issue would not re-occur when he contacted the Commission in March 2016. The Candie Accounting website was changed in March 2016, so that the service of company incorporation was no longer offered. Mr McNaught has indicated that he is not engaged in a regulated services business, and has no intention of re-engaging in this.
• The non-fulfilment of the minimum criteria for licensing was constituted by deliberate actions on Mr McNaught’s part, which were his direct responsibility. Mr McNaught was experienced as a director of a fiduciary and MLRO, but did not appear to know that he was not permitted as the principal of Candie Accounting to carry out the company incorporations. This implies he was not sufficiently familiar, and did not take adequate steps to familiarise himself, with the relevant legislation before carrying out (or offering to carry out) the company incorporations. Even had the company incorporations been carried out in his capacity as a director of the Licensee, the manner in which Mr McNaught carried these out would have placed the Licensee in breach of obligations under the POC Regulations and the Handbook. Where a person carries out regulated activities without taking sufficient steps to consider, and ensure that (s)he is acting in accordance with, the appropriate legislation, the Commission considers that there is an element of recklessness.
• Mr McNaught appeared not to appreciate, and attempted to downplay, the seriousness of his conduct.
Whilst Mr McNaught did bring the conduct in question to the attention of the Commission, he did so only after the Licensee had commenced a disciplinary process against him as a result of his incorporation of the 12 companies. He also failed to disclose the disciplinary process to the Commission. Accordingly, this can be no better than a neutral factor.