Is Afaafa a regulated or non-regulated business?

Afaafa has recently received its registration from the Guernsey Financial Services Commission (GFSC) as a “Non-Regulated Financial Services Business”, which will allow us to work with a wider range of emerging growth companies in a broader fashion than we have done previously.

It is an exciting milestone in the development of the business. Now that we have our registration from the GFSC, Afaafa can, and will, act in a purely advisory capacity to emerging growth businesses. Previously we have only dealt with companies in which we had a stake but for firms that did not need capital we were unable to assist. This is no longer the case. However, what on earth is a “Non-Regulated Financial Services Business”, and how can a company be held to regulatory standards as a “Non-Regulated” business?

In essence, the Non-Regulated Financial Services Business (NRFSB) regulations were brought in by Guernsey a number of years ago to provide a regulatory framework to cover financial businesses that were not banks, asset management companies or fiduciary businesses. Whilst having a “none of the above” regulatory status is somewhat anomalous, calling the status “Non-Regulated” is strange, since a company that is registered as an NRFSB is required to meet various regulatory requirements, and is subject to spot checks and regular visits.

At the core of the NRFSB regulations is a need to ensure that financial services businesses apply Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) rules, to ensure that Guernsey has standards that at the very least accord with the Financial Action Task Force recommendations. Related, although covered by other legislation, is Anti-Bribery and Corruption (ABC). As the IMF points out, these areas are intrinsically linked and from any company’s standpoint, rigorous standards for all three need to be applied, particularly in an offshore jurisdiction, where the assumption by those onshore will be of poor standards.

The way in which the GFSC examine these issues is through the company’s Business Risk Assessment, identifying where specific risks regarding AML/CFT/ABC and how the company mitigates these risks. However, the Business Risk Assessment goes beyond simply AML/CFT/ABC, covering other aspects of potential risks, providing the GFSC the ability to examine the business model and areas of potential concern.

The NRFSB legislation will be replaced, probably next year, with a new, more comprehensive Lending, Credit and Finance Law which is currently in consultation. Whilst the NRFSB had a flexibility in its approach, through being non-prescriptive, a loss of some of the flexibility to gain a more understandable regulatory structure will save many hours of explaining to those outside of the jurisdiction how a business can be regulated as a “non-regulated” business!

Posted on August 14, 2017

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