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good morning and thank you very much for coming today uh before caroline uh considers banking issues specific to guernsey the question i would like to address in the next few minutes is whether in the wake of the post 2007 crisis the global banking system eight years down the line and after a lot of political focus is now safe to a level the public might expect there are several factors that have made the banking system safer banks now have more capital with the amount still rising it is better quality capital the potential demands of taxpayers have been reduced through new bail-in structures banks are more liquid the costs of either corporate or personal misbehavior are higher some investment activity has been moved out of the banking system or is now better priced on the other hand there are still several areas of potential weakness the use of internal models can materially reduce a bank's regulatory capital stress testing has often proved unreliable there are political and theoretical problems around provisioning regulatory leverage ratios are not yet generally in force credit quality has not yet been tested by high interest rates cross-border bank resolution is unresolved there are issues around bond and fx market liquidity due to regulatory pressure on banks on top of this much change has yet to take place in the uk there is the issue of the ring fencing of uk clear retail operations and the push to encourage challenger banks the basel committee is still undertaking work on off-balance sheet items and has yet to set out its definitive thoughts on both the new operational risk capital charge and revised credit risk weightings on the wider stage we have yet to see how monetary policy makers mix together asset pricing credit controls and regulatory policy i leave you to consider whether the eu's approach to financial stability is more functional now than it was in 2007. were we to agree that the global banking system is safer than before 2007 we would still have to ask ourselves how far banks are insulated against the risks that may have been driven out of the banking system only to remain in the wider financial system that is a question that few central bankers answer with confidence we live in a different world to pre-2007 that has its own risks this world includes low to negative interest rates low price but high asset inflation a rock bottom oil price competing exchange rates higher levels of public and private indebtedness and an ongoing rebalancing of economic power between the west and the east so any comparison between 2000 and today needs to be qualified nevertheless in aggregate i suggest that the banking system is safer than in 2007 and this is a cause for optimism the main reason is that we are now moving to a point where the public sector is operationally able in the crisis to lift systemic financial infrastructure such as retail deposits out of the hands of the private sector without paying a rent having said that this is not to say that the banking system is yet saved the level of public might reasonably expect in the wake of 2007 this is a sobering thought but if i may adapt to common saying whilst the financial crisis may be easy to start it is difficult to end with that thought in mind i'll now hand over to caroline thank you jeremy and good morning everybody in his introduction jeremy posed the question as to whether banks are safer now than they were in 2007. my part of the session will touch on how we in guernsey are contributing to improved safety in the banking system here by following basel iii principles i'll review some of the activity that we've conducted in 2015 and look ahead to what we propose for 2016. firstly though i wanted to spend a few minutes considering how the industry looks today and what external economic issues might influence us in the future the uk tax changes in relation to non-dom status and the general global anti-avoidance agenda will be watched with interest will the use of offshore structures to hold property offshore mortgages and banking facilities still be worthwhile i know that some of you are thinking about these issues will the oecd common reporting standards for the automatic exchange of information impact on the use of offshore bank accounts once the reporting requirement kicks in what will the cost be of implementing the framework now that fatca has settled down it may be that this additional reporting requirement is not significant but is everybody ready for it in 2016. will the general global moves towards anti-tax avoidance transparency beps and diverted profits tax ultimately make the use of offshore structures less attractive from a cost and effectiveness perspective does crowdfunding pose a threat to the private banking and wealth management industries or is it an opportunity for guarantee i'm sure my colleagues in the fiduciary and innovations division will talk about this this afternoon i don't pretend to have the answers to these questions but they amongst others will need to be faced by our industry in the near future turning now to look at trends in the banking sector over the past year the number of licensed banks has fallen to 29 following two branch surrenders this year the rate of closure seems to have tailed off but further surrenders not least as part of rationalization processes are likely however this year we have had conversations with prospective banking licensees so there is interest out there in guernsey as a banking centre we are of course happy to speak with any prospective applicant at an early stage in order to give them a clear steer as to what the commission's expectations and approach will be now the following slides use the data up to the end of quarter two this year total staff numbers have fallen slightly and are now below sixteen hundred you will all be aware of some group restructurings that have been announced often these are positive for guernsey but on some occasions they are negative although there is no particular pattern evident to us at the moment total assets are stabilized and now stand at around 109 billion the fall in swiss fiduciary deposits has slowed and they now stand at around 20 billion with others totaling 89 billion of which a key indicator is third party deposits which have remained fairly stable at around 30 billion over the past year capital held per subsidiary bank has risen slightly during the past three years after falling slightly from 2012-13 banks appear to be retaining a small amount of profit dividending back less than 100 percent and there have been no significant repatriations of capital or closures of subsidiaries in recent years perhaps in preparation for basel iii banks are showing signs of holding on to capital where possible this slide shows the main issues to which we devoted our resources during 2015 and i'll talk a little about each policy issues in relation to basel iii prism and some practical matters regarding our supervisory programme continuing developments in uk banking reform and our involvement in the super working group firstly in relation to capital adequacy and leverage ratio we issued a consultation paper in july this year the consultation proposed revised definitions of regulatory capital the establishment of new minimum regulatory capital requirements changes to the calculation of risk-weighted assets and the introduction of a leverage reporting requirement all of which are consistent with the basel iii capital adequacy standard we provided members of the agb with a presentation on the proposals in may in advance of the publication of the consultation paper the commission has now considered the responses to the consultation all of which were supportive of pressing ahead with the proposals we are currently testing our new spreadsheet with a couple of willing volunteers and are also having the spreadsheet reviewed by a third party to ensure it works as intended so we intend to publish the revised policy framework and spreadsheet soon we then propose to run the old and new frameworks sorry in parallel for quarter 4 2015 followed by implementation in the first half of 2016. transitional adjustments can be applied to reduce the impact of the revised policy although this will only rarely be necessary the leverage ratio is also discussed in the consultation paper and this remains a reporting requirement at this time although we may take leverage into account in considering the pillar ii capital requirement turning now to liquidity and in july the three crown dependencies issued a tri-party discussion paper on liquidity in relation to subsidiary banks it is not currently proposed to apply this to branches responses to this are also being reviewed and further work will be carried out early in 2016 which is likely to include an impact assessment last year my colleagues spoke to you about our risk and impact based supervisory model prism of which you've already heard something this morning as you'll be aware each firm is classified by the level of impact it would have on its customers the financial system in the bailiwick and elsewhere and to the baileywick economy if it were to fail or to engage in consistently poor conduct by now i'm sure most of you will be aware of your impact rating high medium high or medium low we don't have any banks classified as low impact the level of supervisory engagement is now driven by that impact rating of the firm this year the banking supervisors have worked hard to develop and embed this framework and those of you who have already been subject to a full risk assessment will have noticed the in-depth work that has been undertaken in order for us to gain a better understanding of your business each of the supervisors has found the process to be extremely informative and valuable in deepening their understanding of each bank risk management and its business model this year we've carried out full risk assessments of eight banks and reported our findings to our internal risk governance panels any adverse findings to date have been around operational risk and the oversight of outsourced functions in relation to operational risk these included concerns about the adequacy of policy and procedures and the internal communications of those policies and procedures in some cases we considered that more could be done in training and in understanding of key operational risk areas and also noted potential improvements to management information being gathered and reported on in relation to outsource functions it is of course essential that the board or management committee have adequate oversight of the function and put in place effective controls such as a robust audit process one area in which we have begun to probe further this year is in relation to conduct risk for private banks and wealth management operations we've always considered conduct aspects of retail banking but are now considering this in relation to high net worth individuals so far we've conducted two in-depth reviews and have been pleased not to discover any major causes for concern we've observed that high net worth clients are as you might expect much better place than retail clients to judge the quality of service and it may there be that but may therefore be self-fulfilling that they obtain a higher standard of service with more work to do in this area and have learned some lessons ourselves in terms of our approach to these reviews i should also mention that we're observing positive improvements in the approach to aml within private banks my colleagues in the financial crime division were also very appreciative of the assistance provided by the banks in relation to the money ball inspection so thank you to all who were involved we continue to participate in colleges of supervisors whenever possible which enables us to participate in a coordinate coordinated approach to the supervision of a banking group attendance at colleges assists in our understanding of the parent banks due to the exchanges of information that take place it builds relationships with home supervisors and also helps to raise the profile and reputation of guernsey as a well-regulated and cooperative jurisdiction the frequency of colleges is at the discretion of the home supervisor and we don't always have to travel as they are where feasible held by video or teleconference this year we've attended or will be attending a total of seven bank colleges five in person and two by telephone earlier this year we undertook a series of thematic reviews in relation to credit risk although credit risks forms a normal part of the supervisory engagement process we thought it would be helpful to have a specific and more in-depth look into this important area in order to compare different business models and to build up the supervisory knowledge in this area we selected several banks each with different business models and spent two to three days in each bank there were no major areas of concern although it was interesting to observe the different control environments that had developed within each business model it was also apparent that problem credits often develop when the banks drifted outside of their target markets and this illustrated the importance of clear credit policies which has strictly adhered to there were also issues when the banks had made tacit assumptions regarding timing and method of repayment without confirming this with the client and this often led to issues further down the line we found this thematic to be extremely useful and it will inform our approach to credit risk in the future uk banking reform is progressing and we know that guernsey banks will be outside the ring fence however further clarity is awaited in relation to how the pra will implement the ring fence and they continue to issue consultation and policy papers the latest papers issued on 15th of october contained no surprises for us each affected bank with a guernsey presence is considering how best to structure or restructure itself for the future we've held bilateral meetings with the banks and they've when they have been in a position to discuss their proposals so that we can provide early feedback and identify any areas which may concern the commission discussions so far have been positive in that the banks are looking to see how they can continue in guernsey and perhaps even strengthen their position relative to their group the commission has been involved in the sipa working party looking at guernsey membership of the single european payments area which is administered by the european payments council it is pleasing that this project which has been undertaken in conjunction with government and with also with jersey the isle of man and the channel islands brussels office is progressing positively the commission has played a supporting role thus far however as part of the legislative framework the commission is likely to have a role in monitoring payment service providers and their compliance with the relevant regulations further work on what that might mean for the commission and for those banks that join the scheme will need to be undertaken once the requirements become clearer so let's look ahead to 2016 and what that holds in store for us i mentioned the papers on capital and leverage and we have work to do there to finalize the policy framework and i spoke about this earlier following on from the crown dependencies discussion paper on liquidity we will work with you to carry out an impact assessment prior to issuing our consultation paper during the first half of next year the revision of laws project will take up some of our time during 2016 although there are not any banking specific matters which fall into that project however to the extent that the more general changes will impact on banks we will keep you informed during 2016 our preparation for an imf visit which will have a prudential and macroeconomic focus will get underway in earnest we're not concerned about this having carried out a gap analysis some time ago but there is a considerable amount of work to do in getting ready for such a visit for next year's thematic review we plan to do some assurance work around prudential regulatory reporting we propose to look at the controls around the production of the r turns the level of review and sign-off the audit process and the accuracy of the returns you may wish to review the paper published by the jersey financial services commission last year on their themed examination program on prudential reporting it will not surprise you to learn that we're also considering resolution and how guernsey should respond to international developments in this area the financial stability board has identified resolution regimes as a priority area and it is something that the imf has begun to look at as part of the financial sector assessment process in guernsey we do host subsidiaries and branches which will be impacted by home authority resolution regimes guernsey would need a channel through which to deal with the unlikely event of bank failure and also to enable communication with future resolution colleges involving banks with guernsey operations work on this subject is at an early stage but will need to be considered in detail in 2016 in conjunction with government and the other crown dependencies that's all i wanted to say today and jeremy and i will be happy to answer any questions thank you