Code of Practice for Banks

Summary

This Code of Practice sets out the standards of sound business practice the Guernsey Financial Services Commission expects banks licensed under the Banking Supervision (Bailiwick of Guernsey) Law, 2020 to follow. It is not itself a statement of law and non compliance does not automatically trigger sanctions, but the Commission and the courts may take breaches into account when making decisions about a bank. It covers governance, credit, trading, risk management and cooperation with regulators.

• Integrity: Banks must conduct business with integrity and must not attempt to avoid or contract out of their responsibilities under the Code.
• Know Your Customer: Banks must meet AML and counter terrorist financing obligations under Guernsey law and comply with the Commission's Instructions on the Prevention of Money Laundering.
• Competence and management: Banks need an ethics policy statement, adequate record keeping, a complaints process, compliance with minimum licensing criteria, a staff recruitment and training policy, an organisation chart, and monitoring of compliance with the Law and Code.
• Credit procedures: Banks must have board and management approved credit granting and investment policies, credit administration and monitoring systems, arm's length decision making, collateral valuation, loan classification for arrears, related counterparty limits and board approval for large related party transactions, and country and transfer risk monitoring.
• Trading procedures: Banks operating an active trading book must have policies for identifying, measuring, monitoring and controlling market and foreign exchange risk, with appropriate limits and monitoring systems.
• Risk management: Banks must maintain comprehensive risk management processes covering liquidity, interest rate, foreign exchange, operational and reputational risk, with board and senior management oversight, proportionate to the size and nature of the bank.
• Board responsibilities: The board of directors is responsible for ensuring adequate internal controls for the nature and scale of the bank's business.
• Audit: Banks need an internal audit function reporting to a parent undertaking or an independent audit committee including experienced non executive directors.
• Capital adequacy: Banks must have an internal process to assess overall capital adequacy against their risk profile and ensure their risk asset ratio does not fall below the Commission's prescribed minimum.
• Cooperation with regulators: Banks must deal openly and honestly and cooperate with the Commission and any other regulatory authorities exercising consolidated supervision over them.

The Code was originally effective from 24 November 2003 and was reissued in November 2021 without stated new compliance deadlines; it remains in force as ongoing guidance for licensed banks.

Key obligations

• Banks must comply with AML and counter terrorist financing laws and the Commission's Instructions on the Prevention of Money Laundering.
• Banks must maintain a policy statement on ethics and professional behaviour communicated to all staff.
• Banks must keep and preserve business records for at least the periods required by applicable law.
• Banks must record, investigate and act on customer complaints as appropriate.
• Banks must meet the minimum licensing criteria in schedule 2 to the Law.
• Banks must maintain a staff recruitment and training policy and an organisation chart recording reporting lines.
• Banks must have board approved, periodically reviewed credit granting and investment policies and procedures.
• Banks must classify loans that fall into arrears by a set number of days and must not improve classification through refinancing to avoid arrears status.
• Banks must obtain board approval for related counterparty transactions exceeding specified amounts or posing special risks.
• Banks must set limits and implement independent monitoring for loans and guarantees to related counterparties (other than money market placements).
• Banks operating an active trading book must have policies and limits for identifying, measuring, monitoring and controlling market risk.
• Banks must maintain comprehensive risk management processes covering liquidity, interest rate, foreign exchange, operational and reputational risk with board oversight.
• The board of directors must ensure internal controls adequate for the bank's business are in place.
• Banks must maintain an internal audit function reporting to a parent undertaking or an independent audit committee.
• Banks must have an internal process to assess capital adequacy and ensure their risk asset ratio does not fall below the Commission's prescribed minimum.
• Banks must cooperate openly and honestly with the Commission and other relevant regulatory authorities.

Applies to

banks licensed under the Banking Supervision (Bailiwick of Guernsey) Law, 2020

Related documents

• This document is made under Banking Supervision (Bailiwick of Guernsey) Law, 2020