Guernsey welcomes digital innovation with new GFSC Sandbox service

The Guernsey Financial Services Commission (GFSC) has launched an Innovation Sandbox and Concierge service to attract digital pioneers looking to explore innovative digital finance solutions.

As part of the commission’s broader Digital Finance Initiative (DFI), the Innovation Sandbox and Concierge service, is designed to promote Guernsey as a trusted, agile and forward-thinking jurisdiction in the digital finance space.

In this article we unpack what the service consists of, who will benefit and what this means for anyone operating in private capital markets.

What is the GFSC Digital Finance Initiative?

Following Guernsey's successful MONEYVAL assessment, the GFSC has turned its attention to digital innovation in the financial services sector, a policy which we think is both timely and clear-sighted.

As we discussed in our recent Channel Islands funds update, in September of this year the GFSC launched the DFI - a programme intended to support Guernsey’s position as a jurisdiction of choice for digital finance.

In support of the DFI, the GFSC has convened a Digital Forum, a space for industry participants, regulators, policy makers and innovators to meet and collaborate in shaping the future of digital finance in the Bailiwick of Guernsey. 

The Digital Forum has already hosted live roundtable events to discuss use cases and potential regulatory implications in respect of tokenisation, stablecoin infrastructure and the custody of digital assets, with further roundtable events expected in the near future.

To help meet the initiative’s goals, the GFSC’s new Innovation Sandbox and Concierge service showcases the regulator’s approach of welcoming early stage conversations to discuss licensing novel digital finance propositions. In our experience, this is an aspect of the Guernsey regulatory process that is being met with enthusiastic approval from deal makers.

What is the Innovation Sandbox and Concierge service?

In short, think of this as a “talk first, paper second” model for genuinely innovative ideas that don't fit the box of current regulation.

Use of the service begins when an applicant submits a Concierge Connect Form, setting out high level details of what is planned, including a brief description of the proposed product, service or technology and its stage of development. The form also requires submitters to flag what they see as possible regulatory touchpoints and to notify the GFSC of any existing Guernsey nexus.

Submitted forms are assessed by the GFSC's Authorisations and Innovation Division who will identify how (and whether) the GFSC is able to help. 

Proposals deemed suitable will be put forward for an introductory meeting at which the GFSC will provide a designated contact for the applicant and include Guernsey Finance (the "concierge" bit) who can make useful introductions across the Guernsey financial ecosystem, sparing applicants the Pokémon hunt for relevant business cards.

At the introductory meeting, applicants can expect insights from the GFSC in the form of bespoke feedback outlining any licences or permissions that the GFSC sees as relevant to the proposal, together with what will be required to paper the proposal.

How can digital innovators submit a GFSC Sandbox application?

Applicants wishing to proceed will submit Sandbox applications via the GFSC's Authorisations and Applications portal, which provides users with a secure environment in which to make and track regulatory submissions.

What happens once a Sandbox application has been reviewed?

Following a successful GFSC Sandbox application review, services may then proceed in a Sandbox environment "Incubation Phase” under customised licence conditions which may include:

• scope limitations (such as capped transaction volumes or restricted client bases)

• finite duration (12 – 24 months)

• agreed disclosure (including reporting on risks, incidents and outcomes)

• bespoke consumer protection (such as tailored disclosures, or the use of opt-in participation)

During the incubation phase, the GFSC provides a "regulatory feedback loop" and engages in ongoing dialogue with applicants to "refine your approach and move towards graduating from the Sandbox", which is the implicit aim of the initiative.

Which digital products will benefit from the Sandbox? 

The service is designed for "doesn't fit the form" propositions, whatever they may be and is therefore necessarily vague as to best-use cases.

The GFSC believes that promoters exploring "blockchain, tokenisation, AI-driven finance or other innovative solutions" may benefit.

Our own experience suggests that clients increasingly wish to explore real world applications of digital finance and, where that is the case, we would advise exploring the Sandbox initiative. For example, a promoter interested in offering asset backed tokenised instruments via permissioned blockchains might well benefit from the ability to engage with the regulator in this collaborative process.

I’m a digital innovator – what does the Sandbox service mean for me?

This initiative underlines the GFSC's commitment to building a marketplace that is open to innovative products and digital services while maintaining robust investor protection. Initiatives like this one should help ensure that Guernsey retains its status as a leading offshore financial centre as the global economy adapts to the increasing digitalisation of capital flows.

If you are considering launching an innovative fund, structuring a product or delivering a digital financial service in Guernsey, this initiative should be helpful to you. The service will not, however, replace the expertise of dedicated service providers like Ogier. Our team has deep experience of the Guernsey regulatory landscape and long-standing relationships with the GFSC.

How can Ogier help?

If you have any questions about the Sandbox and Concierge initiative or the Guernsey regulatory landscape generally, we are happy to assist whenever required. Ogier's legal team has considerable experience of the Guernsey funds industry and digital finance regulation. Please reach out to one of the contacts listed below or your usual Ogier contact and we will be happy to explore your options with you. 

About Ogier

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice