Waivers and Modifications: How GFSO Can Disapply or Modify a Rule for Your Business Model

Summary

• GFSO may direct that any of its Rules do not apply to a person, or apply with modifications, on that person's application or with its consent (Financial Services Act 2025, s. 9(1)). GEN calls such a Direction a "Waiver" or a "Modification" (GEN 8.2.2 guidance).
• The statutory test has two limbs: compliance must be "unduly burdensome" or must "not achieve the purpose for which the Rules were made", and the Direction must "not adversely affect the advancement of any of the Regulator's objectives" (s. 9(3)).
• Section 9 reaches Rules only. It cannot disapply the Act itself, the General Prohibition or the Threshold Conditions.
• An application must be in writing and state the firm's identifier, the Rule concerned, a clear explanation and reasons, any time limit, any reason for non-publication or anonymity, and all supporting facts (GEN 8.2.4).
• Directions are published unless GFSO decides publication is inappropriate, considering financial stability, third-party claims and commercial prejudice; anonymised publication is an option (s. 10).
• GFSO may revoke or vary a waiver at any time, with notice and a right to make representations (GEN 8.2.6–8.2.13). Firms must notify any material change affecting the waiver immediately (GEN 8.2.5).

What a waiver is, and is not

The Gelephu Financial Services Office (GFSO) regulates through the Financial Services Act 2025 (the Act) and a set of Rulebooks: GEN, COBS, FUNDS, MIR, PRU, PIN, AML and others published by GFSO. Rules are written for the general case. A business model that is new, small, or structured differently from the model the Rule assumed may find that a Rule imposes cost without delivering its purpose. The Act anticipates this situation. Section 9 gives GFSO a power to disapply or modify its Rules for a particular person, and GEN 8.2 sets out how to ask.

A waiver disapplies a Rule for a person; a modification applies the Rule with specified changes (s. 9(1)(a)–(b)). Both are formally a "Direction" under s. 9 (s. 258, definition of "Direction"), and "throughout the Rulebooks and non-Rulebook guidance a Direction given under section 9 of FSA will be referred to as a 'Waiver' or a 'Modification' as appropriate" (GEN 8.2.2, guidance). A waiver is not a licence variation, which is governed by s. 32 and GEN 8.3, and it is not Guidance, which is "indicative and non-binding" (s. 15(2)).

"$" in GMC law and the Rulebooks means United States dollars (GEN 4.2, guidance para. 6).

The statutory power: section 9

Section 9(1) provides that GFSO "may, on the application or with the consent of a person who is subject to Rules made by the Regulator, direct that all or any of those Rules (a) are not to apply to that person; or (b) are to apply to that person with such modifications as may be specified in the Direction". An application must be made in the manner GFSO directs (s. 9(2)).

The two-limb test

GFSO "may not give a Direction unless it is satisfied that" (s. 9(3)):

1. compliance by the person "with the Rules, or with the Rules as unmodified, would be unduly burdensome or would not achieve the purpose for which the Rules were made"; and
2. "the Direction would not adversely affect the advancement of any of the Regulator's objectives".

Both limbs of the test must be met. The first is about the applicant: either the cost of compliance is disproportionate, or the Rule simply does not do in this case what it was designed to do. The second is about the system: GFSO's objectives in s. 1A(3) include fairness, transparency and efficiency; confidence in GMC; safe and efficient market infrastructure; financial stability; the integrity of the GMC Financial System; preventing conduct that damages GMC's reputation; protecting users; and furthering the interests of GMC. A waiver that would leave clients less protected or make the firm harder to supervise fails the second limb however burdensome the Rule is.

A Direction may be given subject to conditions (s. 9(4)). GFSO may revoke it, or vary it on the application or with the consent of the person concerned (s. 9(5)).

What section 9 cannot do

Section 9 applies to "Rules made by the Regulator". The waiver power does not reach the Act itself. The General Prohibition (s. 16), the Threshold Conditions duty (s. 28), the prohibition on financial promotion (s. 18), the Part 11 fund registration requirements and the Part 10 change-of-control framework are all in the Act. Where the Act itself delegates the content to Rules, the Threshold Conditions are specified in "Threshold Condition Rules made under section 7(2)" (s. 28(1)), the Rules can in principle be modified, but GFSO is unlikely to waive a threshold condition that goes to fitness or supervisability. A parallel power for Licensed Bodies and External Bodies (exchanges and clearing houses) sits in s. 130, with a second limb framed as "undue risk to persons whose interests the Rules are intended to protect" (s. 130(4)(b)).

Section 11 adds a reassurance: a contravention of a Rule does not make a transaction void or unenforceable. A waiver therefore manages regulatory exposure, not contractual validity.

The application: GEN 8.2

GEN 8.2 applies to "every Licensed Firm, Recognised Body, Remote Body, Remote Member, Foreign Fund Manager, Person making an Offer of Securities or Reporting Entity" (GEN 8.2.1). Waivers are therefore available not only to licensees but to issuers, listed reporting entities and foreign fund managers dealing with GFSO.

The application must be in writing (GEN 8.2.3), in the form GFSO prescribes, and GEN says that the GPM, the document GEN refers to for GFSO's policy approach, "sets out the Regulator's approach to considering an application" (GEN 8.2.3, guidance). Under GEN 8.2.4, the application must contain:

1. the applicant's name and Financial Services Permission, Recognition Order or GFSO identification number;
2. the Rule to which the application relates;
3. a clear explanation of the waiver or modification sought and the reason for requesting it;
4. details of any other requirements, for example a specific period for which relief is needed;
5. the reason, if any, why the waiver should not be published, or should be published without disclosing the applicant's identity; and
6. all relevant facts to support the application.

Items 3 and 6 are where applications succeed or fail. The explanation must engage with s. 9(3): why is compliance unduly burdensome, or why does the Rule not achieve its purpose here, and why is no objective harmed? Supporting facts means evidence, costs, volumes, client categories, alternative controls, not assertion.

An applicant must "immediately notify the Regulator if it becomes aware of any material change in circumstances which may affect the application for or the continuing relevance of a Waiver or Modification" (GEN 8.2.5). That duty continues for the life of the waiver.

Publication

Section 10 requires GFSO to publish a Direction in the way it deems most suitable for bringing it to the attention of persons likely to be affected and persons likely to apply for a similar Direction (s. 10(1)). Publication of a waiver is the default position. GFSO may decline to publish if satisfied that publication is "inappropriate or unnecessary" (s. 10(2)), and in deciding must consider whether publication would be detrimental to the stability of the GMC Financial System, whether the Direction relates to a contravention actionable under s. 242, and whether publication would prejudice "to an unreasonable degree" the commercial interests of the person or its Group (s. 10(3)). Where commercial prejudice is the concern, GFSO must consider publishing without disclosing the person's identity (s. 10(4)).

This is why GEN 8.2.4(5) asks the applicant to state any reason for non-publication or anonymity up front. Published waivers also matter to other firms: they are the strongest evidence of what GFSO regards as a legitimate departure from a Rule, and the s. 10(1)(b) publication target, "persons who are … likely to make an application for a similar Direction", signals that GFSO expects waivers to be sought by reference to precedent.

Revocation and variation

GFSO "may revoke or vary a Waiver or Modification at any time", considering whether the conditions are no longer satisfied or the waiver is "otherwise no longer appropriate" (GEN 8.2.6). Where it proposes to revoke or vary, or does so with immediate effect, it must give written notice, may give reasons, and must state a reasonable period for representations (GEN 8.2.7). A person wishing to make oral representations must inform GFSO promptly, say who will speak and what will be covered (GEN 8.2.8); GFSO then fixes a time and place and may ask for a written summary (GEN 8.2.9). After considering representations GFSO confirms its decision in writing or, where the change has already taken effect, either confirms it or seeks consent to a new waiver (GEN 8.2.10). Variation can also happen by consent or on the firm's application (GEN 8.2.11–8.2.12). If the original waiver was published, GFSO may publish the variation unless inappropriate (GEN 8.2.13).

Where the Rulebook itself invites a waiver

The most reliable waiver applications are those the Rulebook anticipates. GEN contains several signals:

• Residency of the Compliance Officer and MLRO. GEN 5.5.2 requires the Senior Executive Officer, Compliance Officer and Money Laundering Reporting Officer to be resident in GMC/Bhutan, and its guidance states that "in appropriate circumstances, the Regulator may waive the requirement for a Compliance Officer or Money Laundering Reporting Officer to be resident", listing the factors: nature, scale and complexity of the business; time zones and working week; the size and capability of a remote function; the officer's ability to liaise with GFSO; and whether the applicant has previously been regulated (GEN 5.5.2, guidance paras. 1–2). This is the clearest statutory-adjacent map of a successful application in the Rulebook.
• Combined Controlled Functions. GEN 5.5.1 guidance recognises that in a Branch, or in "exceptional circumstances", one individual may hold more than one Controlled Function where independent monitoring is in place (guidance paras. 4–5).
• Proportionality in systems and controls. GEN 3.3.1 guidance states that GFSO "will take into account" the nature, scale and complexity of the business when assessing systems and controls, while adding that these factors do not relieve a firm of compliance. Where a specific Rule in Chapter 3 cannot sensibly be scaled down by interpretation, a modification is the route.
• Change of control pre-approval. GEN 8.8.4 guidance allows GFSO to grant fund managers advance approval of changes in control "for a period lasting up to a year".
• Foreign Fund Managers are expressly among the persons who may apply (GEN 8.2.1), which points to relief from Domestic Fund rules for managers of Foreign Funds.

When a waiver is realistic

Drawing the threads together, a waiver is realistic when:

• the Rule is a Rule, not a provision of the Act;
• the applicant can show, with evidence, that the Rule's purpose is met another way (for example, group-level controls that GFSO can access under GEN 8.1.5 and 3.3.32) or that compliance cost is disproportionate to the risk;
• no client protection, market integrity or supervisory objective is weakened;
• the request is specific, one Rule, one reason, one period, rather than a general request for lighter treatment; and
• the applicant accepts conditions and ongoing notification.

A waiver is unrealistic when it would remove a control GFSO relies on to supervise the firm, when the "burden" is simply the ordinary cost of being regulated, or when the request is an attempt to carry on an activity without the licence, capital or people the framework requires. The Principle that a Licensed Firm "must deal with Regulators in an open and co-operative manner" (GEN 2.2.10) applies to the application itself; an overstated application damages the relationship that later applications depend on.

Practical checklist

1. Identify the exact Rule and confirm it is a Rule, not a provision of the Act.
2. Write down the purpose of the Rule and explain, against s. 9(3)(a), why compliance is unduly burdensome or does not serve that purpose in your case.
3. Test the request against each s. 1A(3) objective and record why none is adversely affected (s. 9(3)(b)).
4. Gather evidence: costs, volumes, client types, alternative controls, group arrangements.
5. Check whether GEN already signals the waiver (for example GEN 5.5.2 guidance) and structure the application around those factors.
6. Decide whether to request anonymised or non-publication and give the reason (GEN 8.2.4(5); s. 10(3)–(4)).
7. Propose conditions and a time limit yourself (s. 9(4); GEN 8.2.4(4)).
8. Raise the request early, ideally at the business model stage of the licence application rather than after In-Principle Approval.
9. Once granted, diarise the conditions and notify GFSO immediately of any material change (GEN 8.2.5).

Frequently asked questions

Can GFSO waive the requirement for a GMC licence?

No. The General Prohibition is in s. 16 of the Financial Services Act 2025, and s. 9 only allows GFSO to disapply or modify Rules made by GFSO. Exemptions from licensing come from Schedule 1 exclusions and Schedule 3, not from waivers.

Can my compliance officer or MLRO be based outside GMC?

This is possible only with a waiver. GEN 5.5.2 requires residency in GMC/Bhutan, but its guidance says GFSO may waive the requirement for the Compliance Officer or MLRO in appropriate circumstances, having regard to listed factors. The AML Rulebook contains its own MLRO residency rule (AML 12.1.1(2), as referred to in GEN).

Will my waiver be made public?

By default, yes (s. 10(1)). GFSO may decline to publish, or publish anonymously, if publication would harm financial stability or unreasonably prejudice your commercial interests (s. 10(2)–(4)). Say so in the application (GEN 8.2.4(5)).

How long does a waiver last?

For the period stated in the Direction, subject to any conditions. GFSO may revoke or vary it at any time after giving notice and hearing representations (GEN 8.2.6–8.2.10), and you must report any material change immediately (GEN 8.2.5).

Key takeaways

• Section 9 lets GFSO disapply or modify Rules, not the Act, on a two-limb test of undue burden or non-achievement of purpose plus no harm to objectives.
• GEN 8.2.4 prescribes six contents; the explanation and supporting facts decide the outcome.
• Publication is the default; ask for anonymity with reasons if needed.
• Waivers are conditional, revocable and carry a continuing duty to report change.
• The strongest applications track signals already in the Rulebook, such as the GEN 5.5.2 residency factors.

This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.

You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.

References

• Financial Services Act 2025, ss. 1A(3), 7(2), 9, 10, 11, 15, 16, 18, 28, 32, 130, 242, 258 (definition of "Direction")
• GEN Rulebook 2026, Rules 2.2.10, 3.3.1 (guidance), 3.3.32, 4.2 (guidance para. 6), 5.5.1 (guidance), 5.5.2 (guidance), 8.1.5, 8.2.1–8.2.13, 8.3, 8.8.4 (guidance)