From 1 July 2023, the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (the "LCFL") came into full effect, replacing and expanding upon the previous now repealed regime under the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (the "NRFSB Law"). The LCFL and the Lending, Credit and Finance Rules and Guidance, 2023 (the "Rules"), issued by the Guernsey Financial Services Commission (the "GFSC") regulate various consumer lending businesses, virtual asset service providers ("VASPs"), financial services businesses ("FSBs") and financial and crowdfunding platforms that were previously not regulated in Guernsey.

There are four licensing regimes under the LCFL, which apply to the following services or activities:

  • Providing consumer credit, including unsecured loans, mortgages, goods on hire purchase and credit cards, or services ancillary to the provision of consumer credit, such as introduction services and credit brokerage – requiring a "Part II Licence";
  • Carrying on "financial firm business", being activities that were previously registerable under the now repealed NRFSB Law, such as payment handling services and lending – requiring a "Part III FFB Licence";
  • Certain services or activities in relation to virtual assets, such as ICOs, issuing tokens, exchanging between virtual assets and fiat currencies and exchanging between one or more forms of virtual asset – requiring a "Part III VASP Licence"; and
  • Operating a peer to peer platform or a crowdfunding platform, or providing non-bank credit or finance intermediation or brokerage services for the purposes of matching lenders with borrowers – requiring a "Part IV Licence".

In all cases the licensing requirement applies to:

  • any Guernsey entity providing (or holding itself as being willing to provide) any of the above services or activities anywhere in the world; and
  • any non-Guernsey business providing (or holding itself out as being willing to provide) any of the above services or activities in or from within the Bailiwick of Guernsey.

This briefing forms part of a series of briefings by Walkers on the LCFL licensing regimes available here:

  • Consumer Credit
  • Financial Firm Business
  • Virtual Asset Service Providers
  • Financial Platforms and Crowdfunding

Exemptions

Certain exemptions apply. Most notably, the GFSC has exercised its powers under the LCFL to disapply the requirement for certain persons to hold Part II Licences, Part III FFB Licences and Part III VASP Licences (the "Class Exemption Notice" which is available here). These blanket exemptions include exemptions for intra-group lending, lending to UBOs family relationship lending, shareholder loans, employee lending and Guernsey trustees carrying out lending to named beneficiaries. Where an exemption in the Class Exemption Notice applies, no application or notification to the GFSC is required.

There is a notification regime for non-Guernsey businesses regulated in a "designated jurisdiction" wishing to provide services in Guernsey that would normally require a Part II Licence (conditions apply). Businesses regulated by the GFSC under certain other regulatory laws do not need to obtain a Part III FFB Licence. The GFSC also have the discretion to exempt a person from the requirement to hold any of the above licences.

Licensee responsibilities

The Rules include certain corporate governance and management responsibilities, common to all persons licensed under the LCFL which mirror those required under other regulatory law licensed persons. These requirements relate to:

  • Minimum criteria for licensing - a Licensee must meet the minimum criteria for licensing set out in the LCFL (the requirements are similar to that in other regulatory laws in Guernsey). The GFSC also has the full range of supervisory, enforcement and rule-making powers under the LCFL that it has under those other regulatory laws;
  • Conduct of business principles – these ten principles relate to integrity, skill, care and diligence, conflicts of interest, information about customers, customer assets, market practice, financial resources, internal organisation, and relations with the GFSC;
  • MLRO and MLCO – Licensees must appoint a Guernsey resident Money Laundering Reporting Officer and a British Isles resident Money Laundering Compliance Officer;
  • Audited accounts – Licensees must have their accounts audited (except for the holder of a Part II Licence that is only providing services ancillary to credit);
  • Conflicts of interest policy – Licensees must have a policy on managing conflicts of interest appropriate to their business;
  • Outsourcing – Licensees remain responsible for outsourced functions, and must have appropriate systems in place to oversee, control and monitor outsourced functions. Before appointing an outsourced service-provider, a Licensee must carry out due diligence on the provider and conduct a risk assessment;
  • Complaints – including a requirement for a complaints procedure and a complaints log, together with an escalation process and GFSC notification;
  • Customer money – customer money is required to be held in a segregated customer money bank account with an approved bank; and
  • Marketing – Licensees must ensure that promotions and advertising are fair, transparent, and honest. Other requirements apply to advertising and promotions.

Walkers' comment

The LCFL widens the scope of regulated financial services business and for the first time regulates consumer lending and residential mortgages in Guernsey. Crucially, the LCFL also introduced a VASP licensing regime in Guernsey. By licensing these activities, Guernsey is applying its world-leading standard anti-money laundering and countering financing of terrorism ("AML/CFT") regime to these activities (although the AML/CFT regime applied to activities under the NRFSB Law). This is especially welcome for virtual assets as Guernsey is aligning itself with FATF guidance on virtual assets – a key move in Guernsey's development as a leading VASP jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.