The LCF Law introduces new licensing regimes regulating the following activities:

the provision of consumer credit including the UK-style consumer protections for retail and home borrowers;
financial firm business;
virtual asset providers and fintech platforms operating crowd funding and peer to peer platforms from within the Bailiwick; and
financial intermediaries services.

The LCF Law will also replace the current registration regime under the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (NRFSB Law).

Accompanying Lending, Credit and Finance Rules and Guidance, 2023 (LCF Rules) and a notice with respect to the disapplication of the requirement to hold a licence under section 40 of the LCF Law (LCF Exemptions) have also been issued by the Guernsey Financial Services Commission (GFSC). The GFSC has also issued the Lending, Credit and Finance (Designated Jurisdiction) Regulations, 2023 which confirms that the United Kingdom is a designated jurisdiction for the purpose of s10(3) of the LCF Law and equivalence purposes.

LCF Licence applications

The GFSC started to accept licence applications in February 2023 under the LCF Law. Forms are available on the website and persons requiring a licence are strongly encouraged to apply early. Those applying before 31 March 2023 will benefit from a significant (50%) discount on the application fee. The GFSC is expecting a considerable number of new licence applications and is aiming to process all applications received by 31 March 2023 by 1 July 2023.

Application forms for each licence may be found on the GFSC website here Lending, Credit and Finance — GFSC

Fees for each of the applications may be found on the GFSC Fees page at Fees — GFSC

There is a selection of useful GFSC LCF Law FAQs on the GFSC page FAQs — GFSC

Background to the lcf law

The LCF Law introduces certain changes to Guernsey’s local licencing regimes to ensure that Guernsey complies with the latest FATF recommendations in relation to combatting money laundering and terrorist financing on the global stage.

This briefing will deal with a general overview of the new regime. Please do not hesitate to contact us for advice on specific aspects of the LCF Law. You may also be interested in the separate, more specific briefings that we have prepared in respect of licences under Part II and Part III of the LCF Law which we discuss below.

Overview of the LCF Law

The LCF Law is set out in separate parts which cover the four licensing regimes as follows:

PART II: Regulation of consumer credit including;
PART III: Regulation of financial firm business;
PART III: Regulation of virtual asset providers and fintech platforms operating crowd funding and peer to peer platforms from within the Bailiwick; and
PART IV: regulation of financial platforms and intermediation services.

Part II – consumer credit and the provision of services ancillary to credit

The LCF Law creates a new statutory framework to provide additional protection in relation to the provision of consumer credit and home finance to individuals, and credit for the purchase of goods and services.

Licensees under any of Guernsey’s other regulatory laws who carry on activities regulated under Part II of the LCF Law must also hold a Part II licence.

A Part II Licence is only required where credit is provided to a customer:

who is an individual; or
where such credit is secured against residential real estate located in the Bailiwick; and
in either case, where interest or other charges may be levied; and
where no exemption is available under the LCF Exemptions

We note that additional legislation in relation to consumer contracts for the supply of goods including hire-purchase contracts is currently being reviewed by the States of Guernsey. Whilst this is not currently the law in Guernsey, it would be prudent to check if there are any other Guernsey requirements in addition to the need for a licence under the LCF Law when reviewing your consumer credit business provision.

Part III – financial firm business

Part III of the LCF Law regulates financial firm business (FFB). This business is currently protected by the NRFSB Law which will be fully repealed on 1 July 2023. Any entity currently registered as a financial services business under the NRFSB Law will need to be licenced as a financial form business under the LCF Law subject to the LCF Exemptions. The new regime provides appropriate regulation to business which may not otherwise be captured by other regulatory legislation.

FFBs undertaking the following business (defined in Schedule 1, Part A of the LCF Law) by way of business for, with or on behalf of a customer will require a Part III FFB licence:

lending;
financial leasing;
operating a money service business;
buying, selling or arranging the buying or selling of, or otherwise dealing in, bullion or buying or selling postage stamps (subject to certain exceptions);
facilitating or transmitting money or value through an informal money or value transfer system or network;
issuing, redeeming, managing or administering means of payment;
providing financial guarantees or commitments;
trading (by way of spot, forward, swaps, futures, options, etc.) in
– money market instruments
– foreign exchange, exchange, interest rate or index instruments; and
– commodity futures, transferable securities or other negotiable instruments or financial assets;
participating in securities issues and the provision of financial services related to such issues;
providing settlement or clearing services for financial assets;
providing advice to undertakings on capital structure, industrial strategy or related questions, on mergers or the purchase of undertakings, except where the advice is provided in the course of carrying on the business of a lawyer or accountant;
money broking;
money changing;
providing individual or collective portfolio management services or advice;
providing safe custody services;
providing services for the safekeeping or administration of cash or liquid securities on behalf of customers or clients;
carrying on the business of a credit union;
accepting repayable funds other than deposits; and
otherwise investing, administering or managing funds or money on behalf of other persons

Under the LCF Law, the term “by way of business” means any situation whereby that person receives any income, fee, emolument or other consideration in money or money’s worth for doing so.

A Part III FFB Licence is required where FFB is not a regulated business and where the FFB’s activities are not incidental and other activities. Where a FFB is regulated under a different regulatory law in Guernsey, the licensees are not required to hold a Part III FSB Licence but they may be required to comply with parts of the LCF Law under additional rules. There are no such rules in place at the time of this briefing.

Notably, Part III covers the activity of any lending that is not regulated by Part II of the LCF Law or dealt with by way of the LCF Exemptions.
Section s20(1) of the LCF exempts a FSB from the need to have a licence under the LCF Law where all of the following apply:

the total turnover in respect of financial firm business of the person carrying on the business in question does not exceed £50,000 per annum;
the business in question does not carry out occasional transactions (that is defined by the LCF Law to mean any transaction involving more than £10,000, carried out by the business in question in the course of that business, where no business relationship has been proposed or established, including such transactions carried out in a single operation or two or more operations that appear to be linked);
the business in question does not exceed 5% of the total turnover of the person carrying on the business;
the business in question is ancillary, and directly related, to the main activity of the person carrying on the business;
the business in question does not facilitate or transmit money or value by any means;
the main activity of the person carrying on the business in question is not that of a financial firm business; and
the business in question is provided only to customers of the main activity of the person carrying on the business and is not offered to the public.

Section 21 of the LCF Law of the LCF law also allows for exemptions to be specified under regulations of the States of Guernsey Policy and Resources Committee but to date there are no such exemptions in place.

As noted above there are also some exemptions to the requirement of needed a licence under the LCF Law set out in the LCF Exemptions. Many of these exemptions are further caveated with the LCF Exemptions itself, so if you feel that you may be covered by an exemption we recommend that you review the LCF Exemptions and seek further advice:

Persons who carry out lending to family members.
Persons who carry out lending to family members, where that entity is wholly owned by related family members (whether or not that credit is extended to the owners of that entity).
Persons who carry out lending to their registered directors, registered partners, registered shareholders, or beneficial owners.
Registered directors, registered partners, registered shareholders, or beneficial owners who carry out lending to associated entities.
Persons who carry out lending to their employees
Guernsey trustees who carry out lending to named beneficiaries of the trust from which the credit is sourced.
Persons who carry out lending and are administered by a licensee which holds a licence under the Protection of Investors (Bailiwick of Guernsey) Law, 2020.
Persons who carry out lending and are administered by a licensee which holds a licence under the Regulation of Fiduciaries Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2020.
Persons who carry out lending and are administered by a licensee which holds a licence under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002.
Individuals, who are investors, who carry out lending to administered entities.
Persons who carry out lending internally, within the group structure to which they belong, where the lending entity which has an established place of business in the Bailiwick of Guernsey
Persons, whose established place of business is within the Bailiwick, who carry out lending to other entities whose established place of business is also within the Bailiwick
Entities holding a Part III VASP licence issued under the Law.

Part III – virtual asset providers

Part III of the LCF Law also regulates virtual asset services providers (known as VASPS) VASPS are defined as being persons who provide certain services or activities in relation to virtual assets, such as exchanging virtual assets for fiat currencies; exchanging one form of virtual asset for another, transfer of virtual assets, safekeeping of virtual assets; participation in ant provision of financial series relating to an issuers offer and/or sale of a virtual asset (for example in an initial coin offering). The law gives permission for this definition to be expanded by the States of Guernsey Policy and Resources Committee.

A Part III VASP Licence is required unless an exemption is available under the LCF Exemptions.

Section 21(1) of the LCF law also allows for exemptions to be specified under regulations of the States of Guernsey Policy and Resources Committee but to date there are no such exemptions in place.

Section 40(1) of the LCF Law enables the Commission to exempt persons from the requirement to hold a licence under any part of the LCF Law.

The LCF Exemptions list the following exemptions to hold a Part III VASP Licence in relation to the following:

persons who make investments, hold, or trade, in virtual assets for their own benefit. (This disapplication will not apply to persons, or persons within groups, offering products or services related to virtual assets);
licensees, who hold a licence under the Regulation of Fiduciaries Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2020, in the course of providing administration or management services, as services offered under that licence, to VASPs which either hold a Part III VASP Licence issued under the LCF Law or are exempt;
licensees, who hold a licence under:
– the Protection of Investors (Bailiwick of Guernsey) Law, 2020;
– the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002; or
– the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002,

in the course of providing administration or management services, as services offered under that licence, to VASPs which either hold a Part III VASP Licence issued under the LCF Law or are exempt under the first paragraph above; and

authorised or registered collective investment schemes (within the meaning of the Protection of Investors (Bailiwick of Guernsey) Law, 2020) investing, holding, or trading in virtual assets.

Section 21(1) of the LCF law also allows for exemptions to be specified under regulations of the States of Guernsey Policy and Resources Committee but to date there are no such exemptions in place.

Part IV – financial platforms and intermediation

Part IV of the LCF regulates financial intermediation services, including the operation of peer to peer platforms, the operation of crowdfunding platforms and the provision of alternative non-bank credit or finance intermediation.

Any person undertaking such an activity either in or from within the Bailiwick or any Bailiwick Body (which is defined under the LCF Law to be wider than just a Guernsey and Alderney company undertaking any of the restricted activities anywhere else in the world) will require a licence if such person is carrying on, offering to provide or carry on or holding themselves out as being willing to do any of the activities noted above.

Section 32 of the LCF law allows for exemptions to be specified under regulations of the States of Guernsey Policy and Resources Committee however to date there are no such exemptions in place.

There are also no relevant exemptions for this part in the LCF Exemptions.

Please do reach out to your usual Appleby contact if you have any particular queries.