Part II Licence Decision Tree

"person" includes –

(a) an individual,

(b) a company,

(c) any other legal person, and

(d) an unincorporated body.

"Bailiwick" means the Bailiwick of Guernsey.

"Bailiwick body" means –

(a) a Guernsey body, being –

(i) a Guernsey company,

(ii) any other legal person registered, constituted or incorporated in Guernsey (including for the avoidance of doubt a Guernsey limited liability partnership, a Guernsey limited partnership with legal personality and a Guernsey foundation), or

(iii) an unincorporated body whose principal place of business is in Guernsey,

(b) an Alderney body, being –

(i) an Alderney company, or

(ii) an unincorporated body whose principal place of business is in Alderney,

(c) a Sark body, being any body, other than one mentioned in paragraph (a)(i) or (ii) or (b)(i), whose principal place of business is in Sark.

For the purposes of the LCF Law a person who provides any service or carries on any activity shall (unless the Commission, conditionally or unconditionally, directs otherwise in any particular case or, after consultation with the States of Guernsey Policy and Resources Committee, in any particular class or description of cases) be deemed to do so "by way of business" if that person receives any income, fee, emolument or other consideration in money or money's worth for doing so.

(1) In the LCF Law the provision of "credit" means, subject to subsection (2), the provision or carrying on, to or in respect of a customer ("A"), under a regulated agreement made with or on behalf of A, of any of the following services or activities –

(a) credit, including a loan of money, whether in cash or any other form, and any other kind of financial accommodation,

[Carey Olsen comment: the wording "any other kind of financial accommodation" is unclear. Not all financial accommodation would in fact be "credit". The House of Lords in Dimond v Lovell [2002] 1 AC 384, citing Goode: Consumer Credit Law and Practice said that “credit [is] extended whenever the contract provides for the debtor to pay, or gives him the option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract.” Credit is probably best considered to be provided if a debtor is granted a contractual right to defer payment of a debt.]

(b) the sale of goods or services on credit, including hire purchase,

(c) the hiring or leasing out of goods for more than three months,

(d) the issue of credit or charge cards,

(e) any other service or activity or class or description thereof specified for the purposes of the LCF Law by regulations of the States of Guernsey Policy and Resources Committee.

(2) Where credit is provided otherwise than in sterling it shall be treated for the purposes of the LCF Law as provided in sterling of an equivalent amount.

In the LCF Law a "customer" means, in relation to any person ("A") –

(a) a person who has entered into or may enter into an agreement for the provision of services by A when A is carrying on business regulated by the LCF Law, or

(b) a person who has received or may reasonably expect to receive the benefit of services provided or arranged, or to be provided or arranged, by A when A is carrying on business regulated by the LCF Law.

(1) A "regulated agreement" is one made by or on behalf of, and between –

(a) a provider of credit and a customer who is an individual acting for purposes wholly or mainly outside that individual's trade, business or profession, whereby credit is provided and interest or other charges may be levied on the customer, or

(b) a provider of credit and any customer, whereby credit is provided and interest or other charges may be levied on the customer and the credit is secured against real property situated in the Bailiwick and used for residential purposes.

(2) A person carrying on business regulated by the LCF Law claiming that an individual was not acting for purposes wholly or mainly outside that individual's trade, business or profession must prove it (for the avoidance of doubt, on a balance of probabilities).

In the LCF Law the provision of "services ancillary to the provision of credit" means the provision or carrying on, to or in respect of a person ("B"), of any of the following services or activities –

(a) assisting B by undertaking preparatory work with a view to B entering into a regulated agreement with a provider of credit, lender or owner of goods or services,

(b) effecting an introduction, of B, to a provider of credit, lender or owner of goods or services, with a view to B entering into a regulated agreement,

(c) without prejudice to paragraph (b), acting, in respect of B, in the course of a business of credit brokerage carried on by the person so acting, with a view to B entering into a regulated agreement; and for the purposes of this paragraph "credit brokerage" means –

(i) introducing individuals who want to obtain credit to persons carrying on any business so far as it relates to the provision of credit,

(ii) introducing individuals who want to obtain goods on hire to persons carrying on a business which comprises or relates to supplying goods under a contract for the hire of goods, or

(iii) introducing individuals who want to obtain credit, or to obtain goods on hire, to other persons engaged in credit brokerage,

(d) acting as an intermediary between a provider of credit, lender or owner of goods or services and B pursuant to a regulated agreement,

(e) entering into a regulated agreement on behalf of a provider of credit, lender or owner of goods or services, or B,

(f) debt administration to the extent that this may have an effect on the terms or conditions of the provision of credit (for example, debt administration which leads to restructuring of credit and payment of interest or which leads to other classes or descriptions of refinancing), and

(g) any other service or activity or class or description thereof specified for the purposes of the LCF Law by regulations of the States of Guernsey Policy and Resources Committee.

Section 9 of the LCF Law provides as follows:

(1) Section 2 [which imposes the obligation to hold a Part II Licence] does not apply in relation to –

(a) the States of Guernsey, the States of Alderney or the Chief Pleas of Sark, or

(b) credit, business, services or transactions of a class or description specified for the purposes of the LCF Law by regulations of the States of Guernsey Policy and Resources Committee.

(2) The States of Guernsey Policy and Resources Committee may by regulation amend subsection (1) by adding any person or class or description of person to it or removing any person or class or description of person from it.

Section 10(1) of the LCF Law provides as follows:

Subject to the provisions of subsection (4), the provisions of section 2 [which imposes the obligation to hold a Part II Licence] do not apply to any activity carried on by a person ("A") –

(a) if A –

(i) is not a Bailiwick body or an individual ordinarily resident in the Bailiwick,

(ii) carries on that activity in or from within the Bailiwick in a manner in which A is permitted to carry it on in or from within, and under the law of, a designated jurisdiction which, in the opinion of the States of Guernsey Policy and Resources Committee, affords in relation to activities of that description adequate protection to customers and clients,

(iii) has A's principal place of business in that jurisdiction and does not carry on credit business from a permanent place of business in the Bailiwick,

(iv) is (in the case of an individual) recognised as a national of that jurisdiction by the law of that jurisdiction or (in the case of a legal person) is registered, constituted or incorporated in that jurisdiction, and

(v) has given written notice to the Commission of the date from which A intends to carry on that activity in or from within the Bailiwick and has complied with the requirements applicable under section 12(1) to an applicant for a licence, or

(b) if A is a person of any other class or description specified for the purposes of this section by regulations of the States of Guernsey Policy and Resources Committee.

"designated jurisdiction" means a jurisdiction designated by regulations of the States of Guernsey Policy and Resources Committee under section 10 of the LCF Law which has legislation for the protection of customers, clients and consumers at least equivalent to that provided by the provisions of the LCF Law in cases where the States of Guernsey Policy and Resources Committee is satisfied that to do so would not be prejudicial to –

(a) the interests of the public or the reputation of the Bailiwick as a finance centre, or

(b) the performance by the Commission of its functions.

The UK has been recognised as an equivalent jurisdiction pursuant to The Lending, Credit and Finance (Designated Jurisdiction) Regulations, 2023.

Under the notice, the requirement to hold a credit business licence in accordance with Part II of the LCF Law is disapplied and the following do not require a licence under Part II of the LCF Law:

I. Persons[1] who extend credit to family members[2] .

II. Entities which extend credit to family members[3], where that entity is wholly owned by related family members (whether or not that credit is extended to the owners of that entity)

III. Entities which extend credit to their registered directors, registered partners, registered shareholders, or beneficial owners[4]. Note shareholder loans will only qualify for the exemption where it is clear that the borrowers are bona fide shareholders of the entity i.e., that the shareholding has not been created solely for the purpose of the extension of credit.

IV. Entities which extend credit to their employees[5].

V. Guernsey trustees who extend credit to named beneficiaries of the trust from which the credit is sourced.

VI. Lombard lending, which is carried out by persons holding licences under another regulatory law, where lending is secured against marketable securities (of which, cash as a marketable security may represent no more than 50% of the total value of the loan made). Note this disapplication only applies where lending is to individuals who are High Net Worth individuals as defined in the Commission’s Lending, Credit and Finance Rules.

VII. Hiring or leasing arrangements where such arrangements are not hire purchase agreements or other arrangements to purchase goods.

VIII. Secured lending where the security is held against real property which is not situated in the Bailiwick of Guernsey and is not the borrower’s residence.

IX. Secured lending where the security is held against real property which is situated in the Bailiwick of Guernsey and is not the borrower’s residence.

X. Insurance intermediaries, licensed under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002, and offering insurance payable in instalments, under finance agreements, where the credit facility is an arrangement made directly with the insurance provider.

XI. Appointed retailers who provide credit facilities, through a single credit provider and subject to a written agreement with that credit provider, for goods and services offered by that retailer.

XII. Appointed motor traders who provide credit facilities, which are simple repayment loans, through a single credit provider and subject to a written agreement with that credit provider, for goods and services offered by that motor trader. Note that this disapplication will only be available where simple repayment loans are offered provided that the total amount of credit extended, through the motor trader, does not exceed £250,000 per annum.

-----

[1] In this note "persons" includes legal persons.

[2] In this case those falling under the definition of "family members" are set out at Appendix 1 (originally set out as part of the States of Guernsey Guidance on Housing).

[3] Ibid

[4] Where "beneficial owners" has the definition given to it under paragraph 22 of Schedule 3 to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999

[5] "Employees" means an individual who has entered into or who works under (or, where the employment has ceased, who worked under) a contract of employment, following the definition set out in the Protection of Investors (Bailiwick of Guernsey) Law, 2020

Non-bank “private lenders” (an "Exempted Private Lender") may be able to apply for a Discretionary Exemption from licensing under [Part II] (a "Private Lender Exemption").

An Exempted Private Lender must:

(a) make available no more than 2 loans per annum;

(b) have a maximum loan portfolio of no more than £2 million (including any commercial loans, which will not be exempted under the Private Lender Exemption);

(c) comply with the Lending, Credit and Finance Rules and Guidance, 2023 (the "LCF Rules") as applicable in respect of their lending to customers; and

(d) at all times have acting on their behalf an "Appointed Service Provider" (a Part II licensee that is appointed, by an exempt private lender, and is responsible for ensuring that the relevant LCF Rules and Anti-Money Laundering/Countering the Financing of Terrorism requirements are met by the Exempted Private Lender).

Please refer to our Discretionary Exemption Briefing for further information on the availability of a Private Lender Exemption.