The States of Guernsey have approved the Loans, Credit and Finance (Bailliage of Guernsey) Act 2022 (the “LCFL”) which will regulate various virtual asset service providers (“VASP”) and Financial Services Businesses (“FSBs”) which were previously unregulated in Guernsey. The LCFL is now awaiting Royal Assent. The LCFL and associated licensing regimes are scheduled to come into effect on January 1, 2023.
This briefing is the first in a series of briefings from Walkers on the LCFL and provides a rough overview of the businesses that will be regulated by the Guernsey Financial Services Commission (the “GFSC”) under the LCFL.
The new licensing regimes
There are four new licensing regimes under the LCFL, which apply to the following services or activities:
- Providing consumer credit, including unsecured loans, mortgages, goods on HP, and credit cards, or services ancillary to the provision of consumer credit, such as introductory and brokerage services credit – this will require a “Part II license”;
- Carrying out “financial business activities”, meaning activities which were previously registrable under the Unregulated Financial Services Business (Bailliage of Guernsey) Registration Act 2008 (the “NRFSB Act“), such as payment processing services and lending – this will require an “FFB Part III License” (NRFSB will be repealed);
- Certain services or activities related to virtual assets, such as ICOs, issuance of tokens, exchange between virtual assets and fiat currencies and exchange between one or more forms of virtual assets – this will require a “License VASP Part III”; and
- Operate a peer-to-peer platform or crowdfunding platform, or provide non-bank financial intermediation or credit or brokerage services for the purpose of connecting lenders with borrowers – this will require a “Part IV licence”.
In all cases, the license obligation applies to:
- a Guernsey entity providing (or declaring itself willing to provide) any of the above services or activities anywhere in the world; and
- a business outside Guernsey providing (or representing itself as being willing to provide) any of the above services or activities in or from the Bailiwick of Guernsey.
Certain exemptions apply, including 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 license (conditions apply), and companies regulated by the GFSC under certain other regulatory laws do not need to obtain an FFB Part III license. The GFSC also has the discretion to exempt a person from having to hold any of the above licenses.
Applications for licenses under the LCFL will need to meet the minimum licensing criteria set out in the LCFL (similar to other regulatory laws in Guernsey). The GFSC will also have the full range of supervisory, enforcement and rule-making powers under the LCFL that it enjoys under these other regulatory statutes.
Commentary from walkers
The LCFL expands the scope of regulated financial services activities and will regulate consumer loans and mortgages in Guernsey for the first time. Importantly, the LCFL is also introducing a VASP licensing scheme in Guernsey. In authorizing these activities, Guernsey is also applying its Global Anti-Money Laundering and Anti-Terrorist Financing Standard (“AML/CFT”) to these activities (although the AML/CFT regime already applies to activities falling under the NRFSB Act). This is particularly welcome for virtual assets, as Guernsey aligns with the FATF Virtual Assets Guidelines – a key step in Guernsey’s development as a leading VASP jurisdiction.
We await publication of related GFSC rules and guidance which will provide much more detail on how regulation under the LCFL will work in practice.
Although the LCFL is not expected to come into effect until early 2023, we do not anticipate a transition period or grandfathering regime for entities registered under the NRFSB Act, – VASPs and FSBs that are covered by the LCFL, including those already registered with the GFSC under the NFRSB Act, may need to ensure they have the appropriate licenses by the end of the year.