This briefing is the third in a series of briefings by Walkers on the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (the "LCFL"), and provides an overview of the licensing regime applicable to "financial firm business" under Part III of the LCFL (a "Part III FFB Licence") and the key aspects of the Lending, Credit and Finance Rules and Guidance, 2023 (the "Rules"), issued by the Guernsey Financial Services Commission (the "GFSC") applicable to the holder of a Part III Licence (a "Licensee").

Related briefings on the LCFL licensing regimes in Guernsey are available here:

  • Overview
  • Consumer Credit
  • Virtual Asset Service Providers
  • Financial Platforms and Crowdfunding

Who needs a Part III FFB Licence?

All businesses that carry on "financial firm business" in or from within the Bailiwick of Guernsey ("Guernsey") and all Guernsey businesses that carry on "financial firm business" anywhere in the world will need a Part III FFB Licence unless an exemption applies. Carrying out any of these activities without a Part III FFB Licence or an applicable exemption is a criminal offence.

"Financial firm business" covers all of the activities that were subject to the previous registration regime set out in the now repealed Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 ("NRFSB Law"), which covered various unregulated financial services business, such as money services, payment handling, foreign exchange, lending and credit businesses.

What if the business is already regulated?

Holders of any other licence under other regulatory laws in Guernsey, and holders of a Part II Licence under the LCFL, do not need to obtain a Part III FFB Licence in order to undertake financial firm business activities.

Therefore a bank, for instance, which provides corporate loans does not need a Part III FFB Licence in addition to its banking licence, although it requires a Part II licence if it provides credit to retail consumers.

Are there any exemptions?

There is no equivalence-based exemption from a Part III FFB Licence in respect of businesses regulated in jurisdictions considered to offer appropriate or equivalent protections.

Pursuant to the LCFL, the GFSC have published a Notice with respect to the Disapplication of the Requirement to hold a Licence under section 40 of the LCFL (the "Class Exemptions Notice") which sets out certain blanket exemptions.

The Class Exemptions Notice disapplies the provisions of the LCFL to certain persons/entities who may undertake what may be captured as financial firm business, this list includes:

  • Lending by an entity that is administered by a fund administrator, CSP or licensed insurance manager in Guernsey, however the lending must either:
  • be ancillary to the lender's main activity;
  • be intra-group; or
  • relate to a holding structure which invests in or holds assets (including by way of debt), and does not have a primary purpose of lending to third parties;
  • Lending by an entity with an established place of business in Guernsey to other members of its group;
  • Persons lending to family members, either directly or through entities wholly owned by the related family members;
  • Lending to directors, registered partners, registered shareholders (if borrowers are bona fide shareholders of the entity) or beneficial owners;
  • Lending by directors, registered partners, registered shareholders (if lenders are bona fide shareholders of the bower entity) or beneficial owners;
  • Lending to employees; and
  • Guernsey trustees lending to beneficiaries in
    a trust.

Those qualifying for an exemption under the Class Exemptions Notice are not required to undertake any further action or make any notifications or applications to the GFSC.

The GFSC also have the power to grant a discretionary exemption where a lender is not within the Class Exemptions Notice, but on the facts it is not appropriate for them to be licensed.

Financial firm business activities carried on for no consideration, such as lending for no interest or no fee, are
not in scope of the Part III FFB Licence regime.

What requirements apply to a Licensee?

The Rules apply financial resources and insurance requirements, however these do not apply to a holder of a licence under either the Banking Supervision (Bailiwick of Guernsey) Law, 2020, as amended, or the Insurance Business (Bailiwick of Guernsey) Law, 2002, as amended.

Licensees must ensure that they always hold sufficient liquid resources in reserve to allow for an orderly wind-down over a three-month period. Further, the level of these resources must be monitored and checked at least quarterly and the Licensee must immediately notify the GFSC where it is found that the resources are no longer sufficient (the notification must include the steps being taken to rectify the breach).

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;
  • 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 Part III FFB Licence and Rules have transitioned the previous registration regime under the NRFSB Law into a full licensing regime.

Businesses operating in a number of sectors which provide various financial services such as payment handling and foreign exchange services, lending and credit to businesses, including informal or non-bank/private lenders, may well be caught within the scope of the Part III FFB Licence regime (businesses that lend or provide credit to retail consumers will generally be within the Part II Licence regime). Affected businesses will need to consider factors such as reviewing or preparing relevant business risk assessments, business plans, and their terms and conditions of business, policies and procedures to ensure that they are LCFL compliant.

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.