Guernsey: Financial Platforms And Intermediation

The Lending, Credit and Finance (Bailiwick of Guernsey) Law 2022, (LCF Law) came into effect 1 July 2023.

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.

One of the outcomes of the new licensing regimes created by the LCF Law is that any financial platform or intermediation operating either from within the Bailiwick (or any Bailiwick Body operating anywhere) is now in scope of the LCF Law and will now also fall under Guernsey's AML-CFT Regime and needs to be licensed by the Guernsey Financial Services Commission (GFSC).

FINANCIAL PLATFORMS AND INTERMEDIATION

'Financial Platforms and intermediation' are platforms and services which link lenders, buyers and investors, to be able to communicate and/or transact with each other.

'By way of business' means any person who provides any service or carries on any activity where in turn a person receives any income, fee, emolument or other consideration in money or money's worth for doing so.

THE FOLLOWING CONSTITUTE 'ACTIVITIES BY WAY OF BUSINESS" UNDER THE LCF LAW:

THE OPERATION OF A 'PEER TO PEER' PLATFORM (P2P PLATFORM)

The meaning of a peer to peer (P2P) platform is defined as a platform, (whether or not it is electronic) established as a market place to match persons who wish to borrow money, with those who wish to undertake lending. On such a platform each party can notify each other regarding their willingness to transact and enter into transactions.

There is a varied market of P2P platforms including, but not limited to, platforms which provide personal loans, real estate, green energy and start-ups.

Under the LCF Law, the operator of the P2P Platform is the person who is providing, offering to provide or holding themselves out as being willing to provide the service or activity in question, unless in any particular case or class or description of case the GFSC directs otherwise.

THE OPERATION OF 'CROWD FUNDING' PLATFORMS

A crowdfunding platform is basically a marketplace (whether electronic or not) whereby persons seek to raise money or to raise money or other finance through the issue of general securities and derivatives within the meaning of category 2 in schedule 1 to the Protection of Investors Law.

Examples of well-known crowd funding platforms are 'Kickstarter' and 'GoFundMe'.

The operator of the Crowd Funding Platform is the person who is providing, offering to provide or holding themselves out as being willing to provide the service or activity in question, unless in any particular case or class or description of case the GFSC directs otherwise.

THE PROVISION OF ALTERNATIVE NON-BANK CREDIT OR FINANCE INTERMEDIATION

Alternative non-bank credit or finance intermediation means intermediatory services, whether provided by electronic means, for the purposes of matching lenders with borrowers.

In the same way, the person who is providing, offering to provide or holding themselves out as being willing to provide the service or activity in question, unless in any particular case or class or description of case the GFSC directs otherwise, is the operator of the alternative non-bank credit or finance intermediation.

ANY OTHER SERVICE OR ACTIVITY OR CLASS OR DESCRIPTION THEREOF SPECIFIED FOR THE PURPOSES OF THE LCF LAW BY REGULATIONS OF THE COMMITTEE

It is important to note that Section 31 of the LCF Law provides that the Committee may by regulation, amend the above definitions of P2P platforms, Crowd Funding Platforms and alternative non-bank credit or finance intermediation. There have been no amendments to date but it means that a sitting of the full States is not required to amend these definitions in the future, which will offer some flexibility in a rapidly developing marketplace.

APPLICATIONS

A financial platform that is planning to conduct the above-mentioned activities, is required to obtain a licence. Further information on how to apply for a licence and the application form can be found here.

The GFSC may grant or refuse the application for a licence depending on whether the individual operator or firm has fulfilled the minimum criteria of licencing, the provisions of the LCF Law have been met and the prescribed fee has been paid.

When granting a licence, the GFSC may impose certain conditions which an individual operator or firm will have to comply with. Examples might include any of the following:

• An individual operator or firm will have to take certain steps to refrain from adopting or pursuing a particular course of action or to restrict the scope of its business in a particular way;
• Limitations relating to the acceptance of business;
• Prohibit the licensee from soliciting (whether at all or in any specified manner) business, either generally or from particular persons or class of persons;
• Prohibit the licensee from entering into any other transaction or class or description of transactions;
• Require the removal of any person who is the holder of a supervised role in respect of, or who is an officer or auditor of the licensee;
• Provide the GFSC with information and documents required at particular times;
• Specify requirements as to capitalisation and liquidity or margin of solvency of the business of the licensee;
• Require the licensee to obtain professional indemnity insurance of a specified amount and upon such terms and conditions as may be specified;
• Prohibit or impose limitations on the carrying on of the business regulated by the LCF Law or any class or description of such business in or from within any place or any place outside the Bailiwick by the licensee itself, or by any undertaking established by the licensee; and
• Require the provision in whatever form and manner and in whatever timeframe the GFSC may reasonably determine of evidence of compliance with the provisions of the LCF Law or other regulatory laws.

An individual operator or firm which fails to obtain a licence (and is otherwise required to do so) will be in breach of the LCF Law and therefore guilty of an offence. This may result in a fine or imprisonment and removal of directors or officers, depending on the nature and severity of the breach.

EXCEPTIONS

The are no current exemptions in place for this part of the LCF Law.

LCF LAW AND GUIDANCE – WHERE TO FIND IT?

A copy of the LCF Law may be found here. 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 GFSC (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.

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.