Guernsey's most recent States of Deliberation meeting has approved a detailed policy letter setting out proposals for new legislation which will affect banks, other providers of credit (including peer-to-peer lending platforms), persons providing ancillary services to the provision of credit and those dealing with virtual assets, in each case, by way of business in Guernsey.
The new CFL will see the repeal of the awkwardly-named Registration of Non Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (the "NRFSB Law"). The NRFSB Law currently requires certain non-bank businesses undertaking credit activities in Guernsey to be registered with the Guernsey Financial Services Commission ("GFSC"), but only for AML/CFT supervisory purposes. In place of the NRFSB Law, the CFL will implement three new policy pillars as follows:
Consumer financial protection
The CFL will introduce a licensing framework (to be administered by the GFSC) for any person entering into a regulated agreement by way of business in Guernsey as a provider of credit. Regulated agreements will be defined as those made between a credit provider and a retail customer with interest or other charges or with any customer (including corporate entities) where credit is provided and secured against residential property. Accordingly, all mortgage loans will fall within the scope of the new CFL, although the policy letter does provide for the CFL to allow exemptions from the licensing requirements to be granted in certain circumstances.
The policy letter also proposes that the CFL should require persons providing services ancillary to the provision of credit, such as mortgage brokers and mortgage administrators, will also be subject to the new licensing regime.
Finally, in order to provide a comprehensive consumer protection regime, the CFL will contain policies against "pay-day" or high interest lenders, will provide for statutory cooling off periods and rights of cancellation for consumers entering into regulated agreements and will also contain provisions against unfair contractual terms and practices, all of which are to be overseen by the GFSC.
Recognising the rise of FinTech products in the provision of credit, the policy letter proposes the supervision of specified services in relation to FinTech where deployed in lending and finance. In particular, operating a peer-to-peer electronic platform, operating a crowd-funding platform, providing alternative non-bank credit or finance intermediation and operating an AML/CFT platform will become services requiring a licence from the GFSC when carried out by way of business in or from with Guernsey. Again, certain exemptions will be developed under the CFL.
While the NRFSB Law will be repealed by the new CFL, the list of activities currently subject to AML/CFT registration and supervision only under the NRFSB Law will be substantively re-enacted under the CFL, meaning that these activities when carried out by way of business in or from within Guernsey will need a licence under the CFL.
In addition, a range of services in relation to digital assets, which are not currently activities covered by the NRFSB Law, will be added to the licensing regime. This will include services relating to the exchange, transfer, administration, safe-keeping and issues, or sales, of virtual assets.
Applications for licenses under the CFL will need to meet the GFSC's minimum criteria for licensing in a manner similar to the other regulatory laws which it administers, and the GFSC will have the full range of supervisory, enforcement and rule-making powers under the CFL that it also enjoys under those other supervisory laws. This will be a substantial step up in regulation from the registration-only and limited supervisory regime currently in place under the NRFSB Law.
The CFL will now be drafted by the Law Officers of the Crown, with its progress through the legislative approval process to be decided by the States legislation priority process. It is likely that this will take at least a year, but the changes once enacted will be significant for the Guernsey regulatory landscape and those undertaking any of the activities referred to above.
Originally Published by Walkers, March 2021
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