Member Article

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Definitions:

"LCF Law" means The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022.

"Notice" means the Guernsey Financial Services Commission's Notice with respect to the disapplication of the requirement to hold a licence under section 40 of the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022.

1. Loan from an individual to a friend

This might be subject to both:

• Part II of the LCF Law, as credit business; and
• Part III of the LCF Law, as "lending" (and thereby constituting "financial firm business").

Assuming the loan is made "by way of business", this will depend upon the purpose of the loan:

Discretionary Exemption. Non-bank “private lenders” (an "Exempted Private Lender") may be able to apply to the Commission for a Discretionary Exemption from licensing under [Part II] of the LCF Law (a "Private Lender Exemption"). Please refer to our Discretionary Exemption Briefing for further information on the availability of a Private Lender Exemption.

2. Loan from an individual to an employee

This might be subject to both:

• Part II of the LCF Law, as credit business; and
• Part III of the LCF Law, as "lending" (and thereby constituting "financial firm business").

However, as the loan is made to an employee, the requirement for the individual to hold a licence under Part III of the LCF Law is disapplied under paragraph V of the second section of the Notice (as this is a person which carries out lending their employees). (Note that the equivalent exemption in respect of Part II only applies to entities (not persons) which extend credit to their employees.)

This exemption applies regardless of the purpose of the loan.

As regards Part II, and assuming the loan is made "by way of business", this will depend upon the purpose of the loan:

Discretionary Exemption. Non-bank “private lenders” (an "Exempted Private Lender") may be able to apply to the Commission for a Discretionary Exemption from licensing under [Part II] of the LCF Law (a "Private Lender Exemption"). Please refer to our Discretionary Exemption Briefing for further information on the availability of a Private Lender Exemption.

3. Loan from an individual to company

This might be subject to both:

• Part II of the LCF Law, as credit business; and
• Part III of the LCF Law, as "lending" (and thereby constituting "financial firm business").

However, the following exemptions apply:

Part II

• Credit where property is not the borrower's residence. Part II only applies to loans made to entities where "the credit is secured against real property situated in the Bailiwick and used for residential purposes." The requirement for the individual to hold a licence under Part II of the LCF Law is disapplied under paragraph IX of the first section of the Notice (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). This has the effect of removing loans to entities from the scope of Part II.

Part III

• Lending by shareholders; lending by directors. Assuming the private lender is a shareholder or director of the company) Part III of the LCF Law is disapplied under paragraph IV of the second section of the Notice, which exempts "Registered directors, registered partners, registered shareholders, or beneficial owners who carry out lending to associated entities".
• Lending to an administered entity. If the company is an administered entity, Part III of the LCF Law is disapplied under paragraph X of the second section of the Notice, which exempts "individuals, who are investors, who carry out lending to administered entities". Note that this disapplication will only be available where either:

1. the extension of credit is ancillary to the main activity of the individual offering the credit facilities, or
2. the extension of credit is one component of an investment, group, or holding structure of which the individual which extends the credit forms a part (where the primary purpose of such a structure is to hold underlying assets, act as a corporate group, or make one or more investments into underlying assets, by equity or by debt, but the primary purpose is not to act as a lender to unconnected third parties).