Consultation Paper on the Lending Credit and Finance Rules, Guidance and Implementation

Overview

This Consultation Paper (“CP”) follows the approval of the Lending Credit & Finance (Bailiwick of Guernsey) Law, 2022, based on the  Policy Letter published by the Policy & Resources Committee and Committee for Economic Development in December 2020[1], which builds on previous work.  Since the Policy Letter’s approval, the Commission has engaged extensively with stakeholders in developing its approach to the new Law and in drafting Rules for licensees.  We sought to engage as widely as possible and met with more than 50 firms, many more individuals, and held a number of breakfast presentations for different industry groups.

Copies of the Consultation Paper, the proposed draft Rules and the proposed draft application forms can be found below.

Purpose of the Consultation Paper

The purpose of this CP is to set out the Commission’s Rules and approach for regulating the sectors covered by the new Law approved by the assemblies of the Bailiwick of Guernsey at their meetings in July and to seek feedback on the proposed Rules and approach.

The Commission is seeking feedback from a wide range of stakeholders, including consumers and potential licensees.  By engaging with the Commission at this stage you will assist us in the development of our supervisory approach.  In section 3 we have highlighted the key areas that would be relevant to consumers, who may be less familiar with responding to consultations.  

The CP includes provisional figures for the fees for various activities, which are themselves the subject of a separate consultation.  We think it is important to include them in order to provide context for this consultation.  The proposed fees form part of the Commission’s annual fees CP^[2], which runs concurrently with this consultation.

If you have specific comments on the level or nature of fees, please respond to the separate fees consultation and please indicate if you have done so in your response to this paper.

Background

We were given a clear message by industry that moves to properly regulate the credit and finance sector and to protect consumers would be welcome.  In doing so, industry would prefer the Bailiwick to adopt an approach aligned with, but significantly streamlined in comparison to, that of the UK.  

We have endeavoured to deliver this approach with the attached Rules.  We consider this provides an approach which properly regulates the sector and provides appropriate protection for Bailiwick consumers within a framework that is considerably streamlined compared to that of the UK.

Consumers will benefit from the knowledge that their interests are safeguarded.  Firms must treat customers fairly.  They must provide information which is clear and sets out charges and interest rates in a manner that allows consumers to make fair comparisons and informed choices between providers, ensures that they understand the terms of agreements which they enter into and are protected against misleading or unfair contract terms.  This is increasingly important as economic conditions become more difficult and consumer finances are stretched by higher prices and interest rate increases begin to take effect.

As well as replacing rules for “financial firm businesses” previously included in the NRFSB Law, the Law and accompanying Rules address fintech platforms operating crowdfunding and peer to peer platforms and virtual asset service providers.  It introduces licensing for a wide range of activities related to crypto currencies and other virtual assets that have not previously been regulated in the Bailiwick.  This is necessary to meet international standards and ensure that, as an international finance centre, we continue to be compliant in combatting financial crime.  Regulation of VASPs is essential ahead of the forthcoming MONEYVAL evaluation of the Bailiwick.  It is also timely given increased scrutiny around the sanctions applied to Russia, as well as recent events in the world of virtual assets, which have seen high profile failures and a substantial reduction in the value of virtual assets.  This raises serious questions about the risks involved and their suitability for retail customers.

While the Rules look daunting in their scope, and run to approximately 90 pages, they cover more than just consumer protection.  For the majority of licensees, only a part of the Rules apply.  For example, firms which are conventional credit providers can disregard the detail for VASPs or Fintech platforms.  Fewer Rules are relevant to credit and home finance brokers, which must meet the relevant criteria for licensing, treat customers fairly and follow the principles for the conduct of finance business, but are not themselves subject to the full detailed Rules that necessarily apply to lender and credit providers.

This is an 8-week consultation and responses should be submitted to the Commission via the Online Survey, below, by the 15 September 2022.  During the consultation period we will hold a number of meetings with stakeholders to address any questions they may have before responding to the consultation.