Guernsey Financial Services Commission Consultation Paper on The Lending, Credit & Finance Rules, Guidance and Implementation

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Guernsey Financial Services Commission
Consultation Paper on The Lending, Credit & Finance Rules, Guidance and Implementation Issued 21st July 2022 Responding to the Consultation Paper Responses to this Consultation Paper are welcomed before 15 th September 2022. You can send your response to us via the Consultation Hub section of the Commission’s website (www.gfsc.gg). https://consultationhub.gfsc.gg

ii
Contents page
Responding to the Consultation Paper.....................................................................................................i Contents page..........................................................................................................................................ii
Introduction.....................................................................................................................................1
1.1 The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022..................................1
1.2 Background.............................................................................................................................1
1.3 Purpose of the Consultation Paper..........................................................................................2
1.4 Timetable ................................................................................................................................3
Scope of the new Law.....................................................................................................................4
Who will be affected? .....................................................................................................................5
3.1 Consumers in the Bailiwick of Guernsey................................................................................5
3.2 Licensees:................................................................................................................................6
3.3 Will licensing affect any commission payments or fees I receive? ........................................7
Who will need a licence? ................................................................................................................8
4.1 Newly regulated firms.............................................................................................................8
4.2 Firms previously registered under the NRFSB Law...............................................................8
4.3 Existing licensees....................................................................................................................8
4.4 Equivalence.............................................................................................................................9
4.5 Structure of the Law and licensing .........................................................................................9
4.6 Virtual asset service provider businesses..............................................................................10
4.7 Dual licensing .......................................................................................................................11
Minimum criteria for licensing (the “MCL”)................................................................................12
5.1 Minimum capital requirements.............................................................................................12
5.2 Minimum insurance and professional indemnity insurance (“PII”) requirements................13
Exemptions & exclusions from licensing requirements................................................................14
6.1 General exclusions: activities which are outside the scope of licensing...............................14
6.2 Activities outside the scope of Part II of the Law.................................................................16
6.3 Activities outside the scope of Part III of the Law................................................................17
6.4 Activities to be exempted by the Commission......................................................................18
6.5 Exclusions and exemptions from Part IV: peer to peer and crowdfunding ..........................20
6.6 Activities which will be partially exempted from the Rules.................................................21
Which Rules apply to which categories of licensee? ....................................................................22
7.1 AML/CFT Provisions ...........................................................................................................22
Consumer credit & home finance (Part II) licensees....................................................................24
8.1 Consumer credit and home finance providers.......................................................................24
8.2 Home finance providers........................................................................................................26

iii
8.3 Ancillary Service Providers..................................................................................................28
8.4 High street retailers & Appointed Retailers..........................................................................29
8.5 Motor traders.........................................................................................................................33
8.6 High net worth individuals....................................................................................................35
8.7 Buy now, pay later................................................................................................................36
8.8 Information for customers.....................................................................................................37
8.9 Interest rates and total cost of credit .....................................................................................38
8.10 High interest and “payday” loans..........................................................................................39
8.11 Promotion & advertising.......................................................................................................40
8.12 Cancellation, cooling off & periods of reflection .................................................................41
8.13 Early repayment....................................................................................................................42
8.14 Unfair contract terms ............................................................................................................43
8.15 Forbearance and default........................................................................................................44
8.16 Private lenders & Appointed Service Providers (“ASPs”) ...................................................45
8.17 Appointed Service Providers (“ASPs”) ................................................................................47
8.18 Arrangement for existing lenders which are in run-off.........................................................49
8.19 Fees and commission payments............................................................................................50
Financial firm businesses - Part III FFB licensees........................................................................51
Financial Technology (“FinTech”)...............................................................................................56
Virtual asset service providers - Part III VASP licensees.............................................................57
11.1 Introduction...........................................................................................................................57
11.2 Application of the regime .....................................................................................................57
11.3 Scope of the licensing regime ...............................................................................................58
11.4 Activities that are out of scope..............................................................................................60
11.5 Licensing process..................................................................................................................62
11.6 Environmental disclosure......................................................................................................62
11.7 Governance and substance ....................................................................................................63
Crowdfunding & peer to peer (Part IV)........................................................................................64
Approach to supervision ...............................................................................................................66
Information reporting....................................................................................................................67
Applications..................................................................................................................................68
15.1 Who would need to apply?....................................................................................................68
15.2 New licence applications ......................................................................................................69
15.3 Timeframes and deadline......................................................................................................70
15.4 Queries in relation to licensing applications.........................................................................70
Fees...............................................................................................................................................71
16.1 Annual fees ...........................................................................................................................71

iv
16.2 Application fees....................................................................................................................71
16.3 Regulatory fees – credit and finance sector ..........................................................................72
Appendix 1: Glossary ...................................................................................................................74
Appendix 2: Acceptable qualifications for home finance lending and broking............................77

Introduction
1.1 The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022
At its meeting on 14 July 2022 the States of Guernsey approved1 the introduction of The Lending, Credit and Finance (Bailiwick of Guernsey) Law 2022 (the “Law”) , which was approved by the Chief Pleas of Sark at its meeting on 6 July, and by the States of Alderney at its meeting on 20 July. The new Law is due to come into force by the end of 2022. The Lending, Credit and Finance Rules and Guidance, 2022 (the “Rules”) are planned to come into effect shortly afterwards. The purpose of the Law is to protect customers in the Bailiwick who make use of consumer credit in all its forms: individual loans; home finance; and credit for the purchase of goods and services. Firms offering such services in or from within the Bailiwick will need to be licensed and will be regulated accordingly. The Law also introduces the licensing and regulation of “financial firm businesses” (“FFBs”); “Virtual Asset Service Providers” (“VASPs”) in relation to virtual assets, and crowdfunding/peer to peer intermediation services. The FFB regime replaces registration under the existing Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (the “NRFSB Law”).
1.2 Background
This Consultation Paper (“CP”) follows the Credit and Finance Legislation Policy Letter (the “Policy Letter”) published by the Policy & Resources Committee and Committee for Economic Development in December 20203 , 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. 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. One of the main concerns was that rather than invent a new approach unique to the Bailiwick, which would impose additional costs and overheads, we should follow existing principles and approaches. This would allow businesses to make use of existing knowledge and expertise, and where appropriate, to make use of systems and processes that had been tried and tested elsewhere. At the same time, industry was keen for the Commission to look to reduce the overall volume of rules and regulations, which in the UK run to hundreds of pages of detailed rules and guidance. 1 Details of the States meeting and the Billet d’Etat can be found on the States of Guernsey website: States Meeting on 13th July 2022 (Billet d'Etat XII) - States of Guernsey (gov.gg) 2 Please find a copy of the draft Law on the States of Guernsey website: CHttpHandler.ashx (gov.gg) 3 The Policy Letter was approved by the States of Guernsey on 2 February 2021. It can be found on the States of Guernsey website: Credit and Finance Legislation - States of Guernsey (gov.gg)

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.
1.3 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. A copy of the (draft) Rules is attached. 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 3.1 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 will themselves be 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 CP4 , 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. This is an 8-week consultation and responses should be submitted to the Commission via the link to the Consultation Hub, which can be found on the Commission’s website, 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.
1.4 Timetable
Prospective licensees who wish to continue existing activities or to carry on new business after the full implementation date, scheduled to be 1 July 2023, will need to ensure that they apply for a licence in time to ensure that it is in place by then. Firms which are currently registered as Non-Regulated Financial Services Businesses (“NRFSBs”) will need to apply for licences under the new Law. New licences will need to be in place by the 1 July when provisions of the NRFSB Law are replaced by the requirement for licensing under the LCF Law. As with other activities, former NRFSBs which do not have a licence in place will not be able to conduct new business after 1 July 2023. We anticipate that the Rules should be approved and come into effect by the 31 December 2022 and propose to open the window for licence applications on 1 January 2023. The Commission aims to open the window for licence applications from 1 January 2023 with the intention that the new regime will come into effect on 1 July 2023. 4 The Commission’s consultation on fees for 2023 can be found here: https://consultationhub.gfsc.gg

Scope of the new Law
The new Law covers four areas, with activities licensed under different parts of the Law:

Consumer credit & home finance (“Part II”)
Credit providers; including lenders, credit and home finance brokers and others providing services ancillary to the provision of credit.
Financial firm businesses (“Part III FFB”)
Firms carrying out a range of financial services activities and which are not regulated under one of the Bailiwick’s regulatory Laws - many of which will have previously fallen within the scope of the NRFSB Law;
Virtual asset services providers (“Part III VASP”)
Firms and individuals providing virtual asset services (this does not include persons investing in virtual assets for their own account or businesses accepting virtual assets as a form of payment); and
Peer to peer and crowdfunding (“Part IV”)
Financial intermediation services which match investors to those seeking funding (crowdfunding and peer to peer services).

Who will be affected?
3.1 Consumers in the Bailiwick of Guernsey
The new Law introduces modern consumer protection measures for individuals who take out loans, home finance or make use of consumer credit arrangements to purchase goods and services from those licensed by the Commission. The Law introduces the concept of a regulated agreement5 , to which these consumer protection measures apply. While many lenders already follow good practice and provide customers with clear contracts and relevant information, it is not always the case. In future, customers will be entitled to, and lenders must provide: information in advance of entering into a regulated agreement; clear statements of monthly payments; the total cost of credit; and interest rates. This must be done in a way that allows customers to make meaningful comparisons between different types of credit. Licensees will be required to carry out customer due diligence in relation to the services they provide to consumers, as part of their regulatory requirements. This is consistent with financial services business worldwide. Licensees will be required to obtain sufficient information from their customers to assess whether a loan is affordable. Customers will also be entitled to make early repayments without excessive penalties. Customers will have the right to be treated fairly in the event that they get into financial difficulty. Customers will also have certain rights in respect of unfair contract terms. The Commission has identified a number of terms which it regards as unfair and would not expect licensees to include in their agreements with consumers. These are outlined in section 8.14. The above, and other areas relevant to consumers in the Bailiwick, are covered in more detail later in the CP, from the perspective of the requirements that will be placed on licensees. We would welcome any consumer feedback in response to the questions raised in the consultation. This does not prevent a customer from approaching a firm based outside the Bailiwick (whether in the UK or elsewhere), but if they do, they will not benefit from the protections outlined in the Law and these Rules. They would have to rely on those in the firm’s home jurisdiction, which may or may not protect Bailiwick consumers. The Law includes provision to designate jurisdictions as equivalent. This means that firms in designated jurisdictions meet the minimum standards of consumer protection provided by firms based in the Bailiwick (see section 4.4 below). 5A "regulated agreement", is defined in section 6 of the Law as an agreement: “made by or on behalf of, and between – (a) a provider of credit and a customer who is an individual acting for purposes wholly or mainly outside that individual's trade, business or profession, whereby credit is provided and interest or other charges may be levied on the customer, or (b) a provider of credit and any customer, whereby credit is provided and interest or other charges may be levied on the customer and the credit is secured against real property
situated in the Bailiwick and used for residential purposes.”

3.2 Licensees:

Credit providers
A broad range of financial service providers including banks, building societies, non-bank lenders who provide loans, home finance, and consumer credit, and retailers who provide credit in their own right. These will now be regulated for consumer credit purposes. They will be required to meet the minimum criteria for licensing and to follow the Rules set out by the Commission.
Credit/home finance brokers and other ancillary service providers
This covers a range of services, which includes: credit and home finance brokers; introducers who arrange finance for customers; debt administrators; and retailers. This category includes retailers who act as brokers for the provision of credit, for example, motor traders offering finance arrangements from third parties (who are credit brokers). Note that some retailers, e.g., the majority of high street retailers (subject to meeting the relevant criteria), are considered to be “Appointed Retailers” of a third party credit provider and will not need a licence in their own right.
Financial firm businesses and former Non-Regulated Financial Services
Businesses
Most former NRFSBs will fall into the category of FFBs – although, those offering consumer credit or home finance products will fall under the provisions of Part II of this Law. This means that some will need to be licensed in their own right as credit providers, while others may be able to rely on equivalence provisions if they are authorised to provide specific services from a designated jurisdiction which offers consumers in the Bailiwick equivalent protection to the Rules set out here.
Virtual asset service providers
VASPs are not currently regulated within the Bailiwick, except where they are carrying out an activity which falls within the scope of an existing regulatory Law. The VASP Rules included here, together with changes to the Criminal Justice (Proceeds of Crime) Bailiwick of Guernsey) Law, 1999 (the “POCL”) are designed to support the licensing framework being introduced to meet the latest international recommendations of the Financial Action Task Force (“FATF”). There will be a separate consultation on changes to the POCL and The Handbook on Countering Financial Crime and Terrorist Financing (the “Handbook”)6 . This will ensure the Bailiwick continues to be an internationally compliant jurisdiction when it comes to combatting financial crime. Recent market events, such as the significant drop in the price of Bitcoin and other virtual assets and the collapse of the so-called “stablecoin” Terra, have highlighted that virtual asset markets are unstable, volatile and can expose investors to significant amounts of risk. 6 Changes are under discussion with the Law Officers of the Crown and will be consulted on in due course, with the aim that the required changes would be enacted before the end of 2022.

Internationally there has been an increased focus on the potential for crypto assets to be used to circumvent UK and other sanctions on Russia since the invasion of Ukraine.
5. Crowdfunding and peer to peer intermediaries
These services are not currently regulated within the Bailiwick in their own right. Intermediaries offering these services in the Bailiwick are regulated only where they are carrying on an activity which falls under one of the regulatory Laws or are carrying out lending or another prescribed activity which requires them to register under the NRFSB Law. The purpose of regulating such services is to ensure that customers, whether individuals or businesses, based in the Bailiwick and outside, can be confident that the platform operator is properly regulated and has sufficient knowledge and resources to effectively provide the service. It is not intended to provide specific investor protection with respect to the underlying investments.
3.3 Will licensing affect any commission payments or fees I receive?
The answer is maybe.
The LCF Law and the Rules do not prevent any service provider from accepting a fee or commission, but customers will need to be told that a fee or commission is received and may need to disclose the amount. There will also be Rules which restrict certain types of commission arrangements which are detrimental to customers.

Who will need a licence?
4.1 Newly regulated firms
The Law brings into the scope of regulation a range of businesses that have not previously been regulated, or which have been registered but not licensed by the Commission. This affects:

firms offering consumer finance;
firms offering home finance;
non-bank lenders;
credit brokers;
home finance brokers;
debt administrators;
relevant retailers;
virtual asset service providers;
platform operators (for crowdfunding and peer to peer platforms).
Retailers which offer their own finance or act as brokers (e.g., motor traders), are likely to need a licence in their own right. Retailers which offer credit from a licensed third party credit provider may be considered an “Appointed Retailer” of that credit provider.
4.2 Firms previously registered under the NRFSB Law
Most firms previously registered under the NRFSB Law will now need to be licensed. Some NRFSBs which are engaged in consumer finance activities and regulated in their home jurisdiction may not require a licence, where it is determined that the jurisdiction offers equivalent protection for Bailiwick customers.
4.3 Existing licensees
There are firms licensed by the Commission under other regulatory Laws, who will be familiar with the Commission’s approach which may need an additional licence depending on the activities they carry out. Firms which offer consumer finance will need a licence under Part II of the Law in addition to their existing licence. This includes banks, which are licensed to accept deposits but at present are not specifically regulated in respect of their lending activity. Firms licensed under one of the regulatory Laws which also carry out FFB activities will generally not need a separate licence under the Law, unless carrying out consumer finance activities. Existing licensees intending to carry out VASP activities or initial coin offerings (“ICOs”) will generally be required to hold a licence under the Law. 7 This replicates the arrangements under the NRFSB Law, except for consumer finance activities, which require additional licensing.

4.4 Equivalence
Firms located outside the Bailiwick which target customers in the Bailiwick must either be licensed in the same way as their local counterparts or licensed to operate from a jurisdiction which offers equivalent protection to consumers. The Policy & Resources Committee has the power to designate jurisdictions, which provide protection to customers equivalent to those that would be provided by a firm licensed here, as equivalent. Equivalence arrangements apply only in respect of consumer finance activities regulated by Part II of the Law. Such firms must be authorised to provide the relevant services in their home jurisdiction and must conduct their business in the Bailiwick in a manner which affords equivalent protection to customers of that activity. Under the Law the Commission has the power to require firms to:

notify the Commission that they wish to operate in the Bailiwick; and
provide information requested by the Commission
The Commission has the power to issue directions (under section 39 of the Law), which may require firms to conduct business in a specific manner or prohibit individual activities from being undertaken in connection with the Bailiwick.
4.5 Structure of the Law and licensing
The Law is divided into several parts. Part I deals with general provisions. The various licensing arrangements are arranged as follows:
What? Licensed under?
Who?
Credit providers Part II • Consumer credit and home finance providers, which will include banks and non-bank credit and home finance providers
May include retailers who extend credit directly to
customers
Brokers and other ancillary service providers
Part II • Credit brokers
Home finance brokers
Introducers
Debt administrators
Retailers who offer or arrange credit
Motor traders offering third party credit
Financial firm businesses
Part III
FFB
The activities set out in Schedule 1 (which mirror the
former NRFSB Law) and include credit provision and other services Unless:
Licensed under Part II of the Law, another regulatory
Law, or exempt under section 20 of the Law

Virtual asset service providers
Part III
VASP
Entities that, by way of business:

transfer virtual assets
exchange virtual assets, either for other virtual assets
or for fiat currency
offer the safekeeping and custody of virtual assets
make initial coin offerings or participate and/or
provide financial services in relation to the issue of virtual assets Except for:
Natural or legal persons who invest in virtual assets
on their own behalf (includes collective investment schemes authorised/registered under the POI Law8 ) Crowdfunding and peer to peer platforms
Part IV • Intermediaries/platform operators for crowdfunding
and peer to peer arrangements (if the peer to peer/crowdfunder is the lender, Part II will apply)
4.6 Virtual asset service provider businesses
Virtual assets are defined under section 17(4) of the Law as:
“a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes, but virtual assets do not include digital representations of – (a) fiat currencies, or (b) general securities and derivatives within the meaning of category 2 in Schedule 1 to the Protection of Investors Law and other financial assets.” The Law defines which activities, when carried out by way of business, require licensing but this does not make clear what kind of business activities a VASP might undertake. Below is a list of some examples of VASP business models. This list is not exhaustive and the key element determining whether a firm requires a licence will be whether they carry out the activities specified by the Law.
Virtual asset exchange (custodial or non-custodial)
Conducting an initial coin offering
Virtual asset lending businesses
Interest earning virtual asset “deposits”
Virtual asset custody services
“Stablecoin” issuers
Issuing financial products backed or secured by virtual assets
Operating a decentralised autonomous organisation (“DAO”)
8 The Protection of Investors (Bailiwick of Guernsey) Law, 2020

We would encourage any firm or individual who believes they may be carrying out any of these activities, or who might wish to in the future, (and who would therefore need to be licensed under the Law) to contact the Commission at an early stage to discuss your proposed activities and our requirements.
4.7 Dual licensing
In order to carry out certain activities, firms (or individuals) which carry out multiple regulatory activities may need to be dual licensed under different regulatory Laws or may need to be licensed for more than one activity under the Law. There is guidance for firms on the overall scope and the extent to which existing licensees are covered by the Law. Some activities which might previously have been considered under other regulatory Laws will now fall within the scope of the Law, for example, the operation of a virtual asset exchange, might previously have been considered under the POI Law (although, if other regulated activities are conducted, both may be relevant). Broadly speaking, firms which engage in consumer finance or home finance activities will need a licence under the Law in addition to any other licence they may hold. This applies to banks and other lenders, as well as intermediaries who provide services ancillary to the provision of credit, such as credit brokers or home finance brokers. The Law will cover the licensing and regulation of exchanges dealing in virtual assets. Anyone engaging in VASP activity will (with a limited number of exceptions) require a licence under the Law in addition to any other licence they hold. Firms engaged in FFB activities (as set out in section 9 of this paper) will not require an additional licence if they are already licensed under one of the regulatory Laws or satisfy the criteria for exemption. For firms carrying out more than one activity under the Lending, Credit and Finance Law, the picture is similar. Some will need to be licensed under more than one part of the Law, depending on the combination of activities which they undertake. As above, anyone engaging in consumer finance activities will need to be licensed under Part II of the Law, anyone engaged in VASP activities will require a licence under Part III and platform operators for crowdfunding or peer to peer lending under Part IV.

Minimum criteria for licensing (the “MCL”)
All licensees will need to meet the minimum criteria for licensing.
Those with existing licences should already meet the criteria but, for new licensees and some firms registered under the NRFSB Law, this will impose new requirements they must meet. The full requirements are set out in detail in Schedule 4 to the Law. In summary, they cover:

integrity and skill;
fit and proper persons;
appropriate composition of the board of directors;
business to be conducted in a prudent manner; and
provision of information required by the Commission.
Firms must comply with the requirement set out in Part 2 of the LCF Rules to have at least two persons directing the business who are based in the Bailiwick. The Commission is able to derogate this provision as appropriate, for example, in the case of sole traders, who do not have two people directing the business, and for whom the composition of the board of directors is not relevant. As part of meeting the minimum criteria there are some common Rules that all licensees must follow. These requirements will be familiar to firms that already hold a licence but are summarised later in this paper for those firms that will be new to regulation. They include the Principles of Conduct of Finance Business9 and the Finance Sector Code of Corporate Governance10 .
5.1 Minimum capital requirements
The MCL include a requirement that businesses must retain sufficient resources to be able to finance their functions and meet their obligations as they fall due. This is similar to the “going concern” requirements for businesses in general. Businesses must hold sufficient accessible capital so that, in a worst-case scenario in which the licensee’s business gets into difficulty, it would be able to maintain operations to allow for an orderly winding-up and the transfer of contracts to another service provider. We would expect this to cover a minimum of a three-month period in respect of their licensee obligations. For most licensees there is no further minimum capital requirement, but for VASPs there will be additional capital requirements. Due to the wide variety of VASP risks and business models, these will be specified on a case-by-case basis, initially at the point of licensing. 9 Principles of Conduct of Finance Business 10 Finance Sector Code of Corporate Governance

5.2 Minimum insurance and professional indemnity insurance (“PII”)
requirements
The MCL include an obligation for businesses to maintain appropriate insurance cover for the activities they undertake. In most cases this should reflect the requirements of the business itself. For home finance providers and home finance brokers, who provide advice to customers on products and services that have a substantial and enduring financial impact, we require firms to ensure that they also hold appropriate PII cover, as specified in the Rules. This is to ensure consumer protection in the event of inadequate advice being provided by a licensee and is in line with some of our existing regulatory Laws.

Exemptions & exclusions from licensing requirements There is a range of general exclusions and exemptions from the Law, which are set out below. The distinction between the two is that an exempted activity requires a specific exemption from the requirement for a licence to be granted by the Commission, while an excluded activity falls outside the scope of the Law. The Commission may grant exemptions for a particular type of activity (a class exemption, which the Commission will publish on its website) or on a case-by-case basis (discretionary exemptions, which firms will need to apply for individually). An exemption or exclusion from one part of the Law does not necessarily provide an exemption from other parts of the Law. A firm may need a licence under more than one part of the Law if it carries out activities that are covered under more than one part of the Law. It is not possible to provide a definitive list of activities that are excluded from the scope of the Law. Nevertheless, we considered that it would be helpful to identify a list of those activities which might otherwise be considered to fall within the scope of the Law, or which are peripheral to (and therefore provide some clarity on) the perimeter of its application.
6.1 General exclusions: activities which are outside the scope of licensing
There are activities which fall outside the scope of one part of the Law but are within scope for another. A case in point is the provision of loans to businesses. The provision of business loans is not considered to be in scope of Part II, and therefore does not require a licence under
Part II of the Law, but such lending is likely still to fall within the scope of Part III of the Law
as an FFB activity.
While this may appear inconsistent, it is because the rationale behind the different parts of the Law is different. The purpose of Part II is primarily the protection of customers, but Part III is largely concerned with ensuring that the relevant activities are properly regulated for the purposes of anti-money laundering and the countering the financing of terrorism (“AML/CFT”). The following activities are outside the scope of the Law for the purposes of licensing under Parts II and III:
Lending (providing credit) without fees or interest Lending to consumers, which is interest free and incurs no other fees (or potential fees) or charges, is not a regulated credit activity under Part II of the Law. If credit is provided to customers who are individuals, and there are any fees, charges or interest, then the provision of credit falls within the scope of the Law. Note that charging higher prices for goods bought on credit terms compared to other payment methods or requiring the purchase of additional products or services, such as warranties or service contracts, in order to access “interest free” credit terms will bring the provider within scope of the Law.

Buy now, pay later (“BNPL”) arrangements
True BNPL arrangements to pay for goods or services by instalments, where there are no fees, interest, or other charges to customers, and no fees for late payment, falls outside the scope of the Law, provided that agreements do not permit the credit provider to default to a traditional interest paying credit agreement. Customers should not be required to pay higher prices for goods or services purchased in this way (as that would be considered a cost of credit), nor should they be required to purchase additional services, warranties, or insurance as a requirement to qualify for such arrangements (although they may opt to do so if they wish). If customers are required to purchase insurance, warranties or other services in order to take advantage of “interest free” credit, it is considered to be a regulated credit agreement within the scope of Part II of the Law. Settlement of invoices The settlement of invoices for goods and services in the normal course of business is not a regulated credit activity and is outside the scope of the Law. That is the case even if there are provisions for extended payment periods (e.g., 30, 60, 90-day settlement terms) or for late payment charges. Instalment arrangements and budget accounts for utility bills Payment for services, such as utility bills, through instalment arrangements, which do not incur fees or interest but average out charges across the course of a year, are not considered to be a regulated credit agreement for the purposes of the Law. Instalment arrangements for insurance premiums Instalment arrangements for insurance premiums, which do not incur interest charges, fees, or otherwise increase the cost of the insurance, are not regulated credit agreements for the purpose of the Law. Where interest is charged, the arrangement would be a credit agreement and fall within the scope of the Law. Further detail is provided below. Lending to family members This is outside the scope of the Law and does not require a licence. The Commission does not consider it to be a commercial activity and irrespective of whether there are charges or interest, it is not considered to be by way of business. Lending to friends A one-off loan to a friend, with no charges or interest, would be outside the scope of the Law. However, a repeated pattern of loans, or lending with the imposition of fees, charges or interest, would be within scope of the Law.

Directors’ loans
Loans to or from directors of a business are not considered to be a consumer credit for the purposes of the Law. Employee loans Interest free employee loans, as with other loans for which there are no fees or charges, are outside the scope of the Law. Loans to employees with fees or interest are not excluded, they fall within the scope of the Law. However, employers who wish to offer loans with interest or charges to employees for a specific purpose (for example to assist in the purchase of a bicycle or e-bike) may apply for a discretionary exemption from the licensing requirements. The Commission will consider applications on a case-by-case basis. Borrowing from a retirement annuity trust scheme (“RATS”)/pension arrangement Borrowing from a RATS/pension arrangement by the beneficial owner is not considered to be the provision of credit for the purposes of the Law. Litigation financing Litigation financing is outside the scope of the Law, unless it involves a lending arrangement for which interest or other fees may be charged; such an arrangement would fall within the scope of Part II or Part III of the Law (depending on whether credit is for an individual or a business). Charities The provision of grants or interest free loans by charities is outside the scope of the Law and does not require licensing. We do not consider that a blanket exemption is required for charities, and charities wishing to offer loans with interest will either need to be licensed or to apply to the Commission for a discretionary exemption. This aims to ensure that the same degree of protection applies to those receiving loans from charities as from other providers when they include interest, fees or charges.
6.2 Activities outside the scope of Part II of the Law
The following activities identified below are outside the scope of Part II of the Law but may fall within the scope of Part III. This means that a Part III licence may be required by firms which are not licensed under Part II of the Law or another regulatory Law. In general, lending secured against residential property in the Bailiwick constitutes a regulated agreement and requires the lender to be licensed under Part II of the Law, unless covered by one of the exclusions identified below or the subject of a specific exemption (see section 6.3 below).

Lending secured on property outside the Bailiwick Any lending which is secured on property which is outside the Bailiwick falls outside the scope of the Part II of the Law. Lending secured on non-residential property in the Bailiwick Lending secured on Bailiwick property which is not residential property falls outside the scope of Part II of the Law. Complex ownership arrangements for Bailiwick residential property Lending secured against a residential property which is owned through a company or trust does not fall under the definition of consumer credit because credit is not being provided to an individual. Such an arrangement would not be considered home finance because the property is the home of a natural person (the individual) other than the legal person carrying out the borrowing (which is a separate legal entity), even if the property is ultimately owned by that individual.
6.3 Activities outside the scope of Part III of the Law
There is a selection of activities which might naturally be considered to be included within the scope of FFB activities but which in practice fall outside its scope or are covered by exemptions within the Law itself. In the Law, Part B of Schedule 1 specifies regulated businesses that are not subject to licensing as an FFB. These are activities which would ordinarily fall within the definition of a “financial firm business" within Part A of Schedule 1 but which have been specifically excluded in Part B of that Schedule. Firms which are licensed under another regulatory Law or Part II of the Law Firms which are licensed under another regulatory Law (as set out in Part B of Schedule 1 to the Law) do not require a licence under Part III of the Law to carry out FFB activities. This carries forward the existing arrangement under the NRFSB Law, with the addition of provisions for collective investment schemes. Collective investment schemes Collective investment schemes which are authorised or registered under the POI Law are now specified in section 24 of the list of regulated businesses identified in Part B of Schedule 1 to the Law. This means that such schemes do not require a licence under Part III of the Law in respect of FFB activities. However, collective investment schemes which enter into regulated agreements for consumer credit or home finance must be licensed under Part II of the Law. Payment service providers and other money service businesses The provision of services by payment service providers (which are one type of money service business) in response to a direct approach from a customer such as a retailer or merchant based in the Bailiwick does not require a licence, this constitutes “Reverse solicitation”. For the avoidance of doubt, customers or merchants who make use of such services, whether directly at their premises or via a website, will not require a licence.

However, a payment service provider which wishes to operate within the Bailiwick, set up a local branch or to target customers directly falls within the scope of the Law and would require a licence. Directly targeting customers in the Bailiwick means advertising in local media (local radio, Channel TV, Guernsey Press or Bailiwick Express), targeting Bailiwick or Channel Island customers, it does not, for example, include advertising in the national (UK) media. Collective investment schemes, individuals, and non-financial businesses trading on their own accounts The Commission proposes to direct that certain activities, set out below, do not constitute acting by way of business for the purposes of section 17 of the Law. Private individuals who choose to invest in virtual assets on their own account are not required to hold a licence. Similarly, collective investment schemes and businesses that decide to hold virtual assets as part of their asset allocation or investment strategy, when doing so for their own account, would not be required to hold a licence. Traders accepting virtual assets as a means of payment A trader accepting virtual assets as a means of payment for goods or services which they provide in the normal course of their business would not constitute carrying out a VASP activity for the purposes of the Law. However, traders that accept virtual assets should take care that they are not used as a means to exchange virtual assets into fiat currency (or other virtual assets) by, for example, bad actors making multiple purchases or transactions in virtual assets, then requesting refunds in fiat. We consider such activity to be acting as a VASP by way of business and a licence would be required.
6.4 Activities to be exempted by the Commission
The Commission intends to use its powers under the Law to exempt certain activities from the scope of the Law, including making use of powers under section 40 to provide class exemptions for activities identified below. Under certain circumstances, the Commission may also provide individual exemptions. These are subject to application and the relevant fee will apply. Leasing and hiring The Law is drafted to include the hiring or leasing of goods under a regulated agreement as a form of credit. The purpose of this provision is to ensure that “rent to own” and “rent to buy” arrangements and certain more complex forms of motor vehicle purchase/lease arrangements (including personal contract plans) are covered by the Law. It is not intended that the simple hiring or leasing of goods within the Bailiwick should be regulated by the Commission, but given the drafting of the Law, stakeholders have raised a concern that this could be the case. The Commission therefore intends to exempt any such arrangements unless they form part of a “rent to own” and “rent to buy” arrangement or involve the purchase/lease of a motor vehicle.

For the avoidance of doubt, straightforward vehicle hire arrangements will be exempted, but arrangements with the option to buy (personal contract plans) for a final payment or “balloon” will not be exempt from the requirement for licensing. Certain types of lending secured on residential property in the Bailiwick Lending which is for the purpose of:

buy-to-let;
development; or
bridging finance
and is secured on residential property in the Bailiwick, will be exempt from the provisions of
Part II of the Law, provided that no part of the credit is secured against the borrower’s family
home. Such arrangements may continue to fall under Part III of the Law. Lombard lending Lending which is fully secured against marketable securities held in a custody account and where the customer meets the definition of a high-net-worth-individual (“HNWI”) will be exempt from the requirement for a Part II licence, provided the lender is licensed under a regulatory Law. Lending by administered entities (i) Intra-group lending by administered entities Firms which are administered by a licensed fiduciary will be exempt from the requirement for a licence for lending to another person or arrangement which is under common beneficial ownership. For such transactions, the administering fiduciary will be responsible for conducting appropriate customer due diligence and ongoing monitoring, as well as ensuring that the relationship and transaction comply with AML/CFT obligations. (ii) Occasional transactions by administered entities If an administered entity intends to carry out occasional transactions which would otherwise require it to hold a licence under the Law, it may apply to the Commission for a discretionary exemption. In granting an exemption, the Commission would require the administered entity to ensure (through contractual arrangements as necessary) that the licensed fiduciary which administers the entity will carry out the due diligence and ongoing monitoring, as well as ensuring that the relationship and transaction comply with AML/CFT obligations, including appropriate customer due diligence (“CDD”) and will provide such information to the Commission as it may require. These exemptions will not apply to any transactions that are regulated agreements under Part II of the Law. If an administered entity wishes to offer consumer credit or home finance in its own right, it would need to hold the relevant licence under Part II of the Law.

Licensed fiduciaries and fund administrators
Licensed fiduciaries and fund administrators that provide services to client companies or structures that hold virtual assets for their own account will not be required to hold a separate VASP licence. The exemption would be provided under section 40 of the Law. Virtual asset service providers acting as FFBs VASPs licensed under a Part III VASP licence must meet AML/CFT obligations and the same minimum criteria for licensing as FFBs. There is no benefit in holding a second LCF licence therefore the Commission intends to exempt VASPs from this requirement. Firms in run-off, not accepting new business Firms which previously provided home finance or consumer credit but are in run-off at the time the Law comes into effect may apply for an exemption from the requirement for a licence. The purpose of the exemption is to allow firms to continue to serve existing customers and to make limited changes to agreements, for example to permit changes in interest rates or to allow customers to take up discounted or fixed rate home finance offers from the credit provider. The Commission does not consider that it would be in the interests of customers on such legacy agreements to require firms to apply for licences in order to permit a limited set of changes which reflect market movements or are beneficial to the customers concerned. We do not envisage such exemptions should last for more than 5 years. This is addressed in more detail later in the CP, but the exemption does not apply to businesses which go into run-off after the Law comes into effect. They will be required to maintain their licence through the period of run-off. Ancillary services provided by Appointed Retailers As set out in section 8 of this CP, retailers who provide certain services which would otherwise be considered to be providing services ancillary to the provision of credit (e.g., acting as credit brokers) but are acting on behalf of a third party lender and satisfy the relevant criteria, will not be required to hold a licence in their own right. Private Lenders As described in detail later in this CP, private lenders who satisfy specific criteria, and appoint a licensed service provider (an “Appointed Service Provider” or “ASP”) to act on their behalf, may apply to the Commission for an individual exemption from the requirement for licensing under the Law.
6.5 Exclusions and exemptions from Part IV: peer to peer and crowdfunding
There are no specific exemptions from this section of the Law.
Donation funding platforms are not considered to be in the scope of the Law, for example, giving.gg would not require a licence under the Law.

6.6 Activities which will be partially exempted from the Rules
Lending to high-net-worth individuals (“HNWIs”) Lending to individuals falls within the scope of Part II of the Law, including lending to HNWIs, so credit providers offering services to HNWIs will not be exempt from the requirement for a licence, but only a limited set of Rules will apply to such arrangements. Credit providers will be required to treat their customers fairly and to follow the Principles of Conduct of Finance Business, but detailed Rules on lending will not apply except in relation to the treatment of vulnerable customers. HNWI customers must meet the relevant financial thresholds and agree to waive their rights under the Law. In determining if an individual may be treated as a HNWI, individuals may self-certify that they meet the relevant financial threshold, subject to appropriate safeguards (in particular for those over 75 years of age and those groups that that may be deemed more vulnerable) and appropriate due diligence by the licensee. The value of an individual’s principal residence may not be included in determining if they meet the financial thresholds. Consultation questions Respondents are asked to comment on:

Is the scope of the exemptions proposed by the Commission appropriate?
Are there any other activities that should be specifically exempted, and if so, why?

Which Rules apply to which categories of licensee?
There are some common Rules that all firms licensed under the Law will need to follow. These are summarised below. Please see the enclosed Rules for the full details.

Accounting records – all licensed firms will be required to maintain accounting records
and, for many firms, prepare audited accounts.
Annual return – all licensed firms will be required to submit an annual return to the
Commission four months after the end of their financial year. This will include a copy of their accounting records for the year along with some data on the volume and type of business they carried out.
Outsourcing – all licensed firms will need to have appropriate systems in place to
control and monitor any activities they outsource. The Rules also make it clear that licensees remain responsible for any outsourced activity or function.
Customer relations – licensed firms will need to ensure that they deal with customers
with due skill, care, and diligence and that they provide sufficient information about the products and services they offer.
Complaints – all licensees will be required to maintain records of customer complaints
and have a process in place to deal with complaints in a fair manner.
Customer money – customer money is money that a licensee holds for, receives from,
or owes to, a customer in the course of carrying out their business. Where a licensee holds customer money, they will be required to keep it separate from their own money, periodically check that the amount of customer money they hold is correct, and only pay it out to those it is owed to.
Promotion and advertising – all licensees are responsible for the content of all adverts
and promotions issued on their behalf and must make sure the content of such adverts is clear, fair, and not misleading.
Financial resources – All licensees will be required to maintain sufficient funds to
manage a three-month, orderly wind-down.
7.1 AML/CFT Provisions
It should be noted that provisions in respect of AML/CFT apply to most licensees, but not to ancillary service providers (such as credit and home finance brokers). The specific obligations are set out in the Handbook and the obligations under the POCL. There will be a separate consultation in due course on specific changes to the Handbook and POCL in order to comply with the latest FATF Rules, and in particular the requirements in relation to VASPs.

The below table summarises which sections of the Rules apply to different types of licensees. It is not a comprehensive list. LCF Rules Section
Part II
Credit
Providers
Part II Credit
Ancillary
Service
Providers
Part III
Financial
Firm
Businesses
Part III
VASPs
Part IV
Platforms
(Crowdfunding,
Peer to peer)
Part 2 - Corporate governance
and effective management
Audited accounts (p10)    
Annual return (p12)     
Outsourcing (p16)    * 
Qualifications
[for home finance brokers] (p19)

Part 3 - Conduct of business
Customer agreements (p21)     
Complaints (p26)     
Customer money (p27)     
APR & cost of credit (p32)  
Promotion and advertising (p35)     
Part 4 – Prudential
Professional indemnity insurance
(p37)
(for home finance only)
 
Financial resources (p39)     
Part 5 - Cooperation with the
Commission
Notifications by licensees (p40)     
AML/CFT requirements in the
Handbook
    
Part 6 – Unfair terms  
Part 7 – Part II licences 
Part 8 – Provision of ancillary
services under Part II licences

Part 9 – Financial firm business 
Part 10 – VASP licences 
Part 11 – Part IV licences 

These types of licensees are subject to additional or different requirements.
Except those providing general insurance premium financing.

Consumer credit & home finance (Part II) licensees In line with the Policy Letter, regulation is aimed at those providing credit to individuals and for credit which is secured against Bailiwick residential property for any customer.
8.1 Consumer credit and home finance providers
The Rules attached set out the conduct expected of credit providers and brokers in respect of regulated agreements. Consumer credit and home finance are provided by a variety of businesses, ranging from high street banks to retailers, and include specialist consumer finance providers (some of which are based within the Bailiwick, others of which are branches of businesses based elsewhere (in most cases this means the UK)), and there are a range of brokers and other businesses providing services ancillary to the provision of credit. Most of the specialist lenders and consumer credit providers are familiar with the approach to consumer credit adopted in the UK, and many (such as the high street lenders) will already have systems and processes in place developed in line with UK practice. While we want to ensure that our approach is the most appropriate one for the Bailiwick, this is an area where we have already noted that there is much benefit in taking advantage of the arrangements that have been developed over the years in other markets. Consultation questions Respondents are asked to comment on:
2. Are the Rules in respect of consumer credit providers appropriate?
If not, what alternative approach should be used?
Worked examples for consumer credit providers
The following examples are provided to help credit providers decide if they need a licence. Consumer credit provider - Bailiwick based I am a consumer credit provider based in the Bailiwick offering loans and credit arrangements to Bailiwick customers. I provide some loans directly from my own book but arrange others with third parties. What do I need to do? You will need to be licensed for both activities:

as a credit provider (for your own loans); and
as a broker (for third party loans).
You will only pay a single licence fee (the higher of the two).
In dealing with customers, you will need to make sure that you are clear about whether you are acting as a broker or lender (or both). When advising on loans, you will need to make sure that customers are offered the terms that are best for them (for example, you should not preferentially lend directly if there are better terms from your third party lenders).

Worked examples for consumer credit providers (continued) Consumer credit provider – out of Bailiwick I am a consumer credit provider located outside the Bailiwick offering loans and credit cards. I advertise in the UK press but do not target Bailiwick customers. Do I need a licence? No, you will not need a licence. You are providing a service to customers who approach you (“reverse solicitation”). BUT customers are not protected by the Bailiwick’s LCF provisions and may not be protected under the rules of the country of origin of the service provider. You should make clear whether and to what extent, customers are protected. Consumer credit provider – out of Bailiwick I am a consumer credit provider based outside the Bailiwick. I provide credit cards and occasionally loans to customers in the Bailiwick. I do not have a local office, but from time to time my advertising does target Bailiwick customers. Do I need a licence? It depends. If you operate from an equivalent jurisdiction, you do not need a local licence under the Law, provided that you offer protection to Bailiwick customers that is equivalent to that they would receive from a locally licensed firm. You will need to notify the Commission that you will be operating within the Bailiwick under the equivalence regime. If your jurisdiction is not equivalent, you will need a local licence.

8.2 Home finance providers
The focus of the Law and Policy Letter is the protection of consumers in respect of their homes which are residential properties in the Bailiwick. For that reason, lending secured against residential properties which are not family homes, such as development properties and properties which are part of a buy to let arrangement, will be exempt from the full licence requirements under Part II of the Law. Note that lenders financing such arrangements are still subject to the provisions of Part III as FFBs, even if they are exempt from Part II. Consultation questions Respondents are asked to comment on:
3. Are the Rules in respect of home finance providers appropriate?
If not, what alternative approach should be used?
The following worked examples have been provided to help lenders decide which type of licence applies. Worked examples for home finance providers Home finance provider I provide home finance to individuals for their properties based around the world. Am I caught by the Law? Yes. The licence required will depend on the business you carry out. If you provide home finance secured on residential property in the Bailiwick which is the borrower’s primary residence, then you will require a licence under Part II of the Law. If you only provide home finance secured on property outside the Bailiwick, you will need to be licensed as an FFB under Part III of the Law, unless you are otherwise exempt (for example, because you hold a licence under one of the other regulatory Laws). If you provide credit secured against local property which is not the borrower’s family home (e.g., “buy to let” finance, or bridging or development loans secured against the property under development), then you will need an FFB licence.

Worked examples for home finance providers (continued) Home finance provider – buy to let/development loans I provide loans for buy to let and/or development arrangements, to firms and to individuals, but not for primary residences. Am I caught by the Law? Yes. You will need a licence as an FFB under Part III of the Law. Previously, you would have needed to register as a lender under the NRFSB Law. A loan secured against the borrower’s primary residential property within the Bailiwick is a regulated agreement under Part II of the Law. Lending secured against buy to let or development properties is exempt from Part II but the requirement to hold a licence under
Part III remains.
Home finance provider – private lender
I am a private lender providing a small number of loans to people on an individual basis. I do not consider this to be a business. Am I caught by the Law? Yes. This type of lending is within the scope of the Law (unless the loans are to family). If you charge interest or fees, then this activity is being carried out by way of business and a licence is required. Loans to friends sit within the scope of the Law if interest or fees are charged, but loans to family members sit outside the scope regardless You may apply for an exemption which the Commission will consider if:

you offer only one or two loans each year; and
your total loan book has a value of less than £1m.
You must continue to follow the LCF Rules and offer the same consumer protections as other lenders. You will be required to appoint another licensee (either a broker or lender) as your Appointed Service Provider (see section 8.17), who will be responsible for ensuring that the Rules are followed. Decisions about lending remain with you as the lender. Without such an arrangement you may not benefit from this exemption and will need a licence.

8.3 Ancillary Service Providers
Ancillary service providers, which include credit brokers and home finance brokers, must follow the relevant Rules. These Rules are less onerous than those for lenders, since any regulated agreement would ultimately be held between a customer and a credit provider, who would also be licensed and subject to additional safeguards (including the carrying out of appropriate affordability checks). In advising customers, brokers and other service providers must offer customers products which are appropriate to the customer’s needs and circumstances and must provide advice that reflects the best value for the customer, irrespective of the fees, commission or other incentives the broker may receive. Where brokers offer a limited range of products, they must make clear to customers the extent of the available product range. Brokers must tell customers if they receive fees or commission payments from lenders and, if requested, must disclose the amount. Because of the nature of home finance lending, home finance brokers must meet additional requirements. They must have a minimum level of qualifications in order provide advice to customers, they must hold appropriate professional indemnity insurance cover11 , and must disclose up front the amount of fees and commission they receive. The list of relevant qualifications is attached at Appendix 2. Brokers and other firms or individuals licensed to provide services ancillary to the provision of credit (as identified in section 5 of the Law) will not be subject to AML/CFT supervision provided that they are not lenders in their own right, and provided that they are not acting as an Appointed Service Provider for another lender. Such arrangements are already covered for AML/CFT purposes by the lender who is responsible for the regulated agreement. This reflects the approach set out in the States’ Policy letter. Consultation questions Respondents are asked to comment on:
4. Are the arrangements in respect of brokers appropriate?
Is it reasonable to apply additional requirements for home finance brokers compared to consumer credit brokers? 11 This covers a range of eventualities, including the potential mis-selling of products.

8.4 High street retailers & Appointed Retailers
In drafting the Rules, we have had regard to the fact that retailers have different approaches when offering credit facilities to pay for goods and services. We do not consider it necessary to require retailers to hold a licence for effectively offering an extra payment option for the benefit of customers when it is provided by a third party which is a regulated in its own right. Retailers would need a licence if they offer credit in their own right or act as a credit broker by offering multiple credit options and/or advice. Credit providers and Appointed Retailers To avoid the requirement for retailers offering third party credit to be individually licensed as credit brokers in their own right under Part II of the Law, the Commission’s proposed approach is that retailers may act as the “Appointed Retailer” of a credit provider. Under these arrangements, the credit provider would be responsible for the conduct of the retailer, who would effectively act as their agent and ensure that the relevant Rules in respect of credit provision and regulated agreements are complied with. Retailers which offer credit in their own right will need licence under Part II of the Law. High street retailers which offer credit in their own right (not through a third party), whether as hire purchase arrangements, store purchase cards or instalment payment plans will need to hold a licence under Part II. Retailers that offer “Buy now, pay later” payment arrangements, with no interest charges, which last for less than 12 months, and which incur no fees or other charges (and may not default to a standard credit agreement in the event of late payments), will not need to be licensed under Part II of the Law. High street retailers that offer credit through a third party which is a licensed credit provider may be considered to be an “Appointed Retailer” of the lender. In this case, the retailer will not need a licence in its own right. An Appointed Retailer is a high street retailer offering a single credit option for transactions12. In order to benefit from this exemption for credit arrangements, there must be an agreement in place between the lender and retailer under which the lender will be accountable for advising and training the retailer’s staff and ensuring that the relevant Rules are followed. Otherwise, the retailer would be considered to be a credit broker and would require a licence in its own right. The retailer may receive payment for this service. Consultation questions Respondents are asked to comment on:
5. Are the arrangements for high street retailers appropriate?
Is it reasonable to exempt Appointed Retailers from licensing where acting on behalf of a third party lender licensed in its own right? 12 Note: retailer may have agreements with more than one credit provider for different type of goods. For example, a cycle shop might have one credit product for electric bikes and another for ordinary cycles.

Worked examples for retailers
Retailer - store credit
I do not offer credit cards or credit payments terms, but I give store credit for returned goods. What do I need to do for this new legislation? Nothing. You do not need a licence and do not fall in scope of the Law. In this context “store credit” is not a consumer credit arrangement under the Law it is the equivalent of the retailer issuing a voucher or token. Retailer – using third party credit providers I am a retailer who offers credit arrangements for customers, but they are provided by a recognised lender who makes all the decisions on lending and collecting payments. Am I caught by the new law? Do I need a licence? You are in scope of the Law, but (probably*) do not need a licence in your own right. Provided that you do not charge extra for goods or services sold on credit and have a written agreement with the third party lender, you may be considered an “Appointed Retailer”. An “Appointed Retailer” is a retailer appointed by a lender who provides credit to customers for the purchase of the retailer’s goods/services. The customer’s regulated credit agreement is with the lender, and the lender is responsible for ensuring the Rules are followed, whether work is carried out by their own staff or by the Appointed Retailer. This includes carrying out creditworthiness/affordability checks and ensuring that staff are properly trained to offer such products to customers. You may be paid by the credit provider for this service. *Without a formal agreement, you would not be eligible to act as an “Appointed Retailer”. If you charge higher prices or make additional charges for goods bought on credit, this is a charge for credit and you will need your own licence. Retailer – instalments but no interest or fees I am a retailer who allows customers to pay for goods by instalments. I never charge interest or fees – but if the customer persistently misses payments and fails to pay for the goods, I reserve the right to take them to court. What do I need to do for this new legislation? Nothing. You do not need a licence. As there are no fees or interest (or potential fees), it is not a regulated agreement. If you eventually take customers to court for non-payment or petty debts, fees imposed by the court are not credit charges under the Law.

Worked examples for retailers (continued)
Retailer – higher prices for credit
I am a retailer offering interest free payment terms for my customers. I charge a little extra for goods bought on interest free credit, and there are charges for missed or late payments. Persistent late payers will be charged interest or moved to another credit arrangement. Do I need a licence? Yes. You are a credit provider and will need a consumer credit licence. Charging extra for goods or services bought on credit means that there is a cost for credit and this is regulated agreement. Charging payment fees or including the ability to switch customers to an alternative interest-bearing arrangement would also qualify you as a credit provider, and this must be treated as a regulated credit agreement from the outset. You must make sure customers are aware of the terms (including any potential charges), and that the costs are accurately represented in the annual percentage rate (“APR”) quoted to customers. Since you charge extra for credit and may make additional charges (or switch customers to interest-charging arrangements) you must not claim to offer interest free credit. Appointed Retailer I am an Appointed Retailer offering credit from a third party lender. Do I need a licence? No. The lender is responsible for ensuring that the Rules are followed and staff are appropriately trained. The lender will need to advise the Commission that you are acting as an Appointed Retailer and provide any information we may request. You must have a written agreement with the lender setting out the arrangements. This should set out what you need to do for the lender and what support the lender will provide you. The Commission may visit you to see how staff are trained and, for example, to ensure the lender is meeting its obligations, that there are appropriate arrangements in place for vulnerable customers, and appropriate creditworthiness/affordability checks are being carried out. Ultimately this is the responsibility of the lender.

Worked examples for retailers (continued)
Retailer - branch of UK firm and UK credit provider I am a retailer in the Bailiwick which is a branch of a UK firm and use the parent company’s UK based credit provider to offer consumer credit terms and/or store cards. Do I need to be licensed in Guernsey? (The UK stores’ credit provision is regulated by the FCA.) This is slightly complicated, but in most cases, as the retailer, you would not need a licence. If credit is offered by a UK company which does not specifically target Bailiwick customers but provides services on application, no licence is required. If credit is offered by a UK firm which specifically targets customers in the Bailiwick, it will require a licence under Part II of the Law. Alternatively, if, in line with its powers under the Law, the Policy & Resources Committee designates that the UK is an equivalent jurisdiction, the company is regulated by the UK FCA to provide those services, and it offers customers in the Bailiwick protection which is at least the equivalent of that which would be provided by a licensee in the Bailiwick, it would not require a local licence. The UK company would need to notify us of its intention to provide services to Bailiwick customers.

8.5 Motor traders
Motor traders that facilitate finance arrangements are considered to offer services ancillary to the provision of credit and in most cases are considered to be a special case of credit brokers requiring licensing and regulation under Part II of the Law. Generally, they offer a range of products and services including credit products that are of relatively high value and which may be much more complex than those offered by high street retailers. Combining this with concerns raised elsewhere over motor finance, the approach adopted locally to advertising products (such as sticker prices showing monthly payments but no mention of credit costs or interest rates) and anecdotal evidence from motor traders of customers who have not fully understood their obligations under previous credit arrangements, we consider that this is a sector that will require careful regulation and supervision. Motor finance contracts vary a great deal in their nature - from simple consumer loans and customer-supplier-credit provider arrangements to hire purchase and more complex Personal Contract Purchase (PCP) and other arrangements which may include balloon payments, mileage excesses and other charges. Given the complexity of the arrangements, this is an area to which the Commission will pay particular attention and one in which the provision of clear information to customers is essential. Motor traders and credit providers must ensure that customers fully understand the terms and obligations of the agreements they enter into, the nature of those agreements, and what the customer’s obligations are under the agreement. Consultation Questions Respondents are asked to comment on:
6. Are the arrangements for motor traders appropriate?
If not, what alternative would you propose?
Worked examples – motor traders
Motor trader – arranging third party finance
I do not offer credit myself but arrange third party finance.
Will I need a licence?
Yes. You require a licence as a credit broker.
You must follow all of the relevant Rules in respect of providing consumer credit.

Worked examples – motor traders (continued)
Motor trader – using third party or group company finance I offer credit myself, but this is arranged through another group company and (on occasion) through third parties. Will I need a licence? Yes, you are within the scope of the Law. It is likely that:

you require a licence as a credit broker; and
the associated company will require a licence as a credit provider.
You must follow all of the relevant Rules in respect of providing consumer credit. Motor trader- using third party credit broker to arrange finance I do not offer credit myself but advise customers to see a third party who is a credit broker. Will I need a licence? It depends… If you charge a fee, collect information or fill out forms for customers, you are considered to be a credit broker and need a licence, even if the loan is arranged through another party. If you simply refer the customer to a credit broker, then you are likely to be outside the scope of the Law and you will not require a licence.

8.6 High net worth individuals
Lending to HNWIs is within the scope of Part II of the Law, but only those requirements which relate to licensees in general and the principles for conduct of business apply in full. Rules for conduct in respect of individual regulated agreements are disapplied except with respect to the need to give appropriate consideration to vulnerable customers. In order to be considered as a HNWI, customers must meet either the income or net assets thresholds set out below:
HNWI threshold Applies to individuals with:
Income greater than Net Assets in excess of
Consumer Credit £100k pa £1.5m
Home Finance £300k pa £3m
The calculation of net assets13 must not include the customer’s primary residence, any loan secured on it, or the benefits of a pension or lump sum payable on retirement or the termination of service of the individual concerned. Where a credit provider wishes to treat a customer as a HNWI they must obtain the customer’s (written) agreement, with the understanding that they waive their rights under the Law. The credit provider must also confirm that the customer meets the financial thresholds identified. Customers may self-certify that they meet the requirements, but lenders must have appropriate regard for any information to the contrary. The credit provider will be expected to conduct appropriate due diligence, and, in the case of customers over the age of 75 or those who may otherwise be deemed more vulnerable, will be expected to separately verify their status. Lending to customers who are individuals and do not qualify as HNWIs, which is not secured against property, falls within the scope of Part II. Lenders and other service providers operating in or from within the Bailiwick will need to be licensed under Part II of the Law, irrespective of where the customer is based. Consultation questions Respondents are asked to comment on:
7. Are the thresholds for HNWI customers set at the appropriate level?
If not, what should they be?
13 Following the approach used in the FCA handbook CONC 1.4.6 etc.
CONC 1.4 Exemption for high net worth borrowers - FCA Handbook

8.7 Buy now, pay later
Buy now, pay later arrangements are payment methods where the customer is offered an option to pay for goods or services over several instalments, without interest charges or fees. These arrangements are usually financed by retailers themselves because they encourage customers to spend more and increase the overall value of sales. True “buy now, pay later” arrangements, where the credit provider does not charge any fees or interest (irrespective of circumstances), fall outside the scope of the Law and are not regulated. In practice, many of the arrangements promoted as “Buy now, pay later” permit the credit provider to charge fees or move customers to an interest-bearing credit arrangement should they miss payments or otherwise fail to meet the terms of the agreement. They may also charge higher prices to customers or require them to purchase other goods or services in order to benefit from the credit arrangements, which are hidden costs of credit. Arrangements which incur late payment fees or charges, or where customers may be moved to different credit terms or required to pay additional charges if they do not complete payments on time or are required to purchase other goods or services, are credit arrangements which require a licence under Part II of the Law and should be regulated in the same way as any other consumer credit agreement. The provider will be exempt from the need for a Part II licence, provided that they are “customer-supplier-credit provider” agreements for the supply of goods and services and their duration is no more than 12 months. Consultation questions Respondents are asked to comment on:
8. Is the approach in respect of “buy now, pay later” arrangements reasonable?
If not, what alternative approach should be adopted?

8.8 Information for customers
Licensees must ensure customers are given the required information before entering into a regulated agreement and are provided with regular statements for its duration. Information must set out the amount of credit being provided, the amount and frequency of repayments, the total cost of credit, and the interest rate expressed as an annual percentage rate. Information must be presented clearly and transparently, including any specific requirements that must be met by the customer to qualify for credit. Where there are fees or charges for credit, or any form of additional costs (including differential pricing of products), these must be stated clearly prior to entering into an agreement and expressly and prominently set out in the terms. Termination and early repayment costs must be clearly explained in advance of a customer entering an agreement. Customers must be provided with a written copy of the agreement, prior to entering into the agreement, and given sufficient time to read and understand its content and terms. The agreement must set out the customer’s right to cancel, length of cooling off period, and how to exercise their right to cancel the agreement if they wish to do so. In the case of an offer for home finance, where there are usually a number of further stages before the transfer of funds, the same cancellation rights do not apply but the offer/statement must set out the period of reflection and the duration of the offer (which must not be less than the period of reflection). Consultation questions Respondents are asked to comment on:
9. Are the information requirements for licensees reasonable?
If not, what information should be required?

8.9 Interest rates and total cost of credit
Interest rates must be calculated as an APR in accordance with the Rules attached. The purpose of this is to ensure consistency and enable consumers to understand what they are paying and to be able to make comparisons. Interest rates must be calculated to include any unavoidable fees and charges. We expect pricing for goods and services to be transparent – and where higher prices are charged for paying by credit this must be factored into the calculation of the total cost of credit and APR. The purpose of this is to ensure that customers are not faced by hidden charges for credit. For the avoidance of doubt, fees include any costs which might be paid by the customer to a person who introduced the customer to the lender or to an Appointed Retailer of that lender. There are separate calculations for regulated agreements which are considered consumer credit agreements and for those arrangements which are home finance products (including bridging loans, etc). In both cases, the calculations adopt the approach used by the UK FCA14 and should be consistent. This will allow Bailiwick consumers to make reliable comparisons between offers from local providers and those based in the UK. Where the price of goods or services is higher for those making use of credit arrangements, this is considered to be a cost of credit and must be treated as such in calculating both the total cost of credit and the APR as appropriate. Note that the total cost of credit includes all costs including interest, commission, taxes and any other fees or charges which the customer must pay in connection with the regulated credit agreement. Where there are compulsory obligations to purchase other goods and services, such as payment protection, warranties, or other contractual arrangements, which is a prerequisite for accessing credit, the cost must be considered as part of the total costs and other relevant calculations. Where such arrangements are optional, and the customer is clearly advised that this is the case, they would not form part of the overall cost. Consultation questions Respondents are asked to comment on:
10. Is it reasonable to adopt APR calculations in line with those in the UK?
If not, what alternative method should be adopted?
14 Refer to Schedule 3 to the Rules

8.10 High interest and “payday” loans
Credit providers are not permitted to offer high interest or “payday” loans in or from within the Bailiwick. This reflects the current policy of the Commission and that set out in the States’ Policy Letter, which requires that such Rules are intended to apply to all loans and are not limited to those of short duration. While Guernsey has an existing usury law (which dates back to the 1930s), it is not particularly clear or practical and has not recently been used. What constitutes “high interest” depends on circumstances, including the amount and duration of the loan. For short term loans, fees, coupled with interest can give rise to very high APR interest rates, and therefore what constitutes a reasonable interest rate for a short-term loan is likely to be higher than for a longer duration loan. Any excess or penalty charge will be taken into account when considering whether charges are excessive. The roll-over of short-term loans must be taken into account in considering whether arrangements are fair or reasonable. As a guide, for short term consumer credit any loan which has an interest charge substantially higher than comparable loans from other types of providers will draw the Commission’s attention for further review and, depending on circumstances (including prevailing market conditions and Bank of England base rates), could be considered excessive. For longer term loans, and loans secured against assets, a lower threshold may be appropriate, recognising the lower risks involved in secured lending. For consumer credit (not including home finance loans), credit providers must not offer credit for which the total cost (including all fees, charges15 , and interest) exceeds the amount of credit being provided. It is particularly important to note that this applies to “rent to buy” arrangements and means that customers cannot be charged an amount that is more than double the normal retail price of any goods purchased in this way. At this stage, apart from the maximum amount in line with UK, we are not setting specific limits for different types of agreements, but we will want to do so in the future. Consultation questions Respondents are asked to comment on:
11. Is it reasonable to apply limits on consumer credit charges as described?
If not, what limits should apply?
15 Standard APR calculations may omit some fees. The approach described is intended to ensure that additional “optional” charges (which increase the overall cost) are not levied on those who may be in difficult circumstances, and least able to afford them or to avoid high pressure selling of optional “extras” (e.g., insurance, warranties).

8.11 Promotion & advertising
There are specific Rules on how credit providers may advertise and promote their services. Licensees must follow the principles that promotions should be fair, transparent, and not misleading. Where rates and repayments are shown, interest rates must be APRs available to the majority of customers (not limited or exclusive offers). Rates, repayments and the total costs of credit must be calculated in accordance with the Rules. Applicable terms and conditions, such as deposits, loan periods and specific conditions (such as mileage limits in respect of car purchase plans) must be prominently displayed. The Rules apply to all forms of promotion and advertising: traditional print media; radio/TV; online/social media; point of sale promotions (shop windows, windscreen stickers). Where such arrangements promote a specific credit provider, they must ensure that the promotions are fair and compliant. Credit providers, and those who introduce customers to them, must not give the impression that particular promotions are endorsed or approved by the Commission. Consultation questions Respondents are asked to comment on:
12. Is it reasonable to apply the proposed Rules for promotion?
If not, what alternative approach would respondents propose?

8.12 Cancellation, cooling off & periods of reflection
At the outset of an agreement, customers are entitled to a cooling off period of two weeks where they may cancel the loan or credit agreement without incurring a penalty. This does not affect any other statutory rights of the consumer (whether they would be able to return the goods purchased will depend on the nature of the agreement and the parties to it). This is simple where a loan or credit facility has not yet been drawn down, or used to make payment, but is more complex where the agreement is in place and the credit provided has been used to purchase goods or services. For home finance arrangements, the right of cancellation is replaced by a “period of reflection”. The home finance provider must allow the customer a reasonable amount of time (the “period of reflection”) in which to decide whether or not to take up an offer of home finance. During this period, to ensure customers are not subject to undue pressure, the provider must not directly approach the customer (but may respond to their questions) and may not withdraw or amend the offer. This means that the process need not slow down transactions where the customer wishes to move more quickly without exposing the credit provider to additional risk. However, we also consider that there should be a limited right to cancellation after drawdown, in the event that the property transaction does not proceed, and the customer should be able to return the funds to the credit provider without prejudice or penalty. Consultation questions Respondents are asked to comment on:
13. Is the proposed approach to cancellation, cooling off and periods of reflection
reasonable?
If not, what alternative approach would respondents propose?

8.13 Early repayment
Customers have a right to make early repayment of a regulated agreement, which entitles them to repay in full the amount of credit provided and terminate the agreement without facing excessive fees or charges. Lenders may decide if customers may make partial repayment of a credit agreement. For consumer credit agreements other than home finance agreements, the cost of early repayment is capped at a maximum of 1 month’s interest plus remainder of current payment period (i.e., a maximum of two (2) months’ interest)16. Alternatively, lenders may adopt the approach set out in the UK Consumer Credit (Early Settlement) Regulations 2004. Before entering into an agreement customers should be provided with a clear explanation of the costs that would be incurred as a result of early repayment, including the approach adopted for early repayment calculations. It is important to avoid the situation where customers are deterred from early repayment due to the level of fees or where the customer is expected to remunerate credit providers (who receive early return of their funds and avoid the risk of late payment or default) for interest payments over the duration of the contract. For the avoidance of doubt, credit providers may not make charges to “recover” interest payments that would be received if the arrangement were to continue. The consideration is different for home finance agreements where customers may, for example, enter into long term fixed or capped rate agreements. For such agreements the early repayment
figure must be disclosed at the time the agreement is entered into. The cost may be linked to
the remaining duration of any discount period or fixed term - up to a maximum of 1% for each year of early repayment. Consultation questions Respondents are asked to comment on:
14. Is the approach to early repayment of fees reasonable?
If not, what alternative would respondents propose?
16 The UK FCA uses a more complex formula to determine maximum permitted early repayment fees. The Consumer Credit (Early Settlement) Regulations 2004 (legislation.gov.uk)

8.14 Unfair contract terms
The Law includes powers for the Commission to determine whether contract terms, in regulated agreements, are fair. The Commission proposes to broadly follow the approach adopted by the FCA in its approach to the UK’s Consumer Rights Act 2015. We will apply the principles of transparency and fairness and identify the types of terms which licensees must not use and should not use (blacklisted and greylisted terms). Customer contracts should be expressed in plain and intelligible language which can be understood by customers, so that they can make informed choices as to whether or not to enter into a contract. The use of jargon, complex legal drafting or terms that have a meaning other than that in plain English could be considered unfair. Contracts should be fair. They should not contain terms that create a significant imbalance in the parties’ rights that is tilted against the customer or in favour of the trader/service provider. For example, an unfair term would allow the service provider to unilaterally cancel a contract without permitting the same rights to the customer or would increase charges or interest without permitting the customer to terminate the contract, or attach unreasonable penalties or fees. With that aim in mind, we have identified specific terms which would always be considered unfair (blacklisted) or may be unfair (greylisted) and we require licensees to have due consideration to these terms in making contracts with customers. In practice, without significant additional resources (and therefore fees to licensees) the Commission would not be able to enter detailed discussion with each licensee on the context of individual greylisted terms and whether or not they are appropriate. We therefore propose that such terms should not, as a matter of good practice, be used by licensees. If these terms are used, the licensee must maintain records of when and where they are used. The blacklisted and greylisted terms will be set out in the Rules. They are the terms which we consider relevant to regulated agreements offered by credit providers in the Bailiwick, drawn from the long list of terms identified by the UK FCA and Competition and Markets Authority. Consultation Questions Respondents are asked to comment on:
15. Is the approach to unfair contract terms and greylisting reasonable?
Are there any other specific terms which should be included or excluded from this list?

8.15 Forbearance and default
Firms shall apply appropriate forbearance for customers getting into financial difficulty due to unforeseen circumstances. This can include allowing deferral of repayments (payment holiday) in response to changes of circumstances, suspension of interest, switching to interest only home finance, rescheduling of payments, or extension of loan repayment periods to permit borrowers to repay their loans. In the event of a default, lenders must take reasonable steps to accommodate customers in financial difficulty before terminating agreements or resorting to more drastic measures, such as exercising their rights over security or taking specific court action (including desastre/saisie). Where a lender calls in its security against a loan, any surplus which it realises from the subsequent transfer or disposal of the asset, after discharging the debt and covering the lender’s reasonable expenses, must be returned to the affected borrower. This does not reinstate any rights in respect of creditors who have, for example, waived rights under the saisie process. Where a lender disposes of assets or property following such a process, they must make reasonable efforts to obtain the best value for those assets. Consultation Questions Respondents are asked to comment on:
16. Is the approach to forbearance and default reasonable?
If not, what alternatives would respondents propose?

8.16 Private lenders & Appointed Service Providers (“ASPs”)
Some Bailiwick individuals privately offer consumer credit or home finance to Bailiwick consumers. For the avoidance of doubt, lenders who charge interest or fees for credit, are acting “by way of business” and fall under the scope of Part II of the Law when entering into regulated credit agreements. The main exception to this is for loans to family members, and one-off loans to friends which do not incur interest or other charges. For some, licensing requirements may be too onerous and disproportionate for the value of business conducted. Nevertheless, customers who enter into agreements with such credit providers are as deserving of protection as any other. In some cases, these customers can be more vulnerable than those who can obtain credit from mainstream lenders. Therefore, the Commission proposes to consider an exemption for low volume, low value private lenders from the need to apply for a licence in their own right, provided that they engage someone to act on their behalf, who will take on responsibility and accountability for ensuring that the Rules in relation to regulated agreements and AML/CFT are met. Bailiwick lenders wanting to make use of this exemption must apply to the Commission for a discretionary exemption, for which there will be an application fee. The Commission will assess the application, including whether the applicant is fit and proper. If the application is approved it will be subject to the lender meeting the following minimum conditions, on an ongoing basis –

make available no more than 2 loans per annum;
have a maximum loan portfolio of no more than £1m;
comply with all the relevant Rules in respect of their lending to customers; and
at all times have acting on their behalf an ASP, who is a licensed credit or ancillary
service provider, who will be responsible and accountable for ensuring that LCF Rules are applied and AML/CFT requirements are met. Lenders which do not meet these criteria will require a full licence under Part II. Private lenders who conduct a larger scale business, (those offering more than 2 loans per annum or who lend more than £1m at any time) will need to apply for a licence in their own right. They may nevertheless sub-contract the management of the services they provide, including conduct and reporting, to another credit or ancillary service provider licensed under the Law. They must satisfy the minimum criteria for licensing in their own right and remain responsible for compliance with all of the applicable Rules, irrespective of any outsourcing. Note that private lenders who do not carry out consumer credit or home finance activities are subject to the provisions of Part III of the Law. Those conducting a small value and volume of consumer credit and home finance, who have been granted an exemption from licensing for these activities, will still be required to hold a FFB licence if they engage in any other credit provision which requires a licence.

Consultation Questions
Respondents are asked to comment on:
17. Is it appropriate to allow small private lenders to be exempted from the
requirement to hold a licence?
If not, what alternative arrangement should be adopted?
Worked example – private lenders
Private Lender – individual loans not a business I am a private lender providing a small number of loans to people on an individual basis. I do not consider this to be a business. Am I caught by the Law? Yes. This type of lending arrangement is caught under the Law. If you charge any form of interest or fees, then this activity is being carried out by way of business, and a licence is required. You may apply for an exemption and the Commission will consider exempting you if you meet certain criteria. To do so you may offer only one or two loans each year and your total loan book has a value of less than £1m. You must continue to follow the Rules and offer the same consumer protections as other lenders and will be required to appoint another licensee (either a broker or lender) as your ASP, who will be responsible for ensuring that the Rules are followed. Decisions about lending remain with you as the lender. If you do not have such an arrangement, or it is terminated, you will no longer benefit from the exemption and you will need to apply for a licence in your own right.

8.17 Appointed Service Providers (“ASPs”)
The ASP, in submitting its annual return to the Commission, will need to provide details in respect of each lender for whom they carry out this function. Decisions on lending and whether or not to enter into specific loan agreements will remain with the lenders themselves. Appointed Service Provider Responsibilities The ASP must:

hold a licence under Part II of the Law as a credit provider in their own right or as a
broker/ancillary service provider;
have in place a written agreement with each private lender they represent;
advise of significant changes in circumstances of private lenders;
ensure that private lenders follow the Rules in respect of their lending agreements;
provide annual returns in respect of the private lenders they represent; and
provide any additional information requested by the Commission.
The ASP will be accountable for ensuring that the requirements are met, must ensure that the requirements of the POCL and the Handbook are followed, and must ensure that due diligence requirements are met in respect of their client lenders and borrowers. The ASP must ensure it is satisfied that AML/CFT obligations, and all the relevant Rules, are followed in respect of regulated agreements. This will include information disclosure, interest rate calculations and ensuring creditworthiness/affordability checks are conducted as required. Should the customer fall into difficulty, the Rules on forbearance are applied. Consultation questions Respondents are asked to comment on:

Are the arrangements for Appointed Service Providers appropriate?
If not, what alternative approach should be used?

Worked example - Appointed Service Provider
Appointed Service Provider
I am an Appointed Service Provider for one or more private lenders.
What are the requirements?
You must be licensed as a credit provider or credit broker in your own right in order to be an ASP under Part II of the Law. You must have a written agreement with each private lender for which you are the ASP. The private lender may be exempt from the need for their own licence, provided they meet the relevant criteria, apply for (and are granted) an exemption by the Commission. What does it mean for me? You are responsible for ensuring that customers are treated fairly and that the Lending, Credit & Finance Rules are followed. You will need to provide the Commission with:

annual returns for each of the private lenders for which you are the ASP; and
any additional information requested by the Commission.
Are there additional fees?
No. You are already licensed under Part II of the Law.
The private lender will need to apply for an exemption (if they meet the criteria). Who is accountable if the Rules are broken? You – as the ASP and licensee. What if the lender terminates the agreement with the ASP? You must inform the Commission. The lender’s exemption is no longer valid. Without a licence in its own right, the lender is likely be in breach of the Law. What if the lender does not follow the Rules – who is accountable? You – as the licensed ASP – are accountable. You are responsible for ensuring the Rules are followed and the consequences of any breach will rest with you. The lender may also be in breach of the conditions of its exemption and will have to obtain a licence in its own right. Can I provide the ASP service to other lenders? Yes – but lenders with a loan book of more than £1m must be licensed in their own right. In these cases, the lender is accountable for ensuring the Rules are followed – and you would be a sub-contractor carrying out work on their behalf. May I charge fees for this service? Yes, you may charge for this service. Fees are not regulated, the type and structure of fees are for you to decide. BUT you may not charge fees directly to borrowers. Any fees passed on to customers must be included in the cost of credit and calculation of interest rates.

8.18 Arrangement for existing lenders which are in run-off
This section applies only to credit providers which are in run-off at the time of implementation of the Law. That is, credit providers with an existing book of loans or credit agreements who do not intend to conduct any new business in the Bailiwick. This is particularly important for home finance arrangements. They are usually of longer duration and the terms may be revised, for example, to take account of changes in interest rates, or because the customer would like to switch from one type of arrangement to another (e.g., from a variable to fixed rate loan). When significant terms are amended this is usually considered a new regulated agreement and a licence would be required. We recognise that requiring firms which are in run-off to apply for a full licence in respect to minor changes to agreements may be disproportionate and discourage them from permitting changes to agreements. This could be detrimental to customers, locking them into existing terms, or forcing them to switch providers and incur substantial costs in refinancing and rebonding. Therefore, the Commission proposes that the small number of firms already in run-off, should be exempted from the requirement to hold a C&F licence for a period of no more than 5 years. During this period firms would be expected to abide by the requirements of the rules and would be permitted to make changes for the benefit of (and with the agreement of) the customer. This allows credit providers in run-down to permit customers to switch interest rates, to switch to new fixed rates, to make early repayment or where necessary to extend the term of repayment, without requiring them to apply for a licence provided that the terms of the contract are otherwise unaltered. However, if the amount of credit is increased (other than to offer forbearance) or substantial changes are sought without agreement of the customer, the lender would be required to be licensed under Part II of the Law. Consultation questions Respondents are asked to comment on:
19. Is it reasonable to exempt firms in run-off and permit them to make limited contract
changes?
If not, what alternative approach should be used?

8.19 Fees and commission payments
For consumer credit agreements which are not home finance agreements, credit providers and ancillary service providers (brokers) must tell customers if they receive commission or a fee for a particular transaction. They are not required to disclose the amount (although they must disclose this if asked to do so). For all home finance arrangements, home finance brokers and lenders are required to disclose the amount of commission/fees in the documentation provided to their customers. Fee or commission arrangements which encourage a broker/intermediary to negotiate higher finance charges or interest rates (so-called “Difference in Charges” or “DIC” commissions) are undesirable and are not in the interests of customers. Such arrangements for fees or commission (or other arrangements which incentivise brokers to offer customers credit arrangements which have higher fees, interest or charges) are not permitted. In order to prevent circumstances in which some customers may be subject to undue sales pressure, (the “end of month” effect) fees and commission arrangements may not include incentives that increase with the volume (amount) of credit provided by the broker. For the avoidance of doubt, reference to “fees and commission” refers to any form of remuneration from the credit provider to the lender and any share of revenue from the customer, whatever form it may take, including any form of income, fee, emolument or other consideration in money or money's worth. Fees or commission may be based on the total amount of credit, for example, a percentage of the amount advanced. Consultation Questions Respondents are asked to comment on:
20. Is the approach to fees and commission payments reasonable?
If not, what alternatives would respondents propose?

Financial firm businesses - Part III FFB licensees Firms identified and regulated as financial firm businesses or “FFBs” carry out a diverse range of business activities, which are listed below for ease of reference. All of these business activities would previously have been covered within the scope of the NRFSB Law. The primary reason for regulating FFBs is to ensure that anyone carrying out the business identified in Part A of Schedule 1 to the Law is subject to the Bailiwick’s AML/CFT regime, including obligations to identify and verify customers and maintain effective policies procedures and controls to ensure compliance with the relevant AML/CFT Laws, regulations and rules. It was a pillar of the States’ Policy Letter of 2 December 2020 that registration under the NRFSB Law should be replaced by licensing and regulation under the Law. From Part A of Schedule 1 to the Law, the FFB activities are:

Lending (including, without limitation, the provision of consumer credit or mortgage
credit, factoring with or without recourse, financing of commercial transactions (including forfaiting) and advancing loans against cheques).
Financial leasing.
Operating a money service business (including, without limitation, a business providing
money or value transmission services, currency exchange (bureau de change) and cheque cashing).
Buying, selling or arranging the buying or selling of, or otherwise dealing in, bullion or
buying or selling postage stamps, except where – (a) in the case of bullion, the business consists only of buying, selling or arranging the buying or selling of, or otherwise dealing in, bullion, where the value of each purchase, sale or deal does not exceed £10,000 in total, whether the transaction is executed in a single operation or in two or more operations which appear to be linked, (b) in the case of buying postage stamps, the business consists only of buying postage stamps where the value of each purchase does not exceed £10,000 in total, whether the transaction is executed in a single operation or in two or more operations which appear to be linked, and (c) in the case of selling postage stamps, the business consists only of selling postage stamps – (i) where the value of each sale does not exceed £10,000 in total, whether the transaction is executed in a single operation or in two or more operations which appear to be linked, or (ii) in the course of – (A) a postal services business carried on under the authority of a licence granted under the Post Office (Bailiwick of Guernsey) Law, 2001, or (B) a business authorised to sell postage stamps by the holder of a licence under that Law.
Facilitating or transmitting money or value through an informal money or value
transfer system or network.
Issuing, redeeming, managing or administering means of payment; and "means of
payment" includes, without limitation, credit, charge and debit cards, cheques, travellers' cheques, money orders, bankers' drafts and electronic money.
Providing financial guarantees or commitments.
Trading (by way of spot, forward, swaps, futures, options, etc.) in –
(a) money market instruments (including, without limitation, cheques, bills and certificates of deposit), (b) foreign exchange, exchange, interest rate or index instruments, and (c) commodity futures, transferable securities or other negotiable instruments or financial assets.
Participating in securities issues and the provision of financial services related to such
issues, including, without limitation, underwriting or placement as agent (whether publicly or privately).
Providing settlement or clearing services for financial assets including, without
limitation, securities, derivative products or other negotiable instruments.
Providing advice to undertakings on capital structure, industrial strategy or related
questions, on mergers or the purchase of undertakings, except where the advice is provided in the course of carrying on the business of a lawyer or accountant.
Money broking.
Money changing.
Providing individual or collective portfolio management services or advice.
Providing safe custody services.
Providing services for the safekeeping or administration of cash or liquid securities on
behalf of customers or clients.
Carrying on the business of a credit union.
Accepting repayable funds other than deposits.
Otherwise investing, administering or managing funds or money on behalf of other
persons.
This corresponds to the list of activities previously covered in the scope of the NRFSB Law.

Licensing of FFBs
Under the new arrangements, FFBs must meet the minimum criteria for licensing (including acting in accordance with the Principles of Conduct of Finance Business), follow the relevant conduct Rules and comply with the Handbook on Countering Financial Crime and Terrorist Financing. The MCL includes provisions to ensure that licensees hold appropriate capital (adequate resources to finance the business) and insurance. Anyone carrying out these activities by way of business in or from within the Bailiwick with or on behalf of a customer is classed as an FFB. They will need a licence unless they are a regulated business, already licensed under one of the regulatory Laws or under Part II of this Law or are otherwise exempted. The regulated businesses which are exempted are listed in
Part B of Schedule 1 of the Law and has been extended from the schedule to the NRFSB Law
to include collective investment schemes authorised or registered under the POI Law. There is also an exemption set out in section 20 of the Law (“Exempted financial firm business”) where the total turnover in respect of FFB activities is less than £50,000 per annum, occasional transactions do not exceed £10,000, and all the following criteria are met:
(a) the total turnover in respect of financial firm business of the person carrying on the business in question does not exceed £50,000 per annum, (b) the business in question does not carry out occasional transactions, that is to say, any transaction involving more than £10,000, carried out by the business in question in the course of that business, where no business relationship has been proposed or established, including such transactions carried out in a single operation or two or more operations that appear to be linked, (c) the business in question does not exceed 5% of the total turnover of the person carrying on the business, (d) the business in question is ancillary, and directly related, to the main activity of the person carrying on the business, (e) the business in question does not facilitate or transmit money or value by any means, (f) the main activity of the person carrying on the business in question is not that of a financial firm business, and (g) the business in question is provided only to customers of the main activity of the person carrying on the business and is not offered to the public. To avoid duplication, a further exemption is envisaged for VASPs, licensed under Part III of the Law, since their licensing requires them to comply with all relevant AML/CFT obligations. Commercial (non-consumer) lending During discussions with stakeholders, it was noted that there may be a number of firms carrying out commercial lending and individuals providing loans to businesses who are not currently registered under the NRFSB Law and are not otherwise licensed. It is not clear why such lenders have not previously been registered. Some may qualify for exemption (as set out previously) because the total income from FFB activities is less than £50,000 per annum and occasional transactions do not exceed £10,000 in value (and the other criteria are met) but

others are likely to be covered by the relevant AML/CFT requirements and would be classed as FFBs within the scope of the Law. This imposes additional obligations in relation to licensing as set out above. The Commission would like to understand whether a significant number of lenders are affected, the degree to which lending is a core part of their business (to what extent this will impact their underlying business) and how they currently satisfy any requirements in respect of AML/CFT for lending arrangements. We would welcome detailed feedback from firms or individuals directly affected by these issues. On receipt of feedback to this consultation, the Commission will consider whether there is a need to modify the scope of existing exemptions. This would include consideration of whether it would be sufficient or appropriate to consider individual exemptions, on a case-by-case basis on application by lenders or if some form of alternative arrangement might be required to permit lenders to meet their obligations. This could involve setting up an alternative arrangement for such lenders as a whole. Any such amendments would be dependent on ensuring that the appropriate AML/CFT safeguards can be applied or that risks are sufficiently mitigated. Guidance for specific categories of FFB

Lending FFBs
This category of FFB covers all types of lending carried out in or from within the Bailiwick. Businesses which offer consumer credit or home finance in addition to other types of lending and are licensed under Part II do not require a licence as an FFB. A holder of a Part II licence does not also require a Part III (FFB) licence in order to carry out commercial lending or other types of FFB activity but will need to follow the relevant Rules. At the time of publication there are no specific additional Rules in respect of FFBs (but that may change if Rules are revised in the future). Other licensees may also be exempt from the requirement to hold a licence under Part III of the Law for their lending activity. For example, holders of a banking licence do not require a Part III licence in order to carry out such lending or any other FFB services. Intra-group lending by administered entities within the same structure, or with the same beneficial owner, does not require a licence under the Law. The administrating fiduciary is responsible for customer due diligence and compliance with AML/CFT for such transactions. Note: Holding an FFB licence under Part III does not permit the licensee to carry out consumer credit or home finance activities without a Part II licence.
Payment service providers
Most people will be familiar with payment service providers through brands such as PayPal, Worldpay, Stripe, Zettle and Square, which provide payment services through websites or via card readers used by retailers. These services are used by businesses in the Bailiwick, although the providers themselves are not based here. Their customers are the merchants

and retailers that rely on the services and pay a fee or percentage of turnover to the provider, rather than the consumers who make payments over these systems. Consumers and merchants do not require a licence or registration to make use of these services and nothing in the new legislation will require them to do so. Payment service providers are a type of “money service business”, which includes services providing money or value transmission as well as currency exchange and cheque cashing. The services are generally authorised and regulated in the UK or elsewhere in Europe and would only be subject to licensing under the Law if they target customers (i.e., merchants and retailers) here or operate from within the Bailiwick. Payment service providers based overseas can provide services to merchants and retailers in the Bailiwick who approach them (often referred to as “reverse solicitation”) or who use them as part of an overall package of services, without being licensed or registered with the Commission, provided that they do not specifically target customers in the Bailiwick. A payment service provider based in the Bailiwick or specifically targeting local customers must (currently) register as an NRFSB and will need a licence under the Law. A licence will be required by anyone who wants to set up a branch in the Bailiwick or to target local customers (e.g., by advertising in local media, such as the Guernsey Press or on the radio). A licence is not needed by businesses based outside the Bailiwick who acquire local customers through advertising in national (UK) media, on websites or through social media. The requirements for licensing of payment service providers and local branches of money service businesses are set out in the Law and the draft Rules. They include the requirement to have substance locally, in the form of at least two persons directing the business who are based in the Bailiwick, and to have appropriate resources for the operation of the business. At this time there are no additional conduct Rules for particular classes of FFB, but they will need to follow Rules which apply to licensees generally, including those relating to Bailiwick residence, requiring at least two individuals directing the business to be based in the Bailiwick. Consultation questions Respondents are asked to comment on:
21. Is the approach to regulating FFBs reasonable to meet the licensing requirement?
If not, what alternative approach should be used?
22. If you provide loans to businesses, to what degree is lending part of your core
business, and how do you satisfy AML/CFT obligations?
What impact will licensing have on this aspect of your business in future?
23. Are there specific Rules that should be applied to certain types of FFB?
If so, what rules should apply?
24. Is it reasonable to exempt authorised/registered collective investment schemes from
the need for an individual licence?
25. Is it appropriate to exempt administered entities in respect of intra-group lending
within an administered structure from the requirement for licensing?

Financial Technology (“FinTech”)
Sections 10 and 11 of the CP deal with the parts of the Law concerning the licensing of Fintech firms. Unlike the earlier sections that aim to introduce a consumer protection regime for business that is already being carried out in the Bailiwick, these parts of the Law are more forward looking. Their aim is to put in place a regulatory framework that will enable high quality digital and Fintech businesses to establish themselves in the Bailiwick. The Commission supports innovation in financial services as it can lead to new types of businesses or improvements to the quality of products and services available to customers. For example, the Commission operates an Innovation Soundbox to provide early-stage assistance to innovative firms considering applying for a licence. While there are benefits to innovative business models, they can also present risks. Digital and fintech businesses, in particular, can be subject to new or increased forms of money laundering and terrorist financing risks. In order to realise the benefits of innovation it is important that these risks are identified and controlled. This is what the Commission’s draft Rules are aiming to achieve.

Virtual asset service providers - Part III VASP licensees
11.1 Introduction
This section will set out and seek input on: the Commission’s proposals regarding the scope of the licensing regime; potential exemptions from licensing; the licensing process; environmental disclosures; and the Commission’s appetite for licensing VASPs. In licensing and regulating VASPs, the Commission’s aim is to ensure that money laundering/terrorist financing risks are appropriately managed and mitigated, in line with FATF standards and guidance in this area, and that any VASPs carrying out business in or from within the Bailiwick are run in a prudent manner by fit and proper individuals, to the same standards of governance and conduct as other regulated businesses.
11.2 Application of the regime
The majority of virtual assets exhibit high price volatility. In addition, much of the trading in virtual assets occurs on unregulated exchanges. As a result, it is difficult to be confident that the price of a particular virtual asset represents a genuine market price or value. There are also frequent news reports of hacks, thefts, scams, frauds and ‘pump-and-dump’ schemes happening in the virtual asset space. These issues present significant risks for consumer and investor detriment. Many of these risks are present within the wider international virtual asset market. As noted earlier, virtual assets also present significant money laundering, terrorist financing and other financial crime risks, such as fraud. The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 sets out the Commission’s functions. These include countering financial crime and maintaining confidence in the Bailiwick’s financial services sector. In carrying out these functions, the Commission is required to have particular regard to protecting the public interest, including protecting the public from financial loss due to dishonesty, incompetence or malpractice and the protection and enhancement of the reputation of the Bailiwick. Given the issues and risks outlined above, allowing VASPs operating and licensed in the Bailiwick to carry on business with the retail public (including those that are “high net worth” or would be regarded as “professional investors” in a different context) would not align with the Commission’s objectives. VASPs that provide services solely to wholesale and institutional counterparties may be licensed, as these counterparties should be better able to understand the risks involved and able to bear the downsides. The Commission would expect such VASPs to be able to demonstrate how they would meet the MCL, particularly in relation to having appropriate skills and knowledge within the Bailiwick and applying robust anti-money laundering and countering terrorist financing controls. The Commission will place great importance on VASPs maintaining a significant physical presence in the Bailiwick.

11.3 Scope of the licensing regime
There is a wide range of activities being carried out in the virtual asset space and these activities are constantly evolving and changing. As such, the Commission intends to broadly interpret the definition of virtual assets and VASP activities set out in the Law. This is to ensure that emerging products and services are appropriately captured. The proposed Rules and guidance include further details on how the Commission intends to apply the definitions, which aligns with the FATF guidance on virtual assets. Because the scope of the licensing requirements is intentionally wide, some businesses or activities may be caught within it that the Commission does not intent to regulate. As such, the Commission proposes to exempt certain activities and entities from the licensing requirements and to also clarify which activities are not carried out by way of business. This is detailed later in the paper. Given the wide range of virtual asset activities, below is a summary of the Commission’s proposed approach to some of the more common types of virtual asset or virtual asset activity:
Mining
Mining refers to the process by which transfers and transactions are validated and confirmed for blockchain-based virtual assets. Using Bitcoin as an example, when someone wants to transfer Bitcoin from one address to another, they broadcast a message to the Bitcoin network. Miners then select from the pool of un-validated messages, check that the message meets the rules of the network (i.e., the payer has enough Bitcoin for the transfer) and form them into a block of messages. This involves the active selection, by the miner, of what messages to include in the next block, although this is usually based on the transaction fee attached to the message. Different miners can select different payment messages to be included in the next block. Which block gets added to the blockchain and therefore which payments are validated depends on which miner completes the validation process first. In the case of Bitcoin, this validation process is called proof of work (“PoW”). PoW involves carrying out lots of simple calculations very quickly, and essentially trying to guess a number that, when combined with the data in the block, produces a specified output. This uses significant amounts of computational power. Whichever miner produces the required output first has their block added to the blockchain and receives the mining reward. This reward consists of an amount of newly created Bitcoin. Because PoW requires large amounts of computing power, and therefore electricity, it is affected by economies of scale and thus tends to centralise. Due to this, individuals will generally contribute their computing power to a larger mining pool. These pools are controlled by a company that decides which blocks to mine and distributes mining rewards to contributors. It is worth noting that almost all Bitcoin mining is carried out by commercial entities using specialised hardware as home PCs are no longer efficient enough to compete. However, this is not necessarily the case for other crypto assets, such as Ethereum. There are other forms of validation or mining processes, including proof of stake ("PoS”). Under PoS validators must ‘stake’ or lock-up part of their holdings in the virtual asset whose transactions they are validating. There is a process by which the validator can lose the stacked virtual assets if they maliciously validate a block. In most cases, the validator for a particular

block is randomly selected from the pool of available validators, with a weighting based on the amount of virtual assets that each validator has stacked. PoS can use significantly less energy than PoW and may be less environmentally harmful. However, it does have the same issues around concentration and centralisation, as the more virtual assets you stake, the more likely you are to validate a block and thus receive more virtual assets. The act of mining itself is not explicitly covered by the list of VASP activities in the Law. However, it is likely that the controller of a mining pool would require a VASP licence as they are highly likely to engage in VASP activities by way of business, including transferring shares of mining rewards to contributors to the pool and potentially safe-keeping and/or administration. As the controller of a mining pool is, in practical terms, validating and processing payments, if they were not required to hold a Part III VASP licence then they will require licensing as an FFB, as they would be carrying out the activity of “facilitating or transmitting money or value through an informal money or value transmission system or network”, as set out in Schedule 1 to the Law. So-called “stablecoins” “Stablecoin” refers to a type of virtual asset that is intended to maintain a stable value, relative to a specified reference, usually a fiat currency. Most “stablecoins” that have seen widespread adoption have been pegged to the US Dollar, for example. Most examples of stablecoins use one of two different mechanisms to maintain their reference value. The first is for the issuer to hold some form of reserve that is meant to back each stablecoin they issue on a one-for-one basis and, in theory, allow the virtual assets to be redeemed at par. A notable risk with this approach is that some stablecoin issuers do not transparently disclose the make-up of their reserve. The second commonly used method is essentially a form of market arbitrage, often involving a second virtual asset produced by the issuer that has a floating value. The method is roughly analogous to how exchange-traded funds maintain their peg to net asset value. Operating or administering a stablecoin will require a licence under the Law. Non-fungible tokens (“NFTs”) NFTs are a subset of virtual assets. The key difference is that each NFT is unique and distinct, unlike, say, Bitcoin, where one Bitcoin is interchangeable with another (in the same way that a pound is interchangeable with another pound). NFTs are currently mainly used in connection with digital artwork, but other uses may arise. The Commission does not intend to treat NFTs differently than any other kind of virtual asset in terms of licensing requirements.

Decentralised autonomous organisations (“DAO”) and decentralised finance (“DeFi”) A DAO is an organisation or group whose governing rules and procedures are defined by programs running on a blockchain. In most cases, members of the DAO are issued with virtual assets that allow them to vote on the activities of the DAO, with the underlying program automatically carrying out the activity with the most votes. The aim of DAOs would appear to be the recreation of corporations, and the issuance in voting shares in said “corporations”, while sitting outside of the legal and regulatory frameworks that normally govern such activities. Creating a DAO generally involves creating and issuing the virtual assets that are used to vote on its activities and then transferring them to members. It is therefore highly likely that this would constitute carrying out VASP activities and would require a licence. DeFi refers to financial products and services, generally denominated in virtual assets, that are provided by a blockchain-based, automated program, instead of by an intermediary or other firm. Often, they resemble lending products, but there are other applications. DeFi applications enable the automated and anonymous transfer of value. As such, they create significant money laundering and terrorist financing risks. They also have the potential to expose their users to significant loss. As such the Commission does not propose licensing providers of DeFi applications. A common element of both DAOs and DeFi is the claim that they are “decentralised”, that is to say, not controlled or governed by any one group or individual and therefore there is no individual or group responsible for its actions. This is broadly analogous to a publicly traded company claiming that no one is responsible for its actions as its shares are widely distributed. As with the Board of a public company, in almost all cases there is a group or individual that is, in practical terms, able to exercise control over the DAO or DeFi application and may therefore be carrying out VASP activities. To be clear, developing a program or piece of software that enables a DeFi application or a DAO does not, by itself, constitute carrying out VASP activities and therefore would not require a licence. Operating that software within the Bailiwick to carry out VASP activities would, however, require a Part III VASP licence and as stated above the Commission does not propose to licence those operating DeFi applications.
11.4 Activities that are out of scope
The Commission proposes to exempt the following types of persons and activity from requiring a Part III VASP licence under the Law:

Persons (including collective investment schemes) holding virtual assets solely for
investment purposes
It is not the Commission’s intention to regulate individuals and other persons who invest in virtual assets on their own account. As a result, the Commission intends to issue a direction under section 90 of the Law that states that a person holding or trading in virtual assets, solely for investment or speculation purposes, on their own account, would not constitute acting by way of business in the context of section 17 of the Law.

This would cover private individuals who choose to invest in virtual assets, authorised or registered collective investment schemes that hold virtual assets as part of their asset allocation and businesses that invest in virtual assets. This exemption would not apply to a firm that offers products or services related to virtual assets.

Licensed fiduciaries and fund administrators
If a company or structure administered by a licensed fiduciary or fund administrator chose to hold virtual assets then it is likely that the administrator would end up carrying out one or more of the VASP activities, particularly transfer, exchange and safe-keeping and/or administration in the normal course of business. The Commission proposes to exempt (under section 40 of the Law) licensed fiduciaries and fund administrators from requiring a Part III VASP licence when they carry out VASP activities on behalf of a client structure, provided that structure holds a VASP licence itself, or is subject to an exclusion or exemption from requiring a VASP licence. This is because the licensed fiduciary or fund administrator is already licensed and must apply AML/CFT measures. In such a situation, the client structure itself may require a licence if it is carrying out VASP activities beyond investing in virtual assets for its own account or is otherwise exempt. The Commission also proposes to include the following guidance within the draft Rules:
“A merchant that accepts payment for goods or services in virtual assets or a charity that accepts donations in virtual assets is not carrying out a VASP activity, however the firm that facilitates the payment between the purchaser of the goods or service and the merchant is likely to be carrying out VASP activities. Businesses and charities that accept virtual assets should take care that they are not used as a means to exchange virtual assets into fiat currency by, for example, bad actors making multiple purchases or transactions in virtual assets then requesting refunds in fiat. For the avoidance of doubt, virtual assets do not include –
a transaction in which a person grants value as part of a store or gift card, affinity or
rewards programme, where said value cannot be taken from or exchanged with the person for legal tender, bank credit or any digital asset; or
a digital representation of value issued by or on behalf of a publisher of games and used
solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform. The above bullet points should be read as a general description and guide, not a strict definition as there may well be a number of ‘on the edge’ cases. If in doubt, firms should contact the Commission.”

Consultation questions
Respondents are asked to comment on:
26. Is the Commission’s approach to exemptions for VASP activities reasonable?
Are there activities which should be added or removed from the proposed exemptions?
11.5 Licensing process
The Commission intends to use its Soundbox approach when considering potential VASP licensees. As part of this process, when the Commission initially grants a licence to a VASP applicant, it will, in most cases, have a limited duration and may be subject to a number of conditions. These conditions may include (without limitation) the following examples:

restrictions on the volume of business the firm can carry out;
restrictions on the kinds of business the firm can carry out;
more frequent reporting requirements; and
additional capital and liquidity requirements.
Following the completion of the initial period of licensing, the Commission will decide whether to renew the licence, how long for and whether to amend any of the restrictions. Given the diverse nature of potential VASP business models and activities, as part of this process the Commission may set additional requirements based on the business model and risk profile of potential licensees. Capital requirements and Rules for a virtual asset exchange are likely to be very different to those for a virtual asset custodian, for example.
11.6 Environmental disclosure
Many virtual asset networks are extremely energy intensive. For example, the Bitcoin network alone uses between 134.86 Terawatt-hour (“TWh”)17 and 204.5 TWh18 of electricity annually, equivalent to a small or medium sized industrialised nation. It is important that VASP licensees are transparent about the environmental impact of their virtual asset activities, particularly in light of the commitments made by the international community, including the States of Guernsey, to reaching net zero emissions by 2050. The Commission therefore is proposing Rules that will require all Part III VASP licensees to publicly disclose the environmental impact of their virtual asset activities on an annual basis. These disclosures would include estimates of both the energy consumption and the carbon emissions of these activities. Please see Rule 10.4 for further details of the proposed requirements. 17 Cambridge Bitcoin Electricity Consumption Index (CBECI) (ccaf.io) 18 Bitcoin Energy Consumption Index - Digiconomist

Consultation questions
Respondents are asked to comment on:
27. Do you agree with the proposed environmental disclosure Rules for VASPs?
If not, what disclosure rules should be applied?
11.7 Governance and substance
Governance requirements are a key part of the Commission’s regulatory regime. All VASP licensees will be required to comply with the MCL, as with any other licensee. In addition, given the relatively new and fast changing nature of virtual assets, the Commission is proposing additional requirements concerning maintaining substance within the Bailiwick and limiting outsourcing to persons outside of the Bailiwick. This is to ensure that there is appropriate oversight and control of the licensee’s activities. These requirements are set out in Rules 2.2 and 2.12. Consultation questions Respondents are asked to comment on:
28. Is the Commission’s proposed approach to substance and outsourcing reasonable?
If not, what alternative approach should be adopted?

Crowdfunding & peer to peer (Part IV)
This is not, at present, a significant sector in the Bailiwick. Broadly it refers to crowdfunding and peer to peer service providers which operate some form of electronic platform or other service to “matchmake” between investors and investment opportunities. It also includes “alternative financial intermediation” for future services which are yet to be defined. Historically, one reason such businesses have not chosen the Bailiwick as a jurisdiction is the absence of a licensing and regulatory framework. The rationale for licensing such services is to protect the reputation of the Bailiwick by ensuring that the service providers operating in or from within the Bailiwick, who serve customers locally and overseas, have appropriate processes, safeguards and resources in place in order to provide such services. A licence under Part IV of the Law only covers the operation of the platform itself, not any other regulated activity. As described by the Law, peer to peer platforms are marketplaces where borrowers and lenders can be matched. This could be something similar to a bulletin board, where lenders post the terms on which they are prepared to lend, or it could involve a more complex system that automatically matches lenders and borrowers based on the information they provide. If the lending arranged through a platform constitutes a regulated agreement (i.e., consumer credit or home finance on Bailiwick residential property) then the platform operator will be required to ensure that the Commission’s Rules regarding regulated agreements are followed. It is important to note that lending through a peer to peer platform does not change the requirements for credit providers and lenders to be licensed under Part II or Part III of the Law. Crowdfunding platforms are marketplaces that match those seeking to raise money or other finance with those that wish to provide finance. They differ from peer to peer platforms as the money can be raised through the issue of shares and other equity investments, in addition to borrowing. In practice, crowdfunding arrangements can involve the pooling of funds from multiple investors which is then invested or lent out by the platform. In these cases, the platform operator will need the appropriate licence to carry out that activity. For example, if the funds were lent out, the platform operator would need a Part II licence if the loan was a regulated agreement or a Part III FFB licence otherwise. The potential requirement to hold multiple licences should not increase the ongoing cost of operating a platform. As noted in the later section of “Fees”, firms with multiple licences under the Law will only have to pay the highest applicable annual licence fee for the various activities it is carrying out which fall within the Law. While the Commission is not proposing to regulate the investments offered by platform operators, there will be some investor safeguards. The service provider is required to provide safeguards for
investors to limit an individual investor’s overall exposure (across platforms/investments) to such arrangements to no more than 10% of their net worth in total.

The Commission’s Rules include high level requirements specifying the kind of information that platform operators will need to provide to all parties who use their platform. Specific or detailed requirements would not be appropriate due to the many different types of arrangement that could be made through a platform. While the requirements are straightforward to apply in respect of service providers which operate an electronic platform and/or web based arrangements for such services, in order to ensure that there is a level playing field, and that there is no disincentive for electronic service providers compared to non-electronic service providers (i.e., those who may operate an informal or back office/paper based arrangement), these provisions apply to all providers, regardless of the mechanism used to provide crowdfunding/peer to peer matching services. Consultation questions Respondents are asked to comment on:
29. Is the approach to regulating peer to peer and crowdfunding services reasonable?
If not, what alternative approach should be adopted?
30. Is it reasonable to limit investment to 10% of an individual investor’s net wealth?
If not, what alternative limits should apply.

Approach to supervision
The Commission operates a risk based supervisory approach with all of the firms it authorises. The same will be true for those firms who will be licensed under the Law. The Probability Risk and Impact SysteM (“PRISM”) provides the Commission with its structured framework for risk-based supervision in the Bailiwick. Under PRISM, the most significant firms, i.e., those with the ability to have the greatest impact on financial stability and the consumer, will receive a higher level of attention from the Commission under structured engagement plans, leading to early interventions with an aim to mitigate risks. Conversely, those firms which have the lowest potential adverse impact will be supervised reactively or through thematic assessments. Individual impact ratings remain confidential between the firm and the Commission. More detailed information regarding the Commission’s regulatory framework and its supervisory approach has been published on the Commission’s website.

Information reporting
Key data will be requested as part of the application, some of which will be requested on an ongoing basis as part of an annual return. An indication of what will be required going forward is included in the application forms, links to which are provided in the following section. Going forward, all firms licensed under the Law, with the exception of those solely licensed for the provision of services ancillary to credit, will also be required to submit audited financial statements as part of their annual return. Consultation questions Respondents are asked to comment on:
31. Is the Commission’s proposed approach to information reporting reasonable?
If not, why not? And what alternative approach should be adopted?

Applications
15.1 Who would need to apply?
A firm would require a licence under the Law for the following activities -

Credit provision
Services ancillary to credit
Financial firm business
Virtual asset service provider
Financial platform and intermediation
Firms who already hold a licence under an existing regulatory Law and carry on, or intend to carry on, credit business, services ancillary to the provision of credit, financial platform and intermediation and/or VASP activities will also need to apply for a licence under the Law. Firms who already hold a licence under an existing regulatory Law and who carry on, or intend to carry on, financial firm business are not required to apply for a licence under the Law, as they are already required to meet the minimum criteria for licensing under the regulatory Law through which they are licensed, and comply with the requirements of the Handbook. Firms currently registered as NRFSBs for the activity of lending will need to either apply for a licence to carry on credit business (Part II) or apply for a licence to carry on financial firm business (Part III), as appropriate. All other current NRFSBs, as relevant, will need to apply for an FFB licence. Registration as an NRFSB will cease once the Law becomes effective on 1 July 2023. Some firms may be eligible for an exemption from licensing under one or more categories of licence under the Law, as noted throughout this CP. In most cases (where the Commission issues classes of exemptions) the firm will not be required to apply to, or notify, the Commission in order to utilise an exemption from licensing. However, some specific exemptions are an exception to this general rule. Firms may apply to the Commission for discretionary exemption from the requirement to be licensed, which is considered on a case-by-case basis (please see section 6 for more information in this regard). A firm may apply for discretionary exemption where it conducts activity that would ordinarily fall within the scope of licensing under the Law and is ineligible to utilise one of the classes of exemptions described within this CP but considers that the granting of a licence would be unduly burdensome, may be detrimental to the Bailiwick or the Commission’s functions, and/or where AML/CFT risks are low, etc. Submission of a discretionary exemption request may incur a fee. Use of a discretionary exemption is subject to the Commission’s written approval. As noted within the “Private Lenders & Appointed Service Providers” section of this CP, the Commission proposes to consider exempting low volume, low value private lenders from the need to apply for a licence in their own right, provided that they comply with the relevant Rules and engage an ASP. Lenders wishing to be granted such an exemption will be required to apply for a discretionary exemption, for which there may be a fee.

Credit business firms who hold relevant permissions in a jurisdiction designated as having equivalent consumer protection provisions to those to be introduced by the Law will not be required to be licensed under the Law unless they have a physical presence in the Bailiwick. Instead, these businesses will be required to notify the Commission that they are offering their services to Bailiwick consumers and, if required, provide the Commission with further information. For the avoidance of doubt, an equivalent firm can be exempted from Part II licensing but still be required to hold Part III and/or Part IV licences, if applicable.
15.2 New licence applications
General information regarding the Commission’s approach to new applications can be found on the Commission’s website, via the “Information for Applicants” page. The content of an application pack will vary depending on the nature of the business activity being undertaken. Broadly, application packs will be required to contain the following:

explanatory covering letter stating the rationale for the application submission;
application form (example forms attached to this CP) –
o all applicants will be required to answer the common question set (see the “general application form”); o applicants will also be required to submit answers to a question set, or multiple question sets, specific to the activities to be undertaken (see the “activityspecific annex(es)”); o existing businesses will also be required to submit a supplementary information form relevant to each activity-specific annex completed. The purpose of this is twofold: the information will allow the States of Guernsey and the Commission to gauge the existing population of firms undertaking LCF activities within the Bailiwick, and it will help guide the Commission’s approach when supervising these businesses prior to them submitting their first annual return (see the “supplementary information forms”);
application fee – fees are outlined in more detail later;
copies of the documents requested as part of the application form; and
Online Personal Questionnaires (“OPQ”) and Online Appointments (“OA”) – to be
submitted through the Commission’s Online PQ Portal for key personnel fulfilling duties in the following categories - o Controller; o Compliance; o Governance; and o Manager

15.3 Timeframes and deadline
The Commission proposes to accept licence applications from 1 January 2023, ahead of the regime coming fully into effect on 1 July 2023. The Commission would aim to grant a licence in principle within 60 days of receipt of a fully completed application pack. We will advise if the submission requires further expansion or clarification. Please note that the response time may be substantially longer depending on the quality and completeness of the application pack. The deadline for obtaining a licence under the Law, if so required, will be 30 June 2023 with licences becoming effective from 1 July 2023. In the event that a firm has not been granted the licence it requires by this date, it would need to cease that activity until it is licensed, which is why early submissions are being encouraged. Please see section 16.2 for further details in this regard. The Commission welcomes open and transparent communication with all potential applicants to enable effective and timely decisions on licensing and ongoing supervision.
15.4 Queries in relation to licensing applications
If you wish to provide input to the consultation in relation to licensing requirements and the application process, please submit these in response to the CP. Once the consultation has closed, and if you have any queries with regard to the submission of an application please, in the first instance, refer to the relevant page of the Commission’s website or submit your query by email to lcf@gfsc.gg. Consultation questions Respondents are asked to comment on:
32. Is the Commission’s proposed approach to applications reasonable?
If not, why not? And what alternative approach should be adopted?

Fees
The below fee information is provided for information purposes. The fees for LCF licensed activities are being consulted on separately as part of the Commission’s general fees consultation process. 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.
16.1 Annual fees
Those licensees authorised to conduct multiple activities under the Law will only be required to pay a single fee. That fee would be the highest of the fees relating to the activities the licensee is authorised to conduct. Those licensees separately licensed under another regulatory Law will be required to pay the relevant annual fee subject to the following exceptions -

firms licensed under any other regulatory Law will not require further licensing to carry
out FFB activity (as is currently the case with NRFSBs) and will not be required to pay a fee; and
banking licensees will receive a 50% discount to their LCF annual fee. This reduction
is due to the substantial annual banking fee already charged and the overlap in supervision when considering the credit book of a banking licensee. Licences granted by 1 July 2023 will be subject to a pro-rata annual fee.
16.2 Application fees
All firms conducting regulated activity will be required to apply for a licence under the Law. There is to be no grandfathering. It is proposed that an application fee equal to the annual fee of the relevant regulated activity is charged. For those entities conducting multiple activities, this will be a single fee in line with the highest of the applicable fees. In order that the Commission may review and consider applications by firms ahead of the proposed implementation date, the Commission considers it imperative that comprehensive and accurate applications for licensing are received early in the application window. It is therefore proposed that a discount of 50% will be applied to all comprehensive and accurate applications received by 28 February 2023. All other applications will be charged the full application fee. If an application is received after 31 March 2023 the Commission cannot guarantee that the licence will be granted by 1 July 2023.

If an entity currently licensed or registered under a regulatory Law is not granted a licence by 1 July 2023, it is possible that a temporary licence may be granted. A temporary licence would allow the entity to continue to operate for a period until a full licence is granted. A temporary licensee would be charged a full annual licence fee (rather than pro rata).
16.3 Regulatory fees – credit and finance sector
Application fees: Proposed fee for 2023
Credit providers
Home finance £6,000
Consumer credit £4,500
Services ancillary to credit
Home finance £4,500
Consumer credit £4,500
Financial firm businesses £4,500
Platforms £6,000
VASPs
Exchanges and stablecoin issuers £150,000
Non-exchanges* £25,000
Application for an extension of a licence £1,245 Application for a change of controller £2,250 Application for an exemption - individual £525 Application for an exemption - company or partnership £1,175

Examples of non-exchange VASPs can be found in section 4.6

Annual licence fees: Proposed fee for 2023
Credit providers
Home finance < £100m lending book £6,000
Home finance > £100m lending book £9,000
Home finance < £100m lending book (Bank) £3,000 Home finance > £100m lending book (Bank) £4,500 Consumer credit < £10m lending book £4,500 Consumer credit > £10m lending book £7,500 Consumer credit < £10m lending book (Bank) £2,250 Consumer credit > £10m lending book (Bank) £3,750 Services ancillary to credit Home finance £4,500 Consumer credit £3,000 Financial firm businesses £1,500 Platforms £6,000 VASPs Exchanges and stablecoin issuers £150,000 Non-exchanges* £25,000

Examples of non-exchange VASPs can be found in section 4.6

Appendix 1: Glossary
Acronym Description
AML/CFT Anti-Money Laundering/Countering the Financing of Terrorism APR Annual percentage rate ASP Appointed service provider B2B Business-to-business the Bailiwick The Bailiwick of Guernsey BNPL Buy now, pay later the BSL The Banking Supervision (Bailiwick of Guernsey) Law, 2020 LCF Lending, Credit and Finance the Commission / GFSC Guernsey Financial Services Commission CONC The FCA’s Consumer Credit sourcebook CP Consultation paper on The Lending Credit & Finance (Bailiwick of Guernsey) Law, 2022, implementation and Rules DAO Decentralised autonomous organisation DeFi Decentralised finance DIC Difference in charges the Enforcement Powers Law The Financial Services Business (Enforcement Powers) Bailiwick of Guernsey) Law, 2020 FATF Financial Action Task Force FCA Financial Conduct Authority FFB Financial firm business the Fiduciaries Law The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2020 FinTech Financial Technology

the FSC Law The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 the Handbook Handbook on Countering Financial Crime and Terrorist Financing HNWI High-net-worth individual the IBL The Insurance Business (Bailiwick of Guernsey) Law, 2002 ICO Initial coin offering the IMIIL The Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002 the Law The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 MCL Minimum criteria for licensing MONEYVAL The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism NFT Non-fungible token NRFSB Non-Regulated Financial Services Business the NRFSB Law The Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 OA Online Appointment OPQ Online Personal Questionnaire pa Per annum
Part II Regulation of credit business under the Law
Part III Regulation of financial firm businesses and virtual asset service providers
under the Law
Part III FFB Licence to conduct financial firm business activity
Part III VASP Licence to conduct VASP activity
Part IV Regulation of financial platforms and intermediation, etc. under the Law
PII Professional indemnity insurance the POCL Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 the POI Law The Protection of Investors (Bailiwick of Guernsey) Law, 2020

the Policy Letter Credit and Finance Legislation Policy Letter (dated 2nd December 2020) PoS Proof of Stake PoW Proof of work the Prescribed Businesses Law The Prescribed Businesses (Bailiwick of Guernsey) Law, 2008 PRISM Probability Risk and Impact SysteM regulatory Laws - the POI Law

the Fiduciaries Law
the BSL
the IBL
the IMIIL
the Enforcement Powers Law
the FSC Law
the Prescribed Businesses Law
RATS Retirement annuity trust scheme the Rules The Lending, Credit and Finance Rules and Guidance, 2022 Saisie Saisie Procedure (Simplification) (Bailiwick) Order, 1952 TWh Terawatt-hour VASP Virtual asset service provider

Appendix 2: Acceptable qualifications for home finance
lending and broking
The following qualifications19 are required for:

Advising on a regulated agreement for home finance; or
Arranging (bringing about) an execution-only sale of a regulated agreement for home
finance, excluding variations to an existing regulated agreement, except where the effect is to change all or part of the regulated agreement from one interest rate to another. 19 Data for activity number 20 in relation to advising or arranging regulated mortgage contracts, as per the FCA’s Appropriate Qualification tables as at 15 June 2022. Chartered Banker Institute (Formerly the Chartered Institute of Bankers in Scotland) Mortgage Advice and Practice Certificate Certificate in Mortgage Advice and Practice (MAPC) (Pre 16/09/2004) MAPC bridge paper plus entry requirements (Pre 31/10/2004) Chartered Insurance Institute Certificate in Advanced Mortgage Advice Certificate in Mortgage Advice Mortgage Advice Qualification (MAQ) plus entry requirements Financial & Legal Skills Partnership (formerly the Financial Skills Partnership/Financial Services Skills Council (FSP/FSSC)) FLSP Level 3 Advanced Apprenticeship in Advising on Financial Products (Mortgage Advice Pathway) or Level 3 Advanced Apprenticeship in Providing Mortgage Advice The London Institute of Banking & Finance (formerly the ifs University College and the ifs School of Finance/Chartered Institute of Bankers) CeMAP Bridge paper plus entry requirements Certificate in Mortgage Advice and Practice (Post 01/11/2004) Diploma for Mortgage Advice and Practice DipMAP (plus entry requirements) Certificate in Mortgage Advice and Practice (CeMAP) (Pre 31/10/2004)

Guernsey Financial Services Commission
Feedback following the Commission’s consultation on the Lending, Credit & Finance Rules, Guidance and Implementation Issued 19th January 2023

Contents
Background................................................................................................................................3
Summary and Analysis of Feedback..........................................................................................4
Next Steps..............................................................................................................................4
Applications...........................................................................................................................4
Licensing................................................................................................................................5
Scope of application – Applicability to existing credit business...........................................5
Equivalence............................................................................................................................5
Part II – Consumer Credit & Home Finance .............................................................................6
Q1 – Exemptions....................................................................................................................6
Q2 – Rules in respect of consumer credit providers..............................................................7
Q3 – Rules in respect of home finance providers..................................................................7
Q4 – Brokers..........................................................................................................................8
Q5 – High Street Retailers.....................................................................................................8
Q6 – Motor Traders ...............................................................................................................8
Q7 – High Net Worth Individuals (HNWI)...........................................................................9
Q8 – Buy Now Pay Later.....................................................................................................10
Q9 – Information requests ...................................................................................................10
Q10 – APR Calculations......................................................................................................10
Q11 – Limits on consumer credit charges ...........................................................................11
Q12 – Advertising and Promotion .......................................................................................11
Q13 – Cooling off periods ...................................................................................................11
Q14 – Early repayment ........................................................................................................12
Q15 – Unfair contract terms ................................................................................................12
Q16 – Forbearance and Default ...........................................................................................13
Q17 – Private Lenders .........................................................................................................13
Q18 – Appointed Service Providers (ASPs)........................................................................13
Q19 – Firms in run off .........................................................................................................13
Q20 – Approach to fees and commission ............................................................................14
Part III – FFBs (Financial Firm Businesses) ...........................................................................15
Q21 – Approach to regulating FFBs....................................................................................15
Q22 – Business Lending ......................................................................................................15
Q23 – Specific Rules for types of FFB................................................................................15
Q24 –Exemption for CIS (collective investment schemes).................................................15
Q25 – Administered entities ................................................................................................16
Part III – VASPs (Virtual Asset Service Providers)................................................................17
Q26 – Exemptions................................................................................................................17

Q27 – Environmental disclosure..........................................................................................17
Q28 – Outsourcing...............................................................................................................18
Part IV – Crowdfunding and Peer to Peer Platforms...............................................................19
Q29 – Peer to Peer and Crowdfunding ................................................................................19
Q30 – Investment limits.......................................................................................................19
Other issues..............................................................................................................................20
Q31 – Information gathering ...............................................................................................20
Q32 – Applications..............................................................................................................20
Q33 – Comments on clarity of rules....................................................................................20
Q34 – Comments on other topics.........................................................................................20
Annex 1 – Lending, Credit & Finance Exemptions.................................................................21
Annex 2 - Lending Credit & Finance Rules and Guidance, 2023 ...........................................22
Annex 3 - Lending Credit & Finance Guidance, family members..........................................23

Background
On 21 July 2022 the Commission published its consultation paper on the Lending, Credit & Finance Rules, Guidance and Implementation, following the States of Deliberation’s approval of the Lending Credit and Finance Law1 (“the Law”) on 14 July 2022. A copy of the CP is available on the Consultation Hub. We received an excellent response from stakeholders, with 58 responses in total. The Commission is grateful to everyone who responded to the CP which has helped us to update and revise the initial proposals. Attached to this feedback paper is a copy of the written instrument notifying the class exemptions which the Commission is putting in place in accordance with s40 of the Law (Annex 1) and a copy of the final rules issued by the Commission, the Lending Credit & Finance Rules and Guidance, 2023 (Annex 2). We have drafted the Rules and Guidance to provide appropriate protection for all types of credit while aiming to remove barriers which might otherwise prevent access to credit and to strike a balance between the competing interests of different types of credit providers. 1 Link to the Lending Credit and Finance (Bailiwick of Guernsey) Law, 2022

Summary and Analysis of Feedback
The Commission received 58 responses. Of these, 47 were made through the consultation hub and 11 by email or other means. The majority were from stakeholders directly affected by the new legislation and who would potentially require a licence in future. We received responses from several law firms and the commercial bar together with industry groups such as GIFA, and GAT; and from a number of POI and Fiduciary licensees as well as representatives of the Fintech industry. 17 responses were from banks and other lenders. 19 were from providers of services ancillary to credit – which includes a diverse portfolio of credit and home finance brokers, retailers and motor traders who arrange car finance and a handful of other interested parties. The largest set of responses were from motor traders which accounted for around half of the responses from providers of ancillary service. Most responses broadly supported the Commission’s approach to the implementation of the Law and were largely content with the rules and guidance. There were however specific areas where individual respondents or a group of respondents sought changes to the rules and approach outlined in the Consultation Paper, and in some cases highlighted issues where the practical application of the proposed approach would be problematic. We explain in this document how and where we have changed our approach in response to these responses. Next Steps The final Lending Credit and Finance Rules and Guidance and a notice setting out the full range of class exemptions from licensing accompany this feedback paper. The Commission will publish further information on its website including the answers to frequently asked questions (FAQs). These will be made available as soon as practicable before the end of January 2023. Final copies of the application forms will be published shortly. The window for licence applications will formally open on 1 February 2023. Licensing commences and the new law comes into operation on 1 July 2023. The NRFSB Law will be repealed on 1 July 2023. Applications Early applications are strongly encouraged. Firms that provide services which fall within the scope of the Law will need to be licensed by 1 July 2023 when the law comes into operation. If firms do not have an appropriate licence in place by this date they will not be able to conduct their business until an appropriate licence (or exemption) is in place. The Commission will make reasonable endeavours to ensure it fully considers all applications received by 31 March 2023. Applications received after this date may not be able to be processed and fully considered before 1 July 2023. Applications received before the 31 March 2023 will benefit from a 50% reduction in their application fee.

Licensing
For the avoidance of doubt, the structure of licensing is unchanged and falls into four broad categories:
Part II – Consumer credit & Home finance
For consumer credit and home finance providers and those providing services ancillary to credit in relation to regulated agreements.
Part III – Financial Firm Businesses (FFBs)
For persons those carrying out the FFB activities identified in schedule 1 of the Law.
Part III – Virtual Asset Service Providers (VASPs)
For firms providing services in relation to virtual assets
Part IV – Fintech platforms
For persons operating a peer to peer (P2P) or crowdfunding platform from the Bailiwick. Dual Licensing Dual licensing will be required where a person carries out Consumer Credit or Home Finance activities which require a licence under Part II in addition to activities licensed by the Commission under another regulatory law or as a VASP or Fintech platform operator. Persons licensed under Part II of the Law, under another regulatory law or an exemption described in Schedule 1 to the Law will not require a separate licence to carry out Part III FFB activities (but will need a separate licence in order to carry out Part III VASP activities). Scope of application – Applicability to existing credit business We were asked to provide additional clarity on the applicability of the Law to existing business. From 1 July 2023, anyone who provides credit or has entered into an agreement which is a “regulated agreement” will require a licence under the relevant part of the Law unless they are covered by one of the class exemptions published by the Commission or have been granted an individual exemption. The requirement for licensing applies to existing arrangements as well as new agreements. This means that even if a firm is not carrying out new business it will need to be appropriately licensed (or exempted). This does not mean that firms are required to retrospectively review prior agreements, but going forwards, firms must apply the relevant conduct rules and ensure that they treat customers fairly. The Commission has determined that firms which are in run off at the implementation date of the law (1 July 2023) should be permitted an exemption from the requirement for licensing. This exemption will be time limited and must be applied for individually by each credit provider. This is considered in more detail below, in the feedback to Q19 regarding firms in run off. Equivalence The States of Guernsey is, with the Commission’s advice, considering regulations which would make the UK an equivalent jurisdiction under s10 of the Law. We anticipate that the States will make a decision shortly.

Part II – Consumer Credit & Home Finance
Most responses recognised that regulation to protect consumers was needed. Responses suggested several changes to the rules and guidance which the Commission has adopted. The most significant changes are:

changes to the range and detail of exemptions;
reduced licence fees for ancillary service providers;
a tiered fee structure for credit/home finance brokers (including motor traders and ancillary
service providers);
an increase in the total value (but not the number) of loans permitted for individual private
lenders; and
clarification of the rules and guidance on cooling-off periods, to confirm that the rules apply
in respect of the finance agreement (and not the purchase of goods).
These changes are further elaborated below.
Q1 – Exemptions
Is the scope of exemptions appropriate?
We received a range of comments on the scope of exemptions and applicability of the law. This was one of only a handful of areas where more of the responses raised concerns than supported the detail of the Commission’s proposals. As a result, we have made several changes and amendments to the exemptions originally put forward in the consultation paper. The full suite of exemptions proposed under s40 of the Law following the consultation is attached in annex A. The Commission has already consulted with the States of Guernsey Policy & Resources Committee on these exemptions. Further details are set out below. Administered entities & private equity In order to address private equity and other administered structures, and avoid unintended consequences which might otherwise impact the investment sector in the Bailiwick, we have introduced a clear exemption from the Part III (FFB) licensing requirement for firms which are administered by persons licensed under the Fiduciary or POI Laws. This is intended to facilitate private equity and other investment firms where administrators already carry out the relevant oversight of AML/CFT and provide information and insight into the activities of administered firms as required by the Commission. Bailiwick businesses We have included an exemption from Part III (FFB) licensing for the benefit of established businesses which are locally based trading businesses within the Bailiwick, and which carry out lending ancillary to their main business. This might, for example, be as part of a treasury function within a group of companies or to another established business in the Bailiwick. Employee Loans Several responses requested that loans to employees should be exempt from the Law. We concur and have drafted an exemption so that employers making loans to employees will be exempted from the requirement to hold a licence under Part II or Part III of the Law. This applies to full and part time employees with a contract of employment.

Lending to family and friends
We originally noted that such lending was outside the scope of the Law. However, there are circumstances in which a loan to a family member could be considered to be a regulated agreement. To avoid any unintended requirement for licensing lending by individuals to close family members, we have introduced a specific exemption which confirms that such lending will not require a licence. Several responses noted that the definition of family should be as broad as possible. We agree and refer to the guidance produced by the States of Guernsey as to who constitute family members for the purposes of the population management law. A copy of the guidance, as at 5 January 2023, is attached at Annex 3. No changes are proposed in respect of lending to friends. Lending to friends for which there are no fees or interest charges is outside the scope of the law. Other exemptions The full suite of class exemptions is set out in Annex 1, which is the written instrument issued under s40 of the Law, giving Notice that the Commission has disapplied the requirement to hold a licence under the relevant section of the Law for the classes of activities identified in the notice. Other issues Funeral plans Some raised questions about Funeral Plans because they are newly regulated by the FCA in the UK (following some industry failures). For the avoidance of doubt, funeral plans fall outside the scope of Part II of the Law unless the plan involves the provision of consumer credit, in which case the plan provider may be a credit provider and the arranging firm could be a credit broker. Further information will be provided on the website in response to FAQs. Q2 – Rules in respect of consumer credit providers Are the Rules in respect of consumer credit providers appropriate? Q3 – Rules in respect of home finance providers Are the Rules in respect of home finance providers appropriate? For both sets of rules, most responses were supportive. The balance appears to be about right, recognising the need for regulation and appropriate consumer protection without seeking to be overly burdensome. Several specific issues were raised by stakeholders. These have been addressed though minor changes to the rules and guidance or will be addressed in FAQs.

Q4 – Brokers
Are the arrangements in respect of brokers appropriate?
Most feedback was supportive; but some changes have been made as a result of specific points raised. For credit brokers, the main concern was the level of fees related to the scale of business, especially for credit broking which is not home finance business. There was also substantial feedback from motor traders who arrange finance, see Q6 below. Fees have been significantly reduced and restructured into 3 tiers, for small-medium and larger credit brokers with a separate tier for home finance brokers. Tier Original fee New fee 1 Small-medium credit brokers £3,000 £1,000 2 Large credit brokers £3.000 £2,000 3 Home finance Brokers £4,500 £3,000 Application fees have also been revised to bring them into line with the annual fees above. These changes will affect motor traders and other ancillary service providers who act as brokers. Specific arrangements have been made for smaller motor traders who work directly with a lender to be exempt from the requirement for a licence. Further detail is provided in the motor traders section, Q6. Q5 – High Street Retailers Are the arrangements for high street retailers appropriate? No significant changes were required. However, clarification was sought in respect of interest free credit and “Buy Now Pay Later” arrangements. These points are addressed in Q8 below. Q6 – Motor Traders Are the arrangements for motor traders appropriate? While feedback supported the principle that motor traders should be regulated for arranging finance for their customers, we have made significant changes in response to stakeholder feedback. The general message was that the fees were too high. It was suggested that fees should be tiered according to size, and that smaller traders should be exempt from licensing. On commission payments, while some opposed the removal of the “Difference in Charges” (DIC), other were in favour of removing what could be considered an unfair practice. The issue of Commission payments is addressed in more detail in Q20 below.

The Commission has accepted that the fees originally proposed were high and has reduced and restructured charges for credit brokers (including motor traders). We consider that the fairest way to distinguish fee levels is by the value of loans brokered/arranged. We have therefore:
1 Reduced the overall level of annual fees and application fees for ancillary service providers including credit brokers and motor traders; 2 Introduced tiered charges for motor traders and other credit brokers

£1,000: small – medium sized brokers and motor traders; and
£2,000: large brokers and motor traders
A higher tier fee of £3,000 fee will apply to any broker (including motor traders) which is involved in providing loans that are secured against residential property. Application fees will match the annual fees. 3 Introduced an “Appointed Motor Trader” arrangement for very small motor traders which is similar to the “Appointed Retailer” arrangement for high street retailers. This will permit very small motor traders to avoid the requirement to hold a licence in their own right provided they act for a licensed lender who supervises them and meet certain conditions. They are limited to:
simple repayment loans;
no balloon payments, PCPs or other complex transactions; and
maximum value of loans of £250k per annum.
Motor traders falling into the smallest category (<£250k) may choose whether to be an appointed motor trader (subject to suitable arrangements with a lender); to be licensed in their own right; or may choose to use another licensed credit broker to provide services. In making the changes we have sought to ensure that suitable protection is in place for customers and to strike a balance between the different lenders, motor traders and independent credit brokers, without imposing unnecessary restrictions that may restrict or reduce customer choice. Q7 – High Net Worth Individuals (HNWI) Are the thresholds for HNWI customers set at the appropriate level? This was one of the few areas where more responses disagreed than agreed the Commission’s original proposals. Several respondents wanted us to exempt from regulation altogether services provided to customers classed as HNWI. The Commission does not agree. While it may be appropriate to disapply certain rules – such as the need for specific credit checks or affordability assessments – HNWI are as likely to be vulnerable as other customers. Providing services to HNWI therefore remain within the regulatory framework and is subject to the same licensing requirements as for any other individuals. Customers may be treated as HNWI provided that they meet the relevant qualifying criteria and choose to be treated as a HNWI, with a clear understanding that this means that they will not have the benefit of consumer protection rules that are disapplied for HNWI customers. The Rules and Guidance set out which rules do not apply to HNWI customers.

It is important that customers continue to be treated fairly and to be protected in case of vulnerability. Firms may allow individuals to self-certify their wealth. However, credit providers will be expected to take into account any contrary information they may have, and to extend the same precautions and protections for vulnerable customers to HNWI who fall into any of the categories. Older customers should not automatically be assumed to be vulnerable. Licensees must take appropriate steps to safeguard their customers interests, to ensure that they are treated fairly and that on particular for those over 75 appropriate accommodation is made to ensure they can access services and that assessments such as for HNWI, are properly evidenced and supported. Some responses noted the inconsistency between the HNWI thresholds and those of the FCA. There was an error in the thresholds set out in the CP. Correct figures are now included in the rules and are broadly consistent with those set by the FCA for the UK. Q8 – Buy Now Pay Later Is the approach in respect of “buy now, pay later” arrangements reasonable? There was confusion on this question amongst some respondents so the following is set out here for clarification. It will also be addressed in FAQs on the website Interest free credit, including true “buy now, pay later” arrangements fall outside the scope of
Part II of the law, provided that there are no fees, interest or other charges.
Such arrangements must not include hidden fees or charges or revert to arrangements which charge interest (or other fees). If there are charges – for late payment or otherwise – or if the agreement may revert to one with interest or fees, it would be a regulated agreement with the scope of the Law. BNPL does not include arrangements which begin as “interest free” but may revert if repayments take longer than originally intended or if fees or charges are levied for example, for late payments. For these arrangements it is essential that customers are properly informed and credit providers give due consideration to affordability and other relevant issues. As a rule, if there are any fees or charges for credit – whether through higher prices – or hidden charges such as a requirement to buy specific warranties or insurance, or to be tied into another product or service offered by the retailer then this would mean that an appropriate licence would be needed under Part II of the Law. Q9 – Information requests Are the information requirements for licensees reasonable? Responses confirmed that the information requests proposed by the Commission were reasonable. Q10 – APR Calculations Is it reasonable to adopt APR calculations in line with those in the UK? An overwhelming majority of respondents were content with the choice of APR. The calculation proposed by the Commission is the same as that used by the UK FCA. This means firms should be able to make use of existing software, or off the shelf software, from a much larger market and avoids the need for expensive, bespoke local systems.

Q11 – Limits on consumer credit charges
Is it reasonable to apply limits on consumer credit charges as described? There was strong support for limiting consumer credit charges. Some suggested alternative mechanisms, but these would potentially be more intrusive and less practical to apply, so no changes are proposed. For clarity, the cap of 100% does not apply to home finance, but only to consumer credit arrangements. Q12 – Advertising and Promotion Is it reasonable to apply the proposed rules for promotions? The overwhelming majority of responses supported our proposed approach. There were a couple of respondents who did not want to disclose the full range of information either for practical reasons or for concerns over the potential to confuse customers. Some minor technical and cosmetic changes have been made. The reference to the ASA’s Code of Non-broadcast Advertising and Direct and Promotional Marketing (CAP) is moved from the rules to guidance. Q13 – Cooling off periods Is the proposed approach to cancellation, cooling off and periods of reflection reasonable? While there was strong support in principle for such provisions, there were several comments highlighting that details of implementation are important and further guidance was needed. Consumer credit cooling off period There was concern that the previous draft might lead customers to believe they could terminate any finance agreement, return the goods and that outstanding debt would be cancelled automatically. It was a particular concern for motor traders in the financing of vehicle sales. This is not the case. The cooling off period offers a brief window for customers to consider finance arrangements they have entered into and whether to withdraw and replace them with an alternative. We agree that our original guidance could have been clearer and we have now updated it accordingly. For the avoidance of doubt, the ‘right to withdraw’ applies to the finance element of the agreement. There is no separate or implicit right to return the goods already purchased. Home Finance period of reflection and early repayment Concerns were raised that the arrangements proposed would introduce a long (14 day) delay which would slow down the process and could prevent customers from closing on a property they want to buy. In the UK there is a 14-day cooling off period for consumer finance but for home finance the period for reflection is only 7 days. It was always intended that customers could terminate the reflection period early. We have made this clearer in our rules and reduced the period of reflection to 7 days to match the UK approach. Although the rules for early repayment if a sale does not proceed are unlikely to be needed in the normal course of events, they provide a useful safeguard for customers.

Nevertheless, some private banks said that for making substantial loans to customers (who are likely to be HNWIs), the costs involved in repayment without penalty if the deal does not proceed could be significant and this prevented them from recovering the costs of arranging such loans. Customers who meet the HNWI criteria may choose whether or not to be treated as HNWI customers, and accept the disapplication of the relevant home finance rules. This includes rules governing cooling off periods and other aspects of conduct (there are exceptions for rules on the fair treatment of customers and rules relating to vulnerable customers which apply to all customers). We consider that this addresses the concerns raised by private banks. Otherwise, this protection around early repayment stands. Q14 – Early repayment Is the approach to early repayment fees reasonable? There was strong support for the proposal, but some requests for guidance on how it would operate in practice. This has been covered by changing the rules, which are now clearer. Where there is flexibility in the approach, it is subject to the principle that licensees should advise customers at the outset which approach they intend to use. Q15 – Unfair contract terms Is the approach to unfair contract terms and grey-listing reasonable? There was overall support and recognition of the need to introduce ways to address unfair contract terms. The Commercial Bar proposed that the terms listed (in Schedule 4 to the rules) should be aligned with those in the UK. Clearly there are advantages and disadvantages to using UK terms or modifying them for specific use in the Bailiwick. Given that such arrangements have been in place for some time in the UK and there is a significant amount of precedent to follow, on balance we agree that it is clearer to adopt terms in line with the (current) UK approach rather than create a separate set of terms for the Bailiwick. This change has been made. It was also requested that terms which are “grey-listed” in the UK and which we proposed should not be permitted should not be automatically disallowed. It was suggested that there may be circumstances where the use of the listed terms might be appropriate and individual customers should be permitted to accept such terms where they choose to do so. While reputable firms are unlikely to require these terms in their contracts, adopting a more restrictive approach than the UK could limit the availability of some products and services for local consumers. The Commission recognises that there may be occasions where terms listed in the schedule would be permitted, for example where they have been reviewed and approved for use by the FCA and provided they are limited to the same products or circumstances as reviewed by the FCA. Licensees should not require customers to waive their statutory rights under this law.

Q16 – Forbearance and Default
Is the approach to forbearance and default reasonable?
While supportive overall, responses raised concerns about whether we were seeking to impose additional restrictions on the use of saisie or other remedies. For clarity, this is not the intention. The rules implement what is currently good practice, and we expect that where a licensee exercises its rights over security, any surplus realised after expenses (and any outstanding debts under saisie arrangements have been satisfied) should be returned to the borrower. The Commission would be concerned if a firm took security over an individual’s home with a view to long term possession in the event that it was forced to realise that security or if it was seeking additional profit from the exercise of such security. Q17 – Private Lenders Is it appropriate to allow small private lenders to be exempted from the requirement to hold a licence? There was overall support for the proposal but several responses raised concerns that licensed firms would provide more safeguards for customers and would not be able to compete on a level playing field with unlicensed private lenders. While we understand this view, and are sympathetic to some of the concerns raised, we consider that the requirement for an Appointed Service Provider (ASP) to oversee the private lender will provide reasonable protection for borrowers and strikes an appropriate balance between consumer protection and maintaining choice in the market. We have increased the maximum value of the loan portfolio to £2m in total. This includes any lending carried on outside Part II (or lending exempted from Part II) – for example lending to businesses or factoring carried out under Part III of the law. Q18 – Appointed Service Providers (ASPs) Are the arrangements for Appointed Service Providers appropriate? There was broad support for the proposed arrangements and only minor technical and cosmetic changes have been made. Q19 – Firms in run off Is it reasonable to exempt firms in run-off and permit them to make limited contract changes? There was strong support for the Commission’s proposed exemption from licensing (on application) for firms in run off, as at the date the LCF Law comes into effect (1st January 2023), and the principle that some changes would be permitted. However, the Commission is not inclined to extend the proposed duration or to broaden the exemption. Firms in run off will need to apply to the Commission if they wish to benefit from an exemption. This will be time limited, to a maximum of 5 years. Subject to meeting the appropriate criteria, firms granted the exemption will be permitted to make certain changes to contracts – for example, to change interest rates on variable rate home finance loans. If the run off is expected to take longer than 5 years it is unlikely that the Commission would grant an exemption.

Q20 – Approach to fees and commission
Is the approach to fees and commission payments reasonable?
There was a broad consensus although a number of firms, in particular motor traders who arrange finance as credit brokers, were concerned about two aspects. These were disclosure of commission figures and the types of commission payment that would be permitted in future. Disclosure of commission is a requirement for home finance. For consumer credit, brokers need not disclose the amount of their commission unless requested to do so – but they must disclose the fact that they will receive a commission for arranging finance and the nature of the arrangement (for example, does the commission increase with the amount borrowed?). Note that although brokers may not be required to disclose figures up front, lenders may be required to do so in the detail of the credit agreement with the customer (in particular, they will need to disclose it in the overall cost of credit if it is paid for directly by customers). Moving on to types of commission payment, while some respondents supported the continued use of “difference in charges” (DIC) for commission, more were against its use. The Commission does not propose to change its approach. “Difference in charges” arrangements are unfair to customers. They incentivise brokers to act contrary to their customer’s interests by encouraging them to use interest rates higher than would otherwise be the case for affected customers. Respondents who were lenders did not object to the removal of this practice. It was restricted some time ago in the UK and replaced by alternative approaches to broker remuneration. The Commission does not intend to specify “permitted” remuneration arrangements. These are commercial matters for the traders/credit brokers and lenders. We do not propose, at the present time, to stop the use of volume-based discounts provided that they do not lead to worse outcomes for customers or to high pressure selling by motor traders in order to meet financial targets for commission payments. Credit brokers, including motor traders will be expected to offer and to recommend finance arrangements which are best for the customer, rather than those which meet dealers’ or brokers’ commission targets.

Part III – FFBs (Financial Firm Businesses)
Responses were broadly supportive of our approach but identified some specific areas where the approach could be revised or improved. We have not made wholesale changes, but the relevant rules and guidance have been updated to take into account a number of the responses and to make other minor and technical changes. Q21 – Approach to regulating FFBs Is the approach to regulating FFBs reasonable to meet the licensing requirement? As noted above, only minor technical and cosmetic changes have been made. Q22 – Business Lending If you provide loans to businesses, to what degree is lending part of your core business, and how do you satisfy AML/CFT obligations? Responses provided useful feedback which has enabled us to adjust the scope of exemptions and provide additional guidance. In particular it should be noted that:
(i) Lending which is Part III FFB Lending (and not a regulated agreement under Part II) undertaken outside the Bailiwick is generally outside the scope of the Law unless it meets the definition in s16 of the Law; (ii) Debt instruments and bonds are not considered to be “lending” for these purposes; Q23 – Specific Rules for types of FFB Are there specific Rules that should be applied to certain types of FFB? The majority of responses considered that there did not need to be individual rules for specific types of FFBs. There may in future be the need for specific rules for particular types of business, but they are not required at this stage. Q24 –Exemption for CIS (collective investment schemes) Is it reasonable to exempt authorised/registered collective investment schemes from the need for an individual licence? There was strong agreement that the correct approach was to permit an exemption for authorised/registered CIS and an exemption is included in Schedule 1 to the Law.

Q25 – Administered entities
Is it appropriate to exempt administered entities in respect of intra-group lending within an administered structure from the requirement for licensing? There was strong support for permitting exemptions for administered entities in respect of lending within a group structure, where the administrator was licensed under the POI or Fiduciary Laws. Administrators will be required to provide the Commission relevant information on the administered entities. We have also included an exemption for entities administered by appropriately licensed insurance managers. This means that captive insurers managed by a licensed insurance manager will not require a Part III FFB licence when lending to their parent group.

Part III – VASPs (Virtual Asset Service Providers)
Following feedback from a range of stakeholders, including the Fintech Oversight Group2 , we have made some limited changes to our approach and provided clarification in respect of a number of issues, including outsourcing. We remain of the view that virtual assets pose significant additional risks compared to traditional financial assets and therefore deserve to be treated with a great deal of caution. Recent market events and the collapse of a number of high-profile crypto currency firms bear out the risks involved. We continue our approach that individuals and other persons (which includes incorporated entities) should be able to invest in such assets and trade them on their own behalf – where the profit or loss from such activity falls to them as the person carrying out the trading. There is no restriction on persons accessing virtual asset providers or exchanges outside the Bailiwick for their own purposes. However, as a consumer protection measure, any VASP adverts that target Bailiwick residents must be issued by a VASP licensed under the Law or receive the Commission’s prior consent. This is similar to the restriction on deposit adverts under the Banking Supervision Law. Q26 – Exemptions Is the Commission’s approach to exemptions for VASP activities reasonable? Several respondents stated that the Commission’s proposed restrictions on who a licensed VASP can do business with were too restrictive. In our original paper we proposed to limit the licensing of VASPs to firms which dealt with wholesale and institutional investors only. We recognise that ultimately products and services which are initially provided to wholesale and institutional investors may end up in the hands of individual investors, indirectly, as a result of secondary trading or in some cases through direct arrangements. The rules do not allow VASP licensees to deal directly with individuals. Nevertheless, the Commission will consider licensing VASPs, subject to a number of caveats and conditions, to carry on business which may be directed to individuals, provided that such business is conducted through a properly regulated intermediary. The Commission may also, as a condition to licensing, require some VASPs to seek our ‘no objection’ before using a new intermediary to distribute their products or services. We will not permit VASP licensees to offer products or services which are targeted at retail customers. Q27 – Environmental disclosure Do you agree with the proposed environmental disclosure rules for VASPs? Some respondents said that the Commission’s proposed environmental impact disclosure rules were too onerous and difficult to comply with. There were concerns regarding the need to provide a third-party report on the firm’s disclosures as part of the licence application. Some respondents also noted that such disclosures were not required in other sectors nor in other jurisdictions. 2 The FOG is an advisory group comprising officers from the States and industry
representatives.

The Commission has taken on board this feedback by making the disclosure requirements simpler to comply with and remove the requirement to provide a third-party report. The rules are now focused on the environmental impact of the consensus mechanism of the firm’s virtual assets (such as Proof of Work, for example. This is referred to as the validation or mining process on pg. 58 of the LCF CP), instead of all of their activities. This should align more with the approach taken in the forthcoming EU regulations. Only virtual assets with consensus mechanisms that require the consumption of resources (such as Proof of Work) are required to include detailed figures on energy usage and carbon emissions within their environmental disclosures. The Commission has expanded the guidance in this section to make it clear that firms can complete their disclosures on a ‘best efforts’ basis. Q28 – Outsourcing Is the Commission’s proposed approach to substance and outsourcing reasonable? We received feedback from a number of respondents that preventing VASP licensees from outsourcing outside the Bailiwick would limit the growth of the sector as in many cases there may not be sufficient expertise within the Bailiwick. This is not the Commission’s intention and was not what the draft Rules stated. VASP licensees will require the Commission’s consent before outsourcing functions outside the Bailiwick. This consent will generally be discussed during the application process.

Part IV – Crowdfunding and Peer to Peer Platforms
Q29 – Peer to Peer and Crowdfunding
Is the approach to regulating peer to peer and crowdfunding services reasonable? Q30 – Investment limits Is it reasonable to limit investment to 10% of an individual investor’s net wealth? Most responses supported the overall approach; but a small majority were opposed to the limit on individual investment. Some preferred an alternative approach with less regulatory oversight. The main concern identified was in the limit on individual investments, but a number of respondents would also prefer to have exemptions for investors meeting certain criteria – such as professional investors or high net worth individuals. After consideration, the Commission has decided to increase the limit for individual investments to 15% of net assets. We note that in other jurisdictions, for example the UK, the limits may be waived entirely for certain categories of investor. However, the criteria can be difficult to assess and in many cases are not sufficiently rigorous to ensure that they could not be met by many individuals who have no more detailed or better understanding of the products and platform investments than a typical retail investor. We consider that this would pose unacceptable risks for individual investors and for the reputation of the Bailiwick should such arrangements be exploited. The Bailiwick business model is different to that in the UK. Our focus is a global market rather than a large domestic market and this means that the 15% cap can bring in significant sums from wealthy global investors. We do not want individual investors to be exposed further than this or to risk losing their entire net assets in a single platform. Charity platforms We also clarify that charity “crowdfunding” arrangements, such as “just giving” style platforms, which are vehicles for individual to make donations to charities are not considered to be investment or loan funding platforms and do not fall within the scope of the LCF Law. They therefore do not require a specific licence under the Law.

Other issues
Q31 – Information gathering
Is the Commission’s proposed approach to information reporting reasonable? Q32 – Applications Is the Commission’s proposed approach to applications reasonable? Q33 – Comments on clarity of rules Do you have any comments regarding the clarity of the Rules? Q34 – Comments on other topics Do you have any further comments regarding the topics covered by the Consultation? Most responses were content with the proposed approach to information gathering. Similarly, with application forms, responses were generally positive, but indicated a need for further support and guidance, particularly for firms new to being regulated by the Commission. The Commission has made a number of changes to improve the application forms and add further guidance to assist applicants in their completion. FAQs will also be available on the Commission’s website together with assistance from lcf@gfsc.gg if needed.

Annex 1 – Lending, Credit & Finance Exemptions
See attached document

Annex 2 - Lending Credit & Finance Rules and Guidance, 2023
See attached document

Annex 3 - Lending Credit & Finance Guidance, family members

THE LENDING, CREDIT AND FINANCE RULES and
GUIDANCE, 2023
The Lending, Credit and Finance Rules, made in accordance with the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (“the Law”), are set out in this document. Further guidance, provided by the Guernsey Financial Services Commission (“the Commission”), is set out in shaded boxes.

Contents
INTRODUCTION ............................................................................................................5
1.1 Application............................................................................................................................5
CORPORATE GOVERNANCE AND EFFECTIVE MANAGEMENT .....................6
2.1 Application............................................................................................................................6
2.2 Governance responsibilities................................................................................................6
2.3 Supervised roles ...................................................................................................................8
2.4 Governance and effective management............................................................................8
2.5 Conflict of interest................................................................................................................9
2.6 Account rules......................................................................................................................10
2.7 Actions of auditors.............................................................................................................12
2.8 Annual Review...................................................................................................................12
2.9 Annual Return....................................................................................................................12
2.10 Electronic filing...................................................................................................................13
2.11 Record keeping...................................................................................................................13
2.12 Outsourcing ........................................................................................................................15
2.13 Employee screening and training ....................................................................................18
2.14 Qualifications......................................................................................................................19
CONDUCT OF BUSINESS............................................................................................20
3.1 General conduct .................................................................................................................20
3.2 Customer relations.............................................................................................................21
3.3 Complaints..........................................................................................................................28
3.4 Customer money................................................................................................................29
3.5 Annual Percentage Rate (“APR”) and total charge for credit – Regulated credit
agreements ......................................................................................................................................34
3.6 Business transfer ................................................................................................................36
3.7 Promotion and Advertising..............................................................................................37
PRUDENTIAL ................................................................................................................40
4.1 Insurance .............................................................................................................................40
4.2 Financial resources.............................................................................................................42
COOPERATION WITH THE COMMISSION............................................................44
5.1 General provision...............................................................................................................44
5.2 Notification by a licensee ..................................................................................................44
CONSUMER PROTECTION AND UNFAIR AGREEMENT TERMS...................47

6.1 Application..........................................................................................................................47
6.2 Unfair agreement terms ....................................................................................................47
PART II LICENCES........................................................................................................50
7.1 Requirement for multiple licences...................................................................................50
7.2 General Obligations ...........................................................................................................50
7.3 Equivalence.........................................................................................................................50
7.4 Applications and regulated activities..............................................................................51
7.5 Appointed retailers and appointed motor traders........................................................51
7.6 Early repayment.................................................................................................................52
7.7 Information to customers..................................................................................................52
7.8 Cooling-off period..............................................................................................................53
7.9 Maximum cost of credit ....................................................................................................54
7.10 Treatment of surplus following default..........................................................................54
7.11 Appointed Service Providers ...........................................................................................55
7.12 Restrictions on further credit............................................................................................55
PROVISION OF ANCILLARY SERVICES UNDER PART II LICENCES..............56
8.1 General obligations ............................................................................................................56
8.2 Provision of advice.............................................................................................................56
8.3 Debt administration...........................................................................................................57
PART III FINANCIAL FIRM BUSINESS LICENCES ...............................................59
9.1 Requirement for multiple licences...................................................................................59
PART III VASP LICENCES...........................................................................................60
10.1 Requirements for multiple licences .................................................................................60
10.2 Applications and regulated activities..............................................................................60
10.3 Environmental declaration ...............................................................................................64
10.4 Safekeeping of customer virtual assets ...........................................................................66
PART IV LICENCES......................................................................................................68
11.1 Requirement for multiple licences...................................................................................68
11.2 Applications and regulated activities..............................................................................68
11.3 General Obligations ...........................................................................................................68
11.4 Customer limits ..................................................................................................................69
11.5 Information for customers ................................................................................................70
GENERAL PROVISION................................................................................................72

12.1 Interpretation......................................................................................................................72
CITATION AND COMMENCEMENT.......................................................................75
13.1 Citation and commencement............................................................................................75
SCHEDULE 1 The Principles of conduct of finance business……………………….………....76
SCHEDULE 2 Calculation of Annual Percentage Rate………………….……………………...78
SCHEDULE 3 Calculation of maximum early repayment fees………………………………..92
SCHEDULE 4 Unfair agreement terms…………………………………………………………..93

INTRODUCTION
1.1 Application
(1) Unless otherwise stated, these Rules apply to all holders of licences issued under the Law. (2) The Commission may, in its absolute discretion and by written notice, exclude or modify the application of any provision of these Rules. (3) The Commission may issue supplementary guidance regarding the standards of conduct and practice expected in relation to any aspect of the regulatory framework. Such guidance will not constitute rules of the Commission. Guidance This document takes a two-level approach –

the Rules set out the standards to be met; and
guidance notes set out the Commission’s approach to regulation and
present suggested ways of showing compliance with the Rules.
Alternative measures to those set out in the guidance may be adopted so long as it is possible to demonstrate that such measures achieve compliance. The text contained in shaded boxes is Commission guidance and does not form
part of the Rules.

CORPORATE GOVERNANCE AND EFFECTIVE
MANAGEMENT
2.1 Application
(1) This section applies to all licensees.
2.2 Governance responsibilities
(1) The licensee must ensure that at least two individuals with the responsibility of directing the business are resident in the Bailiwick. (2) The board and senior management, of a licensee, must take all reasonable steps to ensure that all employees of the licensee act so as to avoid material damage either to - (a) potential and current customers; (b) the licensee’s reputation; (c) the licensee’s financial position; and (d) the reputation of the Bailiwick as an international finance centre. (3) The board of a licensee – (a) must ensure that the licensee – (i) has in place effective and appropriate policies, procedures, and controls to ensure compliance with all applicable legislation, rules, codes, and guidance;

(ii) recruits, trains, and supervises relevant personnel to ensure compliance with all applicable legislation, rules, codes, and guidance; and (iii) operates robust arrangements for meeting the requirements of these Rules and all other relevant legislation; (b) at all times, retains responsibility for any functions it outsources; and (c) must evaluate its compliance with the Code of Corporate Governance1 on a regular basis. (4) In the case of a Part III VASP Licensee - (a) the board must ensure that the licensee has sufficient resources, within the Bailiwick, to effectively oversee and control the activities and business of the licensee; and (b) to maintain effective oversight, the board and senior management of the licensee must ensure that they have sufficient knowledge, understanding, and expertise with respect to the activities of the licensee and the services it provides. Instrument made on 30 September 2011. Guidance For the avoidance of doubt, the relevant legislation and rules include The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 and the Handbook on Countering Financial Crime and Terrorist Financing. Provision of Services Ancillary to the Provision of Credit is not included in the definition of financial service business at Schedule 1 of the Proceeds of Crime Law and is outside the scope of the Handbook. General insurers who are licensed credit providers, in respect of providing credit for payment by instalments for general insurance products, will also fall outside the scope of the Handbook.

2.3 Supervised roles
(1) The following sections of the Law –
(a) section 43, Notification of and objection to holders of approved supervised roles; (b) section 44, Notification of and objection to holders of vetted supervised roles; (c) section 45, Notification of change of holder of supervised role, apply to all licensees engaging persons in any of the roles designated as ‘supervised roles’, under section 41 of the Law.
2.4 Governance and effective management
(1) A licensee must comply with these Rules, and any other applicable legislation, codes, or guidance and must understand and comply with its contractual and other legal obligations arising under any relevant customer agreements. (2) A licensee must – (a) ensure that the responsibilities and authority of relevant personnel are clear and appropriate to their qualifications and experience; (b) record and monitor compliance with these Rules and all other relevant legislation; (c) keep a breaches register which logs all instances of non-compliance with these Rules; and (d) fulfil the minimum criteria for licensing.

(3) A licensee is responsible for the behaviour of any appointed retailers and appointed motor traders that they appoint and must ensure that they are aware of, and comply with, these Rules.
2.5 Conflict of interest
(1) Subject to the applicable laws, a licensee must – (a) act impartially; (b) not unfairly place its interests above those of its customers; and (c) ensure fair treatment between customers. (2) A licensee must – (a) establish, implement, and maintain an effective written conflicts of interest policy which is appropriate to the nature, scale, and complexity of the business; (b) ensure that adequate procedures are implemented to either avoid any conflict of interest arising or, where conflicts do arise, manage or minimise them; (c) keep records of any conflicts of interest and how they are managed; (d) without prejudice to these Rules, the Handbook2 , the Prevention of Corruption (Bailiwick of Guernsey) Law, 20033 and any other relevant legislation, not solicit, receive, or accept bribes, gifts, inducements, rewards, or advantage that are likely to conflict with the licensees’ duty to any customer. 2 Handbook on Countering Financial Crime and Terrorist Financing, Guernsey Financial Services Commission. 3 Order in Council No.1 of 2004.

2.6 Account rules
Accounting records and accounting period of a licensee (1) The accounting records must – (a) show and explain transactions; (b) enable financial statements to be prepared; and (c) present, with reasonable accuracy at any time, all assets, liabilities, income, and expenditure. (2) All licensees are required to prepare audited accounts unless they act solely as ancillary services providers under Part II of the Law. (3) Audited accounts must – (a) present a true and fair view of the financial position at the end of that accounting period; (b) present a true and fair view of any profit and loss during that accounting period; (c) be prepared in accordance with either – (i) UK accounting standards4 ; (ii) US accounting standards5 ; or 4 As issued by the Financial Reporting Council. 5 As issued by the Financial Accounting Standards Board.

(iii) International Financial Reporting Standards6 ; and (d) must be accompanied by an auditor’s report prepared in accordance with the International Standards on Auditing as issued by either – (i) the Financial Reporting Council; or (ii) the International Auditing and Assurance Standards Board. (4) The accounting period, of a licensee, must be set and – (a) must not exceed 12 months, and (b) must not be altered without prior written permission from the Commission, apart from the first accounting period, of a newly formed licensee, which may be up to 18 months. Availability of audited accounts (1) All Part II, Part III VASP and Part IV licensees, required to produce audited accounts, must ensure that those accounts are also made available to the public on request. 6 As issued by the International Accounting Standards Board.

2.7 Actions of auditors
(1) All licensees, required to produce audited accounts, must comply with
section 57 of the Law. In particular, the Commission must be notified of the
–
(a) appointment of an auditor;
(b) removal of an auditor;
(c) resignation of an auditor;
(d) signing-off of a qualified audit report.
2.8 Annual Review
(1) The Annual Review requirements, set out in section 67 of the Law – (a) need only be undertaken by Part III VASP Licensees and such other licensees specifically directed to do so by the Commission; and (b) must review all matters specified by the Commission.
2.9 Annual Return
(1) A licensee, at the end of the Annual Return Period, must make an Annual Return, to the Commission. (2) The Annual Return Period must coincide with the licensee’s financial year. (3) An Annual Return must be made, to the Commission, within six calendar months of the end of the Annual Returns Period to which it relates.

(4) Annual Returns must include –
(a) either –
(i) audited accounts and an auditor’s management letter and any report prepared by an internal or external auditor, an accountant, or a consultant which addresses any breakdown of, or any material weaknesses in, internal control procedures; or (ii) where a licensee is not required to produce audited accounts, unaudited financial statements, including any notes; (b) an up-to-date, narrative, business plan; (c) complaints data, in a format determined by the Commission; and (d) any other information which the Commission may, from time to time, specify.
2.10 Electronic filing
(1) Reviews and Returns filed with the Commission, under rule 2.8 and 2.9, must be submitted in such electronic format as the Commission makes available.
2.11 Record keeping
Records of the licensee’s own business
(1) A licensee, in relation to its own business, must ensure that all appropriate records are kept up to date, complete, and accurate including but not limited to –

(a) records of all regulated agreements between the licensee and its customers; (b) the complaints procedure and controls; (c) records of customer communications and transactions; and (d) records of any decisions as to the treatment of customers. Data security (1) A licensee must maintain adequate policies and procedures for the maintenance, security, privacy, and preservation of all documents and records belonging to the licensee and its customers so that they are reasonably safeguarded against loss, unauthorised access, alteration, or destruction. (2) Any policies and procedures must conform with the Data Protection (Bailiwick of Guernsey) Law, 20177 . Retention of records (1) A licensee must keep and preserve the following – (a) records of its own business prepared in accordance with these Rules; and (b) any documents relating to customers which were prepared in compliance with these Rules. 7 No. VI of 2018.

(2) Where a licensee is aware of any matter which is subject to investigatory or disciplinary procedures, or appeals against such procedures, all documents which are, or may be, relevant to this matter must not be amended or destroyed without written consent from the Commission. Outsourcing record maintenance (1) Where the licensee outsources the maintenance of its own records, customer records, or both, the licensee must ensure it is satisfied that – (a) the documents are kept secure and any operational risks are appropriately managed; (b) the records are readily accessible; (c) all regulatory and confidentiality laws and requirements are complied with; and (d) the Commission can have access to the records at all reasonable times.
2.12 Outsourcing
Responsibility
(1) Subject to rule 2.12.6, a licensee may outsource functions but the board retains responsibility and accountability for the outsourced functions. Responsibilities include – (a) the maintenance of effective oversight of the outsourced functions; and

(b) ensuring that the licensee continues to comply with these Rules and all other relevant legislation. Risk assessment (1) The board of a licensee must be fully aware of and understand the risks arising from outsourcing its functions. (2) Where outsourcing is proposed a licensee must carry out a risk assessment which includes, but is not limited to – (a) risks associated with a breakdown in the provision of the outsourced services; and (b) risks which could arise from the failure of the outsourced service provider. Due diligence in selection of outsourced service providers and monitoring outsourced service provider’s performance (1) A licensee must – (a) exercise due diligence, on the outsourced service provider, to ensure that it can be satisfied that the outsourced service provider has the ability and capacity to undertake the provision of the service effectively; (b) document the capability and suitability of the proposed provider of the outsourced service; and Guidance For the avoidance of doubt, when a firm offers a product, activity, or service that requires a licence under the Law, outsourcing the carrying out of that activity does not remove the need for a licence.

(c) establish clear internal responsibility for monitoring the conduct of the outsourced services and for reporting to the board. Outsourcing agreements (1) A licensee must ensure that there is a written outsourcing agreement in place for every outsourced activity. (2) The outsourcing agreement must – (a) have appropriate content reflecting the nature, scale, and complexity of the outsourcing arrangements; and (b) for significant outsourcing arrangements, include a contractual requirement for the services provider to – (i) give the Commission the right to direct access to material which it holds in relation to the business of the licensee; (ii) maintain records as required under the relevant laws and other requirements; and (iii) inform and obtain agreement, from the licensee, prior to sub-outsourcing any functions. Contingency plan (1) The licensee must ensure that there is, established and maintained, an appropriate contingency plan which enables alternative arrangements to be set up, with minimal disruption, in case of the failure of the outsourced service provider or any other breakdown in the provision of services.
Part III VASP Licensees
(1) A Part III VASP licensee must not, without the Commission’s written agreement, outsource any function outside the Bailiwick.

2.13 Employee screening and training
(1) A licensee must maintain appropriate and effective procedures when hiring employees, or admitting any person as a partner, for the purpose of ensuring high standards of probity and competence. These procedures should be proportionate to the nature, risk profile, and size of the business. (2) To ensure that individuals are of the required standard of competence and probity the licensee must, at the minimum, give consideration to the collection and confirmation of the following during the recruitment process – (a) appropriate references; (b) details of any regulatory action taken against the individual, in any jurisdiction; (c) details of any action, taken against the individual, by any professional body; (d) details of any criminal convictions, including the provision of a check of the individual’s criminal record8 ; and (e) details of employment history, qualifications, and professional memberships. (3) A licensee must ensure that individuals receive any training which is necessary for their roles and - (a) formulate plans for training and development; and In accordance with the Rehabilitation of Offenders (Bailiwick of Guernsey) Law 2002, Order in Council No. XIV of 2002.

(b) keep training and development plans current and relevant.
2.14 Qualifications
(1) Any person providing advice to customers must be suitably trained. (2) Licensees must ensure that any individual providing advice in respect of home finance agreements or approving home finance agreements on behalf of the licensee, holds an Approved Qualification. Guidance Approved qualifications – A list of appropriate qualifications can be found on the Commission’s website. Not all employees that deal directly with customers need to hold an approved qualification. This includes, for example, administrative staff. Individuals who are currently training towards an approved qualification can provide advice provided they are properly supervised by someone who is fully qualified.

CONDUCT OF BUSINESS
3.1 General conduct
(1) A licensee must observe the Principles, set out at Schedule 1, when carrying on its regulated business. (2) A licensee must not attempt to avoid or contract out of its responsibilities set out in these Rules. (3) All licensees must – (a) establish and maintain policies, procedures, and controls to monitor and ensure there are always the requisite capacity and resources to provide the services agreed with its customers; (b) ensure that all decisions taken, or transactions entered into, by or on behalf of the customers, are actioned in a timely manner and appropriately authorised and handled by persons with an appropriate level of knowledge, experience, and status. This includes the establishment, transfer, or closing of business relationships; and (c) maintain confidentiality except where disclosure of information is – (i) required or permitted by an applicable law; or (ii) authorised by the person to whom the duty of confidentiality is owed.

(4) Subject to the terms of the agreement, and any applicable legislation, a licensee must promptly provide customers with information to which they are entitled or, if this is not possible, explain why such information cannot be provided.
3.2 Customer relations
Customer agreements
(1) A licensee must inform any person with whom it proposes to enter into an agreement in respect of the provision of regulated activities, in writing, of its terms of business and must retain a record of that person’s agreement to those terms. (2) The agreement shall include, but is not limited to – (a) a clear description of the services to be provided; (b) the fees, including exit fees, to be charged – setting out the nature and scale of the fees and the basis of the calculation of those fees; (c) the means by which complaints can be made; Guidance Licensees are obliged to treat customers fairly. While the primary responsibility for ensuring that any credit arrangement is suitable for customers rests with the credit provider entering into the agreement, ancillary service providers (brokers) should be transparent in their advice. Where they provide credit in addition to advising customers or acting as a broker, they are expected to disclose this information, to advise whether they are acting in their capacity as a broker or lender and where there is a potential conflict of interest. In treating customers fairly it is expected that advice should be impartial and should not, for example, favour “own brand” offerings over those from other providers which are more suitable or are cheaper overall for the customer concerned.

(d) details of the licensee’s complaints resolution procedures including, where applicable, contact details for the Channel Islands Financial Ombudsman (“CIFO”) and a statement that the CIFO may be available to consider complaints which are not resolved through the licensee’s complaints resolution procedure; (e) a record of any provision for the termination of the agreement and the consequences of the termination; and (f) a statement that the licensee is licensed by the Commission. (3) A licensee must not recommend a service to a customer, or encourage a customer to enter into an agreement, unless it has taken reasonable steps to make them aware of the risks involved and any conflicts of interest. Commissions and disclosures (1) The sub-rule only applies to Part II licensees. (2) Licensees must disclose the existence and nature of any commission, fee, or other payment made by them, or received by them, in the process of effecting a regulated agreement. (3) Disclosure must be prominent and clear and made prior to the customer entering into any regulated agreement. (4) Arrangements facilitating commission payments, used by licensees, must not permit the payment of additional commission as a result of the increase of charges applied to the customer. (5) Payments of commission based on the difference in charges (“DIC”) methodology are not permitted. (6) Ancillary service providers must disclose, to customers on request, all fees and commissions received for arranging the regulated agreement on behalf of a lender.

(7) Mortgage advisors, mortgage brokers, and ancillary service providers relating to home finance agreements must disclose all fees and commissions before the customer enters into the agreement. Suitability (1) This sub-rule only applies to Part II licensees. (2) A licensee, at the outset of its provision of services to a customer, must ensure that it has obtained sufficient information, from that customer, to ensure that any service provided is suitable to the requirements, needs, position and circumstances of the customer. (3) When recommending a product, or arranging or effecting an agreement, a licensee must consider – (a) the information received, from the customer, with regard to their circumstances; (b) the terms of any proposed agreement; (c) whether the agreement is suitable to the requirements of the customer; (d) the creditworthiness of the customer, including whether the agreement is affordable; and (e) any other relevant facts, about the customer, of which the licensee is, or reasonably should be, aware. (4) Licensees must take a proportionate approach to assessing the creditworthiness of a customer, bearing in mind – (a) the value of the credit; (b) the nature of any security; and

(c) the circumstances of the customer.
(5) A licensee must have a written procedure in place detailing how a customer’s creditworthiness is assessed, including – (a) the customer’s ability to meet the payments as they fall due; (b) whether the payments are affordable for the customer; (c) whether the customer will be able to meet the payments, and whether they will remain affordable, as a consequence of interest rate rises; and (d) where appropriate, whether the customer will be able to meet the payments, and whether they will remain affordable, should the customer’s circumstances change. (6) A licensee must take reasonable steps not to recommend or effect an agreement if it is not suitable or affordable. (7) Where a customer is a High Net Worth Individual, (1)-(5) do not apply.

Vulnerable customers
(1) This sub-rule only applies to Part II licensees.
(2) Licensees must ensure that this rule is applied to any guarantors as well as borrowers. (3) When recommending a product, or arranging or effecting an agreement, a licensee must consider whether the customer – (a) presents any indications of vulnerability; (b) is over 75 years of age; or (c) requires any additional care or assistance. Guidance Affordability Affordability is a well understood concern for retail lending but the precise understanding of the definition varies for different providers. In the Commission’s view it is an essential part of the assessment of customer creditworthiness. It is intended that considerations of affordability should be appropriate and proportionate to the circumstance of the credit being provided and the circumstances of the customer – it is not a prescriptive or “one size fits all” approach. Credit providers should take steps to understand the circumstances of their customers. For customers in more secure longer-term employment, and for smaller value purchases, the consideration may be less onerous. Increased scrutiny of affordability may be needed for larger value purchases, where the customer has a imperfect credit record, or where they are employed on a casual basis. In such circumstances it may be appropriate to consider whether the customer would be able to afford repayments in the event of a change in circumstances. Subrule 3.3.3 applies to credit providers even when the customer comes through a broker or other intermediary.

(4) A licensee must have a written procedure in place detailing how vulnerability is assessed. (5) Licensees must take extra care when dealing with vulnerable customers and those over the age of 75 and must consider – (a) the availability and accessibility of products; (b) whether they require additional assistance to understand the agreement; or (c) whether forbearance may be appropriate. Guidance Vulnerability and vulnerable customers The fact that a customer is vulnerable should not prevent them from accessing financial services or licensees dealing with them or providing them with services. Licensees should not automatically reject applications for services because a customer is vulnerable and should take steps to accommodate their needs. Vulnerability includes many factors. Anything which results in difficulty in accessing and understanding information can be seen as vulnerability – e.g. frailty or mobility issues (whatever the cause), impaired vision, impaired hearing, difficulties understanding English, life events or mental health issues. Firms should accommodate vulnerable customers by providing information in a form which is accessible to their customers and should consider, among other things –

ensuring that more time is available for discussions;
information is made available in large prints, or other formats;
meeting in locations that are accessible; and
allowing family and friends to assist.
Firms’ own guidance on vulnerability should consider the indicators of vulnerability and how they can provide suitable assistance to vulnerable customers.

Customers experiencing payment difficulties
(1) This sub-rule only applies to Part II licensees.
(2) Where appropriate, licensees must ensure that this rule is applied to guarantors as well as borrowers. (3) A licensee must have a written procedure in place detailing their approach to dealing with customers experiencing payment difficulties. When dealing with vulnerable customers experiencing difficulties, additional consideration must be given to forbearance. (4) When dealing with customers experiencing repayment difficulties, licensees must give due consideration to applying some form of forbearance, including, but not limited to – (a) repayment holidays; (b) temporarily halting charges; (c) restructuring repayment schedules. (5) Where a customer is a High Net Worth Individual, (1)-(4) do not apply. Periodic information and closing statements (1) This sub-rule only applies to Part II licensees. (2) Licensees that are credit providers must provide customers who have a regulated agreement, at least annually, with a report showing – (a) interest charged; (b) payments made;

(c) the outstanding principal of loan remaining; and when no further sums are due, send the customer a closing statement confirming the loan is fully repaid.
3.3 Complaints
(1) A licensee must –
(a) have and comply with a written procedure for the effective consideration and fair, proper, and timely handling of complaints; (b) maintain a log of all complaints and their current status; (c) as appropriate, explain the complaints handling process to customers; (d) keep the complainant informed about the progress of the complaint including details of any actions being taken to resolve the complaint, except where this conflicts with or is prohibited under another law; (e) inform the complainant that, in cases of significant complaints or where a complaint remains unresolved for longer than three months, the licensee is under an obligation to inform the Commission of the complaint; (f) on agreement with the complainant, ensure that the matter is settled as soon as possible; Guidance Where appropriate, licensees should provide the report more frequently including, but not limited to, when the regulated agreement has a duration of 12 months or less.

(g) where the complaint is not upheld, clearly state the reason for rejecting the complaint and inform the complainant of their right to refer the complaint to the CIFO; and (h) advise the complainant when the complaint is considered closed. (2) Where the status of the complaint is closed, the licensee should ensure that the following information is retained - (a) the nature of the complaint; (b) the reason for the closure of the complaint; and (c) where applicable, details of any agreed compensation.
3.4 Customer money
Application
(1) This rule applies to all licensees holding customer money.
Customer money
(1) Customer money must be held separately, from the licensee’s own money, in one or more dedicated customer money bank accounts. (2) Customer money may be held in a different currency to that in which it was received. Customer money bank accounts (1) All customer money, received by the licensee, and all money payable to the licensee which becomes customer money, must be held in a customer money bank account with an approved bank.

(2) When a licensee opens a customer money bank account it must give written notice, to the bank, requiring the bank’s written acknowledgment that – (a) all money standing to the credit of that account is held by the licensee as trustee and that the bank is not entitled to combine the account with that of any other account, or to exercise any right of set-off or counterclaim against money in that account, in respect to any sum owed to it on any other account of the licensee; (b) interest earned on the account will be credited to the account or to an account of the same type; and (c) the title of the account sufficiently distinguishes the account from any other account containing money that belongs to the licensee and is in the form requested by the licensee, unless the bank provides this automatically. (3) If, where a customer money bank account is held with an approved bank outside Guernsey, the bank declines to provide the acknowledgment in subsection (2), or if the licensee has any other ground for believing that customer money will not be protected as effectively as it would be if held in a customer money bank account in Guernsey, the licensee must not pay or transfer customer money into that account. (4) Customer money held, or received, by a licensee must either be paid into a customer money bank account, or to the customer, as soon as possible and not later than the next business day. (5) Money held, or received, by a licensee, in the form of a cheque, draft, or electronic transfer, drawn down in favour of the licensee, which includes customer money, must be paid into a customer money bank account unless it represents money payable to one customer only in which case it may be endorsed over, or paid to, the customer concerned or dealt with as the customer instructs.

(6) Money received, which is not customer money, must be paid out of the customer money bank account no later than one business day after the day on which the money has been cleared. (7) Subsection (6) does not apply to amounts of less than £100. Payments from customer money bank accounts (1) Money ceases to be customer money if it is paid – (a) to the customer; (b) into a bank account in the name of the customer, not being an account which is also in the name of the licensee; or (c) to the licensee itself, where it is due and payable to the licensee.

(2) The following items may be withdrawn from a customer money bank account – (a) money, which is not customer money, paid into the account for the purposes of opening or maintaining the account; (b) money paid into the account in contravention of these Rules; (c) money properly required for payment to or on behalf of a customer; (d) money properly required for, or towards, payment of fees or commissions payable to the licensee and specified in a statement delivered to the customer showing how those fees and commissions have been calculated; (e) money drawn on a customer’s authority or in conformity with any agreement between the licensee and the customer; (f) money which may be properly transferred into another customer money bank account; (g) if a cheque is paid into a customer money bank account and that cheque includes money which is not customer money, that money must be withdrawn from the account; and (h) interest, provided the licensee has written consent from the customer to retain any interest accruing on customer money. (3) Money must not be withdrawn from a customer money bank account for, or towards, payment of fees or commissions payable to the licensee unless the basis of calculation of those fees or commissions have been disclosed, in writing, and agreed by the customer. (4) Where a licensee draws a cheque, or other payable order, the money does not cease to be customer money until the cheque, or order, is dispatched.

(5) Where a licensee makes a payment to a customer, from an account other than a customer money bank account, the sum of money in the customer money bank account, equivalent to the amount of that payment, will not become due and payable, to the licensee, until the customer, or other party, has received that payment in cleared funds. (6) Where a licensee has contracted to rebate commission to a customer, the amount becomes customer money when it becomes payable and must be settled within the timeframe agreed. (7) No money, other than money required to be paid under these Rules, must be paid into such an account unless the money is the licensee’s own money and it is – (a) required to be paid for the purpose of opening or maintaining the account and the amount is the minimum amount required for the purpose; or (b) paid to restore, in whole or in part, any money paid out of the account in contravention of these Rules, or to restore the account out of an overdraft position. Operation of customer money bank accounts (1) A licensee must maintain records sufficient to demonstrate compliance with this section. (2) A licensee must, at least once a month, reconcile the balance on each customer money bank account, as recorded by the licensee, with the balance on that account as set out in the statement issued by the bank. (3) The customer money bank account must not become overdrawn and there must not be a shortfall in customer money upon reconciliation with the statement issued by the bank. (4) In the event of a breach, the licensee must, immediately, restore the account and remedy any shortfall.

3.5 Annual Percentage Rate (“APR”) and total charge for credit – Regulated credit
agreements
Application
(1) This rule applies to regulated agreements.
Total charge in relation to consumer credit agreements (1) The total charge for credit under an agreed, or prospective, consumer credit agreement is the total cost of the credit, to the customer, determined in accordance with the requirements of subsections (2) to (5). (2) Subject to (3), the following costs must be included in the total cost of credit to the customer – (a) any fee or charge payable, by the customer, to any intermediary, in connection with the agreement; (b) the costs of maintaining an account recording both payment transactions and drawdowns; (c) the costs of using a means of payment for both payment transactions and drawdowns; (d) other costs relating to payment transactions. (3) The costs at (2) must not be included in the total cost of credit to the customer where – (a) the opening of the account is optional and the costs of the account have been clearly and separately shown in the regulated credit agreement or in any other agreement made with the customer; and

(b) in the case of an overdraft facility, the costs do not relate to that facility. (4) Costs, in respect of ancillary services, must be included in the total cost of credit to the customer if the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed. (5) The total cost of credit must not include – (a) any charges payable by or on behalf of the customer for noncompliance with their commitments contained in the regulated agreement; or (b) charges which, for the purchases of goods or services, the customer is obliged to pay whether the transaction is cash or credit. (6) The total cost of credit must not take account of any discount, reward - including cash-back, or other benefit to which the customer might be entitled, whether such an entitlement is subject to conditions or otherwise. (7) All intermediaries and ancillary service providers must disclose their fee to the credit provider. (8) Credit providers must take reasonable steps to ascertain whether a fee is payable to the ancillary service provider and intermediary and, if so, the amount of the fee.

Total charge for home finance agreements
(1) The total charge for credit under an agreed, or prospective, home finance agreement must be calculated following the method set out at Schedule 2. Calculation of the APR (1) The APR must be calculated in accordance with the formula set out at
Schedule 2.
3.6 Business transfer
(1) A licensee must obtain the prior written consent, of the Commission, in respect of any transfer of a block of business, for which they require a licence under the Law, to or from the licensee where such transfer will occur at the licensee’s instigation or with their agreement. Guidance In this rule ‘intermediary’ includes, but is not limited to, credit brokers and introducers. An ancillary service is a service that relates to the provision of credit and includes, in particular, an insurance or payment protection policy. The total cost of credit includes all fees or charges payable, by the customer, to any intermediary, if the fee or charge is known to the credit provider. Credit providers should ensure that intermediaries inform them of any charges made, to customers, in connection with the provision of a credit agreement. The Commission would expect that any fees payable, to the credit broker, are clearly set out in any contractual agreement between the credit provider and the credit broker. Guidance For the avoidance of doubt, a person acquiring a block of business for which a licence is required will require a licence or exemption under the Law.

3.7 Promotion and Advertising
Application and responsibility
(1) Rule 3.7 applies to all promotional material and advertising regardless of how it is published and includes information published online, via electronic media and on social media. (2) Rule 3.7 applies to any promotion of, or on behalf of, the licensee by social media influencers, paid or otherwise. (3) The licensee is, at all times, responsible for all financial promotions and advertisements, that relate to their products and services, whether published or issued directly by the licensee or by others. Issue of materials (1) The licensee must ensure that any materials issued – (a) are clearly identifiable as advertisements; (b) are clear, fair, and not misleading; (c) do not contain any statement, promise, or forecast which is untrue; (d) are not designed in such a way as to distort or conceal any relevant subject material; (e) do not employ phrases such as “tax-free” or “tax-paid” without making it clear which taxes are being referred to; (f) do not contain information about past performance unless it contains a warning that past performance is not necessarily a guide to future performance; and

(g) are not likely to be misunderstood.
(2) A licensee must take all reasonable steps to ensure that advertisements and communications do not violate the laws of the Bailiwick of Guernsey and, if advertising outside the Bailiwick, the legislation in force in that jurisdiction. (3) The regulatory status of the licensee is to be included in all communications, in relation to regulated activities, and it is not to be used in a way which is misleading. (4) A licensee should not signify in any way that an advertisement or promotional material is approved by the Commission. Specific requirements of Part II Licensees (1) If an advertisement or promotion includes the cost of credit, or indicative repayment values, it must include total cost of credit and the structure and value of all repayments. (2) If a licensee includes indicative interest rates in an advertisement or promotion it must be an APR calculated in accordance with Schedule 3. (3) Where an indicative or example APR is used, there must be an accompanying example and explanation showing that the actual rate may be different. (4) Any indicative rates used must be available to customers and fairly represent an APR that is readily obtainable. Guidance Licensee should have regard to the UK Code of Non-broadcast Advertising and Direct and Promotional Marketing (the “CAP Code”), as issued by the Advertising Standards Authority.

Virtual asset advertisements
(1) A person intending to advertise virtual assets or virtual asset services in the Bailiwick, who does not hold a Part III VASP licence, must obtain prior written approval from the Commission, and must abide by any conditions set out in that approval. Guidance Guidance for Part II Licensees In order to ensure that they treat customers fairly, licensees should follow the principle that promotions and advertising should be fair, transparent, and honest. They should include sufficient information for customers to understand the cost of credit provided, and to make clear the likely total cost of credit for a customer who takes up the credit arrangements on offer.

PRUDENTIAL
4.1 Insurance
Application and general requirements
(1) This rule only applies to home finance brokers and lenders.
(2) In addition to requirements under the minimum criteria for licensing, a licensee must always maintain insurance cover which is commensurate with the size and nature of its business activities. Cover must include professional indemnity insurance (“PII”) and insurance against employee dishonesty or fraud. Minimum requirement (1) A licensee must maintain the minimum cover as set out in (2). The board is responsible for ensuring that the insurance arrangements for the licensee are adequate. Where the licensee concludes that the amount of insurance required, for the size and nature of the business, is greater than the maximum amount set out in (2)(b) then the amount of cover the licensee is required to maintain is the higher amount. (2) Subject to (3), every licensee must maintain professional indemnity insurance, and employee dishonesty or fraud insurance, with the following minimum limits – (a) on the basis of each and every loss, cover of at least £1,000,000; and (b) on an annual basis, £1,000,000, or three times income from regulated activities, whichever is greater.

(3) Where the licensee also carries out unregulated activities, the licensee must consider whether the minimum indemnity limit of its insurance policies, and the scope of the insurance cover, are appropriate and sufficient for its business as a whole, taking into account possible claims that may also arise from the unregulated business. (4) Notwithstanding (3), a licensee is not required to have aggregate insurance cover exceeding £10,000,000, provided that the board of the licensee has considered and decided that such level of cover is appropriate and sufficient for its business. The licensee must be able to evidence the board’s assessment if requested by the Commission. (5) A licensee must always maintain cover for – (a) negligence, errors, or omissions by the licensee or its employees; (b) any liability for the dishonest or fraudulent acts of employees which may fall on licensees; (c) liabilities of its employees who, in the course of their duties to the licensee, perform functions in their own names; (d) liabilities which the licensee might incur, in any jurisdiction, in which it should reasonably foresee that it may be held liable for damages and costs; (e) where relevant, ombudsman awards; and (f) legal defence costs. (6) This rule applies to all licensees from the date on which the licence was issued by the Commission.

4.2 Financial resources
Application
(1) This Rule does not apply to licensees who hold a licence issued under – (a) The Banking Supervision (Bailiwick of Guernsey) Law, 2020; or (b) The Insurance Business (Bailiwick of Guernsey) Law, 2002 unless those licensees also hold a Part III VASP licence under the Law. Requirements (1) Subject to (2), licensees must ensure that – (a) sufficient liquid assets are always held in reserve in order to allow for an orderly wind-down over a three-month period; (b) the level of these assets is monitored and checked, at a minimum, on a quarterly basis; and (c) the Commission is notified, immediately, where it is found that there are no longer sufficient assets to comply with this rule and the steps which are being taken to rectify this. (2) Liquid assets of a licensee are calculated as the sum of – (a) current assets after the deduction of any illiquid assets; (b) deduction of current liabilities; and (c) adjustments to allow for qualifying items.

(3) VASPs must meet the individual requirements set by the Commission. Guidance Note:
Illiquid Assets
Examples of current assets which are considered illiquid are included in the list below. The list is not exhaustive and therefore a licensee must exercise appropriate judgement when making the adjustment to ensure that assets which could be considered illiquid within a 90- day period are excluded in order to achieve the objective of the liquidity requirements.

Debtors which exceed 90 days from the invoice date.
Work In Progress which is not receivable within 90 days of the date of the calculation.
Any prepayments which relate to goods or services to be received or performed after
90 days of the date of the calculation.
Restricted cash and restricted cash equivalents.
Amounts due from related parties.
5.1 All amounts due from related parties are considered illiquid unless they are
in the normal course of business and the outstanding balances are settled within 90 days. A loan to a related party is not typically considered liquid, even if it could be recovered within 90 days, as this would not be in the normal course of business; and
5.2 Amounts due from related parties cannot be netted-off against amounts due
to related parties unless there is a legally enforceable netting agreement in place.
Any other items permitted by the Commission.
Qualifying Items
The following list contains items which may be used to adjust the liquid assets when calculating the liquidity requirement.
Deferred income – Where a licensee has received income which is billed in advance
of it providing the services.
Any other items permitted by the Commission.

COOPERATION WITH THE COMMISSION
5.1 General provision
(1) A licensee must deal openly and cooperate with the Commission and any other regulatory authorities to whose supervision they are subject.
5.2 Notification by a licensee
(1) A licensee must notify the Commission in writing as soon as is practicable but, in any case, within 14 days of becoming aware of any of the following – (a) any significant changes to the information submitted as part of an application for a licence; (b) any matter that might reasonably be expected to affect its ability to – (i) fulfil the minimum criteria for licensing; (ii) undertake its regulated activities; or (iii) comply with the Rules; (c) the refusal to grant any application made, either by the licensee, or any holding company, or subsidiary, for authorisation to carry on any financial services business in any jurisdiction; (d) the revocation, or the attachment of any condition, restriction, or variation to an authorisation for the licensee, its holding company, or subsidiary, to carry on any financial services business in any jurisdiction;

(e) the commencement of proceedings against a licensee, its holding company, or subsidiary, in any jurisdiction; (f) the appointment of anyone acting under any regulatory authority to investigate the affairs of the licensee, its holding company, or subsidiary; (g) the imposition of disciplinary measures, or sanctions, against the licensee, its holding company, or subsidiary, by any regulatory authority; (h) the conviction of the licensee, its holding company, or subsidiary, or any personnel, of any offence, under any jurisdiction, relating to financial services, companies, or insolvency laws where such offences involve fraud, dishonesty, money laundering, or tax evasion; (i) with regard to outsourcing – (i) any significant outsourcing arrangements entered into; (ii) any material changes to significant outsourcing arrangements; and (iii) where there is a failure of an outsourced service provider, or other breakdown in the provision of outsourced services, which causes significant disruption to the licensee’s business; (j) with regard to PII – (i) when a notification under a PII policy is made to its insurer; or (ii) if there is any payment made, by the insurers, under the PII cover;

(k) with regard to complaints –
(i) of any significant complaint made against the licensee; (ii) when the licensee has been unable to resolve a complaint within three months of the date of the initial receipt of the complaint; or (iii) when a complaint is upheld by the CIFO; (l) the imposition of a sanction against the licensee following a breach determination by the Data Protection Authority; and (m) a winding up event, as defined in the Enforcement Powers Law, in respect of licensees, their holding companies, or their subsidiaries. (2) Notifications made under subrules 5.2(1)-(m), relating directly to the licensee, must be followed by a cessation of business plan setting out arrangements that the licensee proposes to put in place in relation to its customers.

CONSUMER PROTECTION AND UNFAIR AGREEMENT
TERMS
6.1 Application
(1) Part 6 applies to all regulated agreements between customers and credit providers and all agreements to provide ancillary services in connection with regulated agreements.
6.2 Unfair agreement terms
(1) A term, within an agreement covered by this Part, will be unfair if, contrary to the requirements of good faith, it causes significant imbalance in the parties’ rights and obligations, to the detriment of the customer. (2) The following terms will be considered unfair and must not be used in agreements covered by this Part: – (a) terms which exclude or restrict a business’ liability arising from a breach of customer rights provided by law; (b) terms which relieve a business from providing services with reasonable skill and care; and (c) terms that the Commission deems to be unfair. (3) Where an agreement, covered by this Part, includes any terms which would be considered to be unfair under subsection 2, then those clauses, containing the unfair terms, will be unenforceable. (4) Licensees must not enforce unfair terms.

(5) Customers must be provided with redress in cases where unfair terms have been enforced and must be returned to the position they would have been in had the unfair terms been voided. (6) The Commission retains discretion as to which terms it deems to be unfair. Terms which, in most circumstances, would be considered unfair are set out at Schedule 4.

Guidance
In considering unfair contract terms, the Commission will apply tests of fairness and transparency. Fairness Test This takes account of the subject matter of the agreement, all the circumstances existing when the term was agreed, and all the other terms of the agreement or any other relevant agreement. The test is concerned with the effect that the terms can have and not just the intentions behind them. There are three elements to the Fairness Test: Significant Imbalance, Customer Detriment, and Good Faith.

Significant Imbalance – is concerned with the parties’ rights and
obligations under the agreement. A term is unfair if it is so weighted in favour of the business that it tilts the rights and obligations significantly in its favour (for instance, by imposing a disadvantageous burden on the customer). This is not restricted to cases in which a purely financial burden, or cost, is imposed on the customer; the focus should be upon the customer’s legal rights and obligations generally. A contract may be considered balanced if both parties enjoy rights of equal extent and value, taking into account the nature of the agreement.
Customer Detriment – A finding of unfairness does not require proof that
a term has already caused actual harm. The fairness assessment is concerned with rights and duties and its focus is on potential, not actual, outcomes.
Good Faith – relates to the substance of terms as well as the way they are
expressed. It is based on the general principle of ‘fair and open dealing’, where terms are expressed fully, clearly, and legibly, and with due respect for the customer’s interests. Transparency This assessment relates to how an agreement is expressed. Agreements, made with customers, should be expressed in plain, understandable language, and be legible. Licensees should aim to put customers into a position where they can make a balanced and informed decision whether or not to enter into an agreement.

PART II LICENCES
7.1 Requirement for multiple licences
(1) Subject to the provisions in subsection (2), holders of licences under any of the regulatory Laws who also carry on activities regulated under Part II of the Law must hold a Part II Licence. (2) Holders of licences, under Part II of the Law, are not required to hold Part III FFB licences.
7.2 General Obligations
(1) All Part II Licence holders must fulfil the minimum criteria for licensing as set out at Schedule 4 to the Law. (2) All Part II Licence holders must treat their customers fairly and follow the Principles of Conduct of Finance Business, as set out at Schedule 1.
7.3 Equivalence
(1) Any business regulated in another jurisdiction, to undertake activities which would, if they were undertaken in the Bailiwick, require a Part II Licence to be held, will be exempt from the requirement to hold a Part II Licence where the business – (a) is regulated in a jurisdiction set out in The Lending, Credit and Finance (Designated Jurisdiction and Fees) Regulations, 2023, for those relevant activities; and (b) has notified the Commission that it intends to carry out regulated activities within the Bailiwick.

7.4 Applications and regulated activities
(1) Applications for licences must specify the regulated activities which the applicant intends to engage in. (2) Licensees must not engage in any regulated activities outside of those declared on the original licence application without the prior, written, approval of the Commission.
7.5 Appointed retailers and appointed motor traders
(1) Appointed retailers and appointed motor traders must be subject to a formal, written, contract of engagement between the licensee and the appointed retailer or appointed motor trader. (2) The conduct of the appointed retailer or appointed motor trader is the responsibility of the licensee, and the licensee must – (a) ensure the appointed retailer or appointed motor trader is aware of and acts in compliance with these Rules; (b) provide appropriate training, with respect to the provision of its services, to the appointed retailer or appointed motor trader and relevant employees, including, but not limited to – (i) dealing with credit applications; and

(ii) recognising vulnerable customers.
7.6 Early repayment
(1) Licensees must allow customers to make full early repayment of the principal of the credit provided under a regulated agreement. (2) The maximum early repayment fee, that licensees can charge, must be calculated in accordance with the requirements set out in Schedule 3. (3) The same limits apply where the licensee accepts a partial early repayment.
7.7 Information to customers
(1) In addition to the requirements set out at rule 3.2.1, licensees must ensure that the following information is provided to customers, in writing, before entering into a regulated agreement – (a) the interest payable, including the APR; (b) the total cost of the credit; Guidance Appointed retailers and appointed motor traders Appointed retailers and motor traders may offer and promote third party credit from a provider. Firms carrying out these activities, but not meeting the requirements for being appointed retailers or motor traders (e.g., they do not have a written agreement with a third-party lender) may be considered to be credit providers, in their own right, or providers of services ancillary to the provision of credit, and will require their own licence under Part II of the Law. While appointed retailers and motor traders are not licensed and are not directly accountable for compliance with the Rules, in respect of any regulated activity carried on by a third-party lender, the Commission may wish to visit them to understand how responsibilities are managed by the licensed credit provider.

(c) the repayment schedule, including the value and timing of all repayments; (d) details of the cooling-off period or period of reflection; and (e) the arrangements for early repayment, including any fees or charges for early repayment.
7.8 Cooling-off period
Application
(1) This Rule does not apply to customers who are classified as High Net Worth Individuals. Regulated agreements, excluding home finance agreements (1) For regulated agreements which are not home finance agreements, licensees must allow customers a cooling-off period of no less than two weeks from the date on which the agreement is entered into. (2) During the cooling-off period licensees must allow customers to cancel the regulated agreement, subject to the customer returning any credit provided, or, if the customer has already received goods or services as part of the regulated agreement, repaying the outstanding principle. (3) Licensees must allow customers a reasonable amount of time to return any credit provided or to repay any outstanding principle. (4) Licensees must not impose additional charges or fees when the customer decides to cancel the regulated agreement before the loan is drawn down or any goods, or services, are provided. (5) Any fee charged in relation to the cancellation of a regulated agreement, during the cooling-off period, must be based on the costs to the licensee and not a percentage of the value of credit.

Home finance agreements
(1) For home finance agreements, licensees must allow customers a period of reflection of not less than seven days from the date the licensee makes a final and unconditional offer of credit. (2) During the period of reflection licensees must not withdraw or amend the offer. (3) During the period of reflection licensees must not actively pursue or pressure the customer into accepting the offer of credit. (4) When a property transaction, associated with a home finance agreement, does not proceed, licensees must allow the customer to return any drawn down funds and cancel the agreement. In these circumstances, the licensee must not charge any additional fees.
7.9 Maximum cost of credit
(1) For regulated agreements that are not home finance agreements, the total cost of credit must not exceed 100% of the principal value of the credit provided.
7.10 Treatment of surplus following default
(1) When a licensee takes possession of assets provided as security, as a result of a borrower defaulting on their obligations under a regulated agreement, whether via saisie proceedings or otherwise, any surplus realised from the sale of those assets must be returned to the borrower. (2) When a licensee sells assets, as a result of a default on a regulated agreement, they must do so on an arms-length basis and take reasonable steps to realise a market value for those assets.

(3) In this rule, “surplus” refers to the amount left over, from the sale of the assets, following the settlement of the amount outstanding on the regulated agreement and the licensee’s reasonable expenses generated in the course of realising the security assets and any other amount payable by the licensee to other creditors of the borrower in accordance with the saisie process.
7.11 Appointed Service Providers
(1) When a licensee is an Appointed Service Provider (“ASP”), to an exempt private lender, they must – (a) have a written agreement in place for each private lender they represent; (b) ensure that each private lender complies with – (i) all rules relating to regulated agreements; (ii) the Handbook; and (iii) any conditions, on the exemption, issued by the Commission; (c) report, to the Commission on an annual basis, on the activities of the private lenders they represent; and (d) notify the Commission of any significant changes in circumstances of the private lenders they represent.
7.12 Restrictions on further credit
(1) Licensees must not restrict customers from taking further loans with other credit providers.

PROVISION OF ANCILLARY SERVICES UNDER PART II
LICENCES
8.1 General obligations
(1) All ancillary service providers must fulfil the minimum criteria for licensing set out at Schedule 4 of the Law. (2) All ancillary services providers must treat their customers fairly and follow the Principles of Conduct of Finance Business set out at Schedule 1. (3) Ancillary service providers must disclose any links they have with specific lenders to the customer. (4) Where a licensee is both a provider of ancillary services and a credit provider it must make clear, to each customer, the capacity in which it is acting with respect to that customers credit arrangements.
8.2 Provision of advice
(1) Ancillary service providers must have due regard for the circumstances of the customer when providing information or offering advice on credit agreements, re-negotiations on such agreements, and debt administration. Guidance These general obligations apply irrespective of whether firms charge customers for their services directly or are remunerated by the lender through commission or any other arrangement. Links which must be disclosed to the customer include, for example, where the service provider is part of the same group as the credit provider or has exclusive or preferential arrangements in place with the credit provider.

(2) Where an ancillary service provider searches the market for suitable credit services, on behalf of a customer, it must disclose the extent of this search to the customer. (3) An ancillary service provider which arranges credit with a limited number of credit providers must disclose the extent of this limitation to the customer and provide a list of the firms which it utilises.
8.3 Debt administration
(1) A Part II Licence must be held where debt administration activities have an effect on the terms and conditions of credit provision. (2) Debt administrators, requiring a Part II Licence, must follow the rules which apply to the provision of regulated agreements. (3) Debt administrators, providing the restructuring of home finance, must hold relevant qualifications in accordance with rule 2.14. Guidance Having due regard to the customers circumstances includes, but is not limited to, whether the product is affordable for the customer and whether there are any factors which the licensee knows, or reasonably ought to know, would make the product unsuitable for the customer. Where an ancillary services provider uses a preferred list of credit providers, this list should be disclosed to the customer. Providers should not purport to offer the best available products, or to search the market, when they do not do so. This may deter the customer from shopping around themselves and, potentially, identifying more suitable or better value products.

Guidance
Debt administration is a broad term and debt administration activities may be carried out by various ancillary service providers, as well as specialist debt counselling and debt administration service providers. As a guide, it often involves the renegotiation, or replacement, of existing credit agreements with new, or consolidated, arrangements. Examples of relevant effects on the terms and conditions of credit provision include, but are not limited to, restructuring, or extending debt payments. Charities providing debt advice and counselling services do not require a Part II licence.

PART III FINANCIAL FIRM BUSINESS LICENCES
9.1 Requirement for multiple licences
(1) Holders of licences, under any of the Regulatory Laws, are not required to hold Part III Financial Firm Business (“FFB”) Licences but must comply with the relevant rules in respect of any FFB activities.

PART III VASP LICENCES
10.1 Requirements for multiple licences
(1) Holders of licences, issued under any of the Regulatory Laws, who carry on activities regulated under Part III VASPs, must hold a Part III VASP Licence.
10.2 Applications and regulated activities
(1) Part III VASP licensees are only permitted to provide VASP services to institutional and wholesale counterparties. (2) Part III VASP licensees are prohibited from dealing in, trading in, or offering – (a) virtual assets, or virtual asset services, which aim to obscure the parties to the transaction; or (b) virtual assets, or virtual asset services, which aim to obscure the flow of the assets. Guidance While Part III VASP licensees may not deal directly with individuals, they may provide products and services that are intended for use by individuals, on the condition that such products and services are provided through a properly regulated intermediary.
Part III VASP licensees will be required to seek the Commission’s written ‘no
objection’ before appointing an intermediary to distribute their products or services.
Part III VASPs must not offer products or services that are targeted at retail
customers, even through an intermediary.

(3) Applications for licences must specify the VASP activities which the applicant intends to engage in. (4) Licensees must not engage in any VASP activities not specified on the original licence application, without the prior, written, approval of the Commission. (5) Part III VASP Licensees must only undertake the regulated activities permitted in accordance with their licence. Guidance Definition of virtual assets and virtual asset service providers The Law defines virtual assets and the activities that constitute being a virtual asset service provider when offered, or carried out, by way of business. These definitions should be interpreted broadly. The definition of ‘virtual assets’ (“VAs”) states that it does not include – “…digital representations of – (a) fiat currencies, or (b) general securities and derivatives within the meaning of category 2 in Schedule 1 to the Protection of Investors Law and other financial assets.” Digital representations of fiat currency and general securities or derivatives is intended to cover digital records of ownership, such as bank accounts in digital form and digital security registers. Under this definition, central bank digital currencies would not be VAs. However, stablecoins and VA securitisations of real assets are not digital records of ownership and so are likely to be VAs. If in doubt, please contact the Commission. The Law defines VASP activities as follows – “(a) exchange between virtual assets and fiat currencies, (b) exchange between one or more forms of virtual asset, (c) transfer of virtual assets, (d) safe-keeping and/or administration of virtual assets or instruments enabling control over virtual assets,

Guidance – continued
(e) participation in and provision of financial services relating to an issuer’s offer and/or sale of a virtual asset (including, without limitation and by way of example, an initial coin offering), whether by the issuer of the asset or a service provider affiliated or unaffiliated with the issuer in respect of the issue, offer, sale, distribution, ongoing market circulation and trading of the asset (including book-building, underwriting and market making),…” These activities should also be interpreted broadly and generally in line with the definitions within the FATF Standards and Recommendations. Activity (a) of the definition of a VASP refers to any activity in which VAs can be given in exchange for fiat currency or vice versa. If parties can pay for VAs using fiat currency, or can pay using VAs for fiat currency, carrying out this activity when acting by way of business is acting as a VASP. Similarly, in activity (b), if parties can use one kind of VA as means of exchange or form of payment for another VA, carrying out this activity, when acting by way of business, is acting as a VASP. It should be emphasised that activities (a) and (b) include the above activities regardless of the role the business plays vis-à-vis its users as a principal, as a central counterparty for clearing or settling transactions, as an executing facility, or as an intermediary facilitating the transaction. A person does not have to carry out every element of the exchange or transfer in order to qualify as a VASP, so long as it conducts the exchange activity by way of business. Activity (c) of the definition of a VASP covers any activity that transfers ownership, or control, of a VA to another user, or transfers VAs between VA addresses or accounts held by the same user. “Transfer” includes moving a virtual asset from one virtual asset address or account to another. To help illustrate what this covers in practice, it is useful to consider the nature of the VA following a purported transfer. If a new party has custody or ownership of the VA, has the ability to pass control of the VA to others, or has the ability to benefit from its use, then transfer is likely to have occurred. This control does not necessarily have to be unilateral and multi-signature processes are not inherently excluded. Similarly, if a person maintains unilateral control of their assets at all times, this may indicate that “transfer” has not occurred. However, it could still fall under activity where it actively facilitates the transfer. This also includes transfers between and among users of the same VASP, including where a VASP uses an off-chain internal recordkeeping system, and the VA remains in the same on-chain omnibus wallet or account.

Guidance – continued
As noted in the definition, activity (e) includes activities related to Initial Coin Offerings (“ICOs”) in particular, participation in an issuer’s offer, or sale of, VAs and the provision of financial services in relation to the same. For the avoidance of doubt, financial services include activity such as promoting the issue or sale of virtual assets. For clarity, the sole act of issuing a VA, entirely on its own, is not a VASP activity. However, any person who carries out activities of transfer or exchange, by way of business, in relation to that VA would be a VASP. The discrete act of creating VA software to issue a VA does not make the creator a VASP, unless the creator also performs the VASP activities mentioned in the definition by way of business. When considering whether a potential licensee is carrying out VASP activities, the Commission will take a functional approach by focussing on the real and economic effect of a potential licensee’s business model and activities – and less on terminology or legal structure. For example, outsourcing the carrying out of an activity to a group company, or third party, would not remove the need for a licence. However, providing services to a VASP, such as IT support services, cloud services, and administration services would not require a Part III VASP licence (if the service provider does not itself carry out any of the VASP activities). In most cases a merchant that accepts payment for goods or services in VAs, or a charity that accepts donations in VAs, would not be carrying out a VASP activity, as this is generally done by using an intermediary that converts the virtual assets into fiat currency. However, the firm that facilitates the payment between the purchaser and the merchant is likely to be carrying out VASP activities. Businesses and charities that accept virtual assets should take care that they are not used as a means to exchange VAs into fiat currency by, for example, bad actors making multiple purchases or transactions, in VAs, then requesting refunds in fiat currency. For the avoidance of doubt, VAs do not include –

a transaction in which a person grants value as part of a store or gift card,
affinity or rewards programme, where said value cannot be taken from or exchanged with the person for legal tender, bank credit, or any digital asset; or
a digital representation of value issued by or on behalf a publisher of games
and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform. The above bullet points should be read as a general description and guide, not a strict definition as there may well be a number of “on the edge” cases. If in doubt, firms should contact the Commission.

10.3 Environmental declaration
(1) Part III VASP Licensees must publish information, annually, about the environmental impact of the consensus mechanisms of each virtual asset (“VA”) with which they deal; the environmental declaration. (2) Where a consensus mechanism requires the material consumption of resources, such as electrical or computational power, the environmental declaration relating to that VA must include – (a) the carbon emissions and energy consumption of all VA transactions carried out by, or on behalf of, the licensee; Guidance – continued Application and licensing process The Commission intends to use its Soundbox approach when considering potential
Part III VASP licensees. As part of this process, when the Commission initially
grants a licence to a VASP applicant it will, in most cases, have a limited duration and may be subject to a number of conditions. These conditions may include, without limitation –

restrictions on the volume of business the firm can carry out;
restrictions on the kinds of business the firm can carry out;
more frequent reporting requirements; and
additional capital and liquidity requirements.
Following completion of the initial period of licensing, the Commission will decide whether to renew or extend the licence, how long for, and whether to amend any of the restrictions. Given the diverse nature of potential VASP business models and activities the Commission may set additional requirements based on the business model and risk profile of potential licensees. Capital and conduct requirements for a virtual asset exchange are likely to be different to those for a virtual asset custodian, for example.

(b) indirect carbon emissions generated by VA transactions carried out by, or on behalf of, the licensee; and (c) information regarding the method of calculation and the source of data used in the calculation. (3) The declaration must include gross emissions as well as mitigated emissions. (4) The licensee must ensure that, where estimations are used, this is noted and that they are prudent. (5) The period covered by the declaration must be the licensee’s financial year. (6) Annual environmental disclosures must remain readily accessible to the public and, where the licensee chooses to meet its disclosure requirements by publishing information on its website, the location must be clear and easily accessible to the public. Guidance All disclosures should remain published and accessible. Licensees can make use of publicly available data and sources when calculating their emission and energy consumption but should consider the reliability of such sources and whether any assumptions are prudent and not overly optimistic. If data for part of the calculation is not available, licensees should work on a bestefforts basis, while assuring any assumptions they make are prudent. Indirect carbon emissions generated by VA transactions include, but are not limited to, emissions from the production of e-waste. Examples of consensus mechanisms that consume resources include Proof of Work, which wastes computational power and electricity, and Proof of Space, which wastes storage space on electronic data storage systems (such as hard drives). The environmental declaration includes Scope 1, 2 and 3 emissions, as set out by the Task Force on Climate-related Financial Disclosures.

10.4 Safekeeping of customer virtual assets
(1) A Part III VASP Licensee which has custody of a customer’s virtual assets must – (a) keep safe, or arrange for the safekeeping by an eligible custodian, of – (i) any documents of title; (ii) cryptographic keys; or (iii) any other means of control, either over the customer’s virtual assets or relating to them; (b) ensure that virtual assets, bought or held for a customer in the course of conducting its VASP business, are properly recorded in the customer’s name or, with the customer’s consent, in the name of an eligible custodian or nominee with the addition, where appropriate, of an account designation name, or number, which is unique to the customer; (c) ensure that customer entitlements, to virtual assets, are identifiable from those in the beneficial ownership of the licensee, and any other customer of the licensee; (d) not use a customer’s virtual assets for its own account unless it has obtained that customer’s explicit, prior, written consent; (e) where the licensee holds customers virtual assets with a nominee of the licensee, accept responsibility for the acts or omissions of that nominee; (f) not lend, or arrange the lending, of a customer’s virtual assets to a third party, unless –

(i) the customer has consented, in writing, and the loan is subject to appropriate documented terms and conditions specific to the agreement with that customer; (ii) where customers virtual assets belonging to more than one customer are registered in the same name, each customer whose virtual assets are so registered has consented, in writing, to the lending of customer virtual assets registered in that name and each customer’s entitlement is clearly ascertained; (iii) adequate collateral is obtained and maintained for the duration of the loan, in accordance with any written instructions given by the customer; and (iv) the licensee arranges for all income, inclusive of dividends, fees, or commissions; other than any fees payable to the licensee for arranging the loan; either to be paid to the customer direct or to be received, by the licensee, on the customer’s account and treated as customer money unless the customer instructs otherwise. Guidance Licensees should avoid co-mingling virtual assets bought or held for a customer with virtual assets in the beneficiary ownership of the licensee.

PART IV LICENCES
11.1 Requirement for multiple licences
(1) Holders of licences, issued under any of the Regulatory Laws, who carry on activities regulated under Part IV of the Law must also hold a Part IV Licence.
11.2 Applications and regulated activities
(1) Applications for licences must specify the regulated activities which the applicant intends to engage in. (2) Licensees must not engage in any regulated activities, outside of those declared on the original licence application, without the prior, written, approval of the Commission.
11.3 General Obligations
(1) Where a Part IV Licensee enters into a regulated agreement with a customer, via their platform, they must ensure that all the rules pertaining to regulated agreements are followed by the lender. (2) Part IV Licensees must treat all users of the platform as customers. Guidance NOTE: Where a Part IV Licensee carries out any of the activities requiring a licence under Part II or Part III of the Law, they must hold a Part II or Part III licence as appropriate.

11.4 Customer limits
(1) A licensee must not allow a customer to lend, invest, or otherwise provide more than 15% of the customer’s net assets via transactions on the licensee’s platform, whether as a single transaction or a combination of transactions. (2) Net assets must not include – (a) property which is the customer’s primary residence; (b) existing finance where the customer’s primary residence has been put up as security against the loan; (c) any customer rights held under a qualifying contract of insurance; (d) any benefits, in the form of pensions or otherwise, which are payable on the termination of the customer’s service, or on their death or retirement, and to which they, or their dependants are, or may be, entitled to; (e) unless an investment is made jointly and severally by all parties, any funds the customer does not hold absolute title in; (f) funds held, in security, by another financial institution; and (g) funds, or assets, that have a charge, bond, or other form of security registered against them.

11.5 Information for customers
(1) Part IV Licensees must ensure that all information provided to customers is clear, fair, and not misleading. (2) At a minimum, licensees must provide the following information and documents to a customer before they enter into a transaction - (a) who the parties to the transaction are; (b) the terms of the transaction including, but not limited to, - (i) its duration; (ii) all amounts payable by the customer and the timing of these payments; (iii) any return payments due to the customer and the timings of these return payments; (iv) how any amounts set out are calculated; (v) the obligations of the customer; and (vi) any rights granted to the customer; Guidance A licensee would be expected, where necessary, to collect sufficient information from their customers to be able to calculate that customer’s net assets.
Part IV Licensees may rely on self-certification, from customers, setting out their
net assets.

(c) all income and revenue to be received, by the licensee or any associated party of the licensee, along with the basis of their calculation; (d) a clear explanation of the risks of the transaction, and a customer agreement in accordance with rule 3.2.2. (3) A licensee must, after a transaction has been carried out on behalf of a customer, provide the customer with a statement relating to that transaction. This statement must include - (a) the name and address of the licensee; (b) the customer’s name and account number; (c) the date of the transaction; (d) the final terms of the transaction, including the information set out in (2)(b); and (e) any other relevant matters in relation to the transaction. Guidance Information on any rights granted to the customer would include, for example, any equity or security granted over assets. Obligations of the customer would include, for example, any rights granted to others or any security, or charge, granted over the assets. A clear explanation of the risks could include, but is not limited to –

The fact that some, or all, of the customer’s capital is at risk;
That any assets used as security could be lost;
The extent and value of any protections or guarantees that the platform
operator provides.
Documents which have been provided by electronic means will fulfil the requirements of this rule.

GENERAL PROVISION
12.1 Interpretation
(1) Terms have their ordinary meaning unless specifically defined in the Law or in these Rules. (2) The following definitions should be followed - “ancillary service providers” refers to Part II licence holders specifically licensed to provide such services; “appointed retailer” refers to a provider of services ancillary to the provision of credit who offers credit for the purchase of goods or services, via a third party licensed credit provider, whilst acting as an agent of that third party under a written agreement; “appointed motor trader” refers to a provider of services ancillary to the provision of credit who offers credit for the purchase of motor vehicles, via a third party licensed credit provider, whilst acting as an agent of that third party under a written agreement; “Appointed Service Provider” means a Part II licensee that is appointed, by an exempt private lender, and is responsible for ensuring that the relevant rules and Anti-Money Laundering/Countering the Financing of Terrorism requirements are met by the private lender; “approved bank” means a person who is licensed under The Banking Supervision (Bailiwick of Guernsey) Law, 2020, or is registered under The Banking Business (Jersey) Law, 1991, or authorised under the Isle of Man Financial Services Act 2008, or is authorised to carry on a banking or deposit-taking business under the law of the UK, of any EU member state, or under the law of any country or territory which may be listed in notices issued by the Commission; “Approved Qualification”, in relation to those providing advice to customers relating to home finance and lending against an individual’s home, are those agreed by the Commission and listed, as Approved Qualifications, on the Commission’s website; “board” has the meaning given to it in the Companies (Guernsey) Law, 2008 or, in the case of an unincorporated entity, the committee or managing board of a partnership or other similar governing body;

“block of business” means business that increases the receiving licensee’s, or reduces the transferring licensee’s, income by 15% or more; such figure being calculated using the last audited accounts of that licensee; “complaint” means any oral or written expression of dissatisfaction, whether justified or not, for or on behalf of a person about the provision of, or failure to provide, a financial service which alleges that the complainant has suffered (or may suffer) financial loss, material distress, or material inconvenience; “consumer credit” refers to regulated agreements that meet the definition of subsection 6(1)(a) of the Law; “customer money” is money, in any currency, which a licensee holds for, receives from, or owes to a customer, in the course of carrying out regulated activities; “exempt private lender” means an individual, or firm, that holds a discretionary exemption, issued by the Commission, from requiring a licence under Part II of the Law, subject to meeting a number of conditions including, but not limited to – (a) only making a limited number of loans per year, (b) maintaining a loan portfolio below a specified value, (c) complying with the Commission’s rules regarding their lending, and (d) appointing an ASP; “High Net Worth Individual (“HNWI”), means an individual who agrees to be treated as a High Net Worth Individual, and - Guidance Customer money – A licensee holds or receives money where either that money is not immediately due and payable on demand to the licensee for its own account, or, although due and payable, is held or received in respect of any obligation of the licensee which has not yet been performed. A licensee owes money where it is due and payable to the customer.

(a) in relation to consumer credit agreements, an individual with net income greater than one hundred and fifty thousand pounds (£150,000) per annum, or net assets in excess of five hundred thousand pounds (£500,000), and (b) in relation to home finance agreements, an individual with net income greater than three hundred thousand pounds (£300,000) per annum, or net assets in excess of three million pounds (£3,000,000), where net assets must not include the individual’s primary residence, or any loan secured on it, or the benefits of a pension, or lump sum payable, on retirement or the termination of service of the individual concerned; “home finance agreement” refers to regulated agreements that meet the definition of subsection 6(1)(b) of the Law; “interest rate” refers to an interest rate expressed as a fixed or variable percentage applied on an annual basis to the amount of credit which has been drawn down; “open-ended credit agreement” is a credit agreement of no fixed duration and includes credits which must be repaid in full within or after a period but, once repaid, become available to be drawn down again; “principal” the principal value of credit, advanced to a customer, is the amount loaned excluding any interest, fees or other charges; “regulated activities” are those activities, requiring a licence, as set out in sections 2, 16, 17 and 26 of the Law; “significant complaint” means a complaint alleging a breach of the Law, bad faith, malpractice, impropriety, or repetition or recurrence of a matter previously complained of, whether significant or otherwise; and “Virtual asset exchange” means a market for the buying and selling of any of the following – (a) virtual assets, (b) instruments entitling their holders to subscribe for, or certificates representing property rights in, virtual assets, (c) contracts for virtual assets futures or contracts for differences referencing virtual assets, or (d) options to acquire or dispose of, or other rights or interest in, (a), (b) or (c) in this definition, or the carrying on of other activities in respect of virtual assets that, in the opinion of the Commission, are those of an exchange.

CITATION AND COMMENCEMENT
13.1 Citation and commencement
(1) These Rules may be cited as the Lending, Credit and Finance Rules 2023. (2) These Rules come into force on 1 st February 2023. Guidance The Rules come into force on the 1st of February 2023 to allow the Commission to establish the framework for the regime. The requirement to hold a licence, and subsequently be subject to the requirements set out in these Rules, will come into effect on 1st July 2023.

SCHEDULE 1
The Principles of Conduct of Finance Business

Integrity
A licensee should observe high standards of integrity and fair dealing in the conduct of its business.
Skill, Care, and Diligence
A licensee should act with due skill, care, and diligence towards its customers and counterparties.
Conflicts of Interest
A licensee should either avoid any conflict of interest arising or, where a conflict arises, should ensure fair treatment to all its customers by disclosure, internal rules of confidentiality, declining to act, or otherwise. A licensee should not unfairly place its interests above those of its customers and, where a properly informed customer would reasonably expect that the business would place their interests above its own, the business should live up to that expectation.
Information about Customers
A licensee should seek from customers it advises, or for whom it exercises discretion, any information about their circumstances and investment objectives which might reasonably be expected to be relevant in enabling it to fulfil its responsibilities to them.
Information for Customers
A licensee should take reasonable steps to give a customer it advises, in a comprehensible and timely way, any information needed to enable them to make a balanced and informed decision. A licensee should similarly be ready to provide a customer with a full and fair account of the fulfilment of its responsibilities to them.
Customer assets
Where a licensee has control of, or is otherwise responsible for, assets belonging to a customer which it is required to safeguard, it should arrange proper protection for them, by way of

segregation and identification of those assets or otherwise, in accordance with the responsibility it has accepted.
7. Market Practice
A licensee should observe high standards of market conduct and should also comply with any code of standard as in force and issued, or approved, by the Commission.
8. Financial Resources
A licensee should ensure that it maintains adequate financial resources to meet its regulated business commitments and to withstand the risks to which its business is subject.
9. Internal Organisation
A licensee should organise and control its internal affairs in a responsible manner, keeping proper records, and where the firm employs staff, or is responsible for the conduct of regulated business by others, should have adequate arrangements to ensure that they are suitable, adequately trained, and properly supervised, and that it has well-defined compliance procedures.
10. Relations with Guernsey Financial Services Commission
A licensee should deal with the Commission in an open and co-operative manner and keep the regulator promptly informed of anything concerning the business which it might reasonably be expected to disclose.

SCHEDULE 2
Calculation of the Annual Percentage Rates (“APR”) Assumption for calculation

For the purposes of calculating the total charge for credit and the APR for customer finance
agreements – a. it is assumed that the regulated agreement is to remain valid for the period agreed and that the credit provider and the customer will fulfil their obligations under the terms and by the dates specified in that agreement; b. in the case of a regulated agreement that allows variations in –
i. the rate of interest; or
ii. where applicable, charges contained in the APR,
where these cannot be quantified at the time of the calculation, it must be assumed that they will remain at the initial level and will be applicable for the duration of the agreement; Guidance These assumptions are intended to ensure that the total charge for credit and APR are calculated in a consistent way to enable customers to make fair comparison between different offers. The assumptions are intended to apply where they are necessary in relation to the type of agreement under consideration, for example, assumptions concerning amounts drawn down or the duration of the credit agreements where they are otherwise uncertain. In general, the total charge for credit and APR will depend on the terms specific to the regulated agreement.

c. where not all rates of interest are determined in the regulated agreement, a rate of
interest must be assumed to be fixed only for the partial periods for which the rate of interest is determined exclusively by a fixed percentage agreed when the agreement is made; d. where different rates of interest and charges are to be offered for limited periods or amounts during the regulated agreement, the rate of interest and the charge must be assumed to be at the highest level for the duration of the agreement; e. where there is a fixed rate of interest agreed in relation to an initial period, at the end which a new rate of interest is determined and subsequently, periodically, adjusted according to an agreed indicator, it must be assumed that, at the end of the period of the fixed rate of interest, the rate of interest is the same as at the time of making the calculation, based on the value of the agreed indicator at the time; f. where the regulated agreement gives the customer freedom of drawdown, the total amount of credit must be assumed to be drawn down immediately and in full; g. where the regulated agreement imposes, amongst the different ways of drawdown, a limitation with regard to the amount of credit and period of time, the amount of credit must be assumed to be the maximum amount provided for in the agreement and be drawn down on the earliest date provided for in the agreement; h. where the regulated agreement provides different ways of drawdown with different charges or rates of interest, the total amount of credit must be assumed to be drawn down at the highest charge and rate of interest applied to the most common drawdown mechanism for the credit product to which the agreement relates. The most common drawdown mechanism for a particular credit product must be assessed on the basis of the volume of transactions for that product in the preceding twelve months, or expected volumes in the case of a new credit product;
i. in the case of an overdraft facility, the total amount of credit must be assumed to
be drawn down in full and for the entire duration of the regulated agreement and, if the duration of the overdraft facility is not known, it must be assumed that the duration of the facility is three months;

j. in the case of an open-ended regulated agreement, other than an overdraft facility, it must be assumed that the credit is provided for a period of one year starting from the date of the initial drawdown, and that the final payment made, by the customer, clears the balance of the capital, interest, and any other charges where –
i. the capital is repaid, by the customer, in equal monthly payments
commencing one month after the date of initial drawdown;
ii. in cases where the capital must be repaid in full, in a single payment,
within or after each payment period, successive drawdowns and repayments of the entire capital, by the customer, must be assumed to occur over the period of one year;
iii. interest and other charges must be applied in accordance with those
drawdowns and repayments of capital and as provided for in the regulated credit agreement; k. in the case of a regulated agreement, other than an overdraft facility, or an openended regulated agreement –
i. where the date or amount of a repayment of capital, to be made by the
customer, cannot be ascertained it must be assumed that the repayment is made at the earliest date provided for, under the regulated agreement, and is for the lowest amount for which the regulated agreement provides;
ii. where it is not known on which date the regulated agreement is made,
the date of the initial drawdown must be assumed to be the date which results in the shortest interval between the date and the date of the first payment, to be made by the customer;
l. where the date or amount of a payment, to be made by a customer, cannot be
ascertained on the basis of a regulated agreement, or the assumptions set out above, it must be assumed that the payment is made in accordance with the dates and conditions required, by the credit provider, and, when these are unknown –
i. interest charges are paid together with repayments of capital; and

ii. any non-interest charge, expressed as a single sum, is paid on the
date of the making of the regulated credit agreement; m. non-interest charges, expressed as several payments, are paid at regular intervals commencing with the date of the first repayment of capital and, if the amount of such payments is not known, they must be assumed to be equal amounts; n. the final payment clears the balance of capital, interest, and other charges; o. in the case of an agreement for running-account credit, where the credit limit applicable to the credit is not yet known, that credit limit must be assumed to be £1,200.
2. The APR which equates, on an annual basis, to the total present value of drawdowns with
the total present value of repayments and payments of charges, is calculated using the following equation. ∑𝐶𝑘(1 + 𝑋) − 𝑘 𝑡 𝑚 𝑘=1 = ∑𝐷𝑙(1 + 𝑋) −𝑆𝑙 𝑚′ 𝑙=1 Where:
X is the APR m is the number of the last drawdown k is the number of a drawdown, thus l<k<m Ck is the amount of drawdown k tk is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date of each subsequent drawdown, thus t1 = 0 m’ is the number of the last repayment or payment of charges l is the number of a repayment or payment of charges D1 is the amount of a repayment or payment of charges S1 is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date of each repayment or payment of charges

The amounts paid, by both parties at different times, shall not necessarily be equal and
shall not necessarily be paid at equal intervals.
The starting date shall be that of the first drawdown.
Intervals between dates used in the calculations shall be expressed in years or in
fractions of years.
A year is assumed to have 365 days (366 days for a leap year), 52 weeks, or 12 equal
months.
An equal month is assumed to have 30.41666 days (365/12) regardless of whether or
not it is a leap year.
The result of the calculation shall be expressed with an accuracy of at least one decimal
place; if the figure at the following decimal place is greater than or equal to 5, the figure at that decimal place is increased by one. The equation can be rewritten, as set out below, using a single sum and the concept of flows (Ak), which will be positive or negative, either paid or received during periods l to k, expressed in years. 𝑆 = ∑𝐴𝑘 𝑛 𝑘=1 (1 + 𝑋) 𝑘 −𝑡 S being the present balance of flows; if the aim is to maintain the equivalence of flows, the value will be 0

Calculation of home finance APR
3. The underlying formula for the calculation of APR, in respect of home finance calculations,
is the same as that set out at paragraph 2.
4. Underlying assumptions –
a. APR must be calculated on the assumption that the customer does not –
i. receive tax relief on their mortgage payment, other than any tax relief which
may be applicable in respect of relevant life insurance premiums in accordance with the tax rules applicable in the relevant part of the Bailiwick at the time of the agreement; and
ii. does not receive home purchase assistance or other support to buy the
property under any States of Guernsey arrangement or other scheme which may apply in the relevant part of the Bailiwick; b. the mortgage lender and customer, at all times, perform their obligations under the contract and the mortgage lender will not exercise any right to repayment at other times;
c. any variations in the interest rate, which are due to occur after a specific period of
time or are triggered by a specific event –
i. where the event is not certain to occur, and does not occur, the consequent
change in rate does not occur;
Guidance
These requirements are based on the UK Financial Conduct Authority’s rules, set out in MCOB 10.3, as at the time of its initial publication in July 2022 (based on the version dated 07/07/2022). Where any reference is made to a “mortgage arrangement” or “mortgage” it should be read as “home finance agreement” or other lending which is a regulated agreement secured against residential property, for the purposes of the Law. A “secured lending contract” refers to an agreement which is a regulated agreement secured against residential property in the Bailiwick.

ii. where the event is certain to occur, that the variation happens at the earliest
possible time, in respect of an increase in interest or charges, and at the latest possible time in respect of a decrease in interest or charges.
5. Where an APR, calculated in accordance with these rules, has more than one decimal place
then it must be rounded to one decimal place. If the second decimal place is five or more, it must be rounded up, if it is less than five then it must be rounded down.
6. The length of any period, used in calculating an APR in respect of home finance, must be
calculated as follows – a. a period which is not a whole number of calendar months, or a whole number of weeks, must be counted in years and days; b. subject to c., a period which is a whole number of calendar months, or a whole number of weeks, must be counted in calendar months or in weeks, as the case may be;
c. where a period is both a whole number of week, and –
i. one repayment only is to be made, the period must be counted in calendar
months;
ii. more than one repayment is to be made –
A. if all such repayments are to be made at intervals from the relevant date of one or more weeks, the period must be counted in weeks; and B. in any other case, the period must be counted in calendar months; d. a period which is to be counted –
i. in calendar months, must be taken to be of a length equal to the relevant
number of twelfth parts of a year;
ii. in weeks, must be taken to be of a length equal to the relevant number of
fifty-second parts of a year; e. a day may be taken to be either –

i. one three hundred and sixty-fifth part of a year, or, if it is a leap year, one
three hundred and sixty-sixth and a quarter part of a year; and
ii. every day must be taken to be a business day.
7. Where information cannot be ascertained by a home finance lender, or broker, at the time
of making an agreement then the following assumptions must be used in calculating the total cost of credit and the APR for that credit, in the following order (i.e., assumptions on the amount of credit must be applied before other assumptions and calculations are made) – a. assumptions as to the amount of credit –
i. where the amount of credit, to be provided under the agreement, cannot be
ascertained at the date of making the agreement – A. in the case of an agreement for running-account credit under which there is a credit limit, that amount must be taken to be that credit limit; and B. in any other case, that amount must be taken to be £100;
ii. where a mortgage lender makes a further advance, to the customer in
addition to the amount originally borrowed under the home finance agreement, the APR for the further advance must be calculated in respect of the further advance alone (and any related charges) and not in respect of the total amount borrowed; b. assumptions as to the period for which the credit is provided –
i. in relation to a lifetime home finance agreement, where the APR is
calculated for the purpose of a financial promotion, it must be assumed that the credit is being provided for a period of 15 years beginning with the relevant date;
ii. in relation to a lifetime home finance agreement, where the APR is
calculated for the purpose of an illustration, the period for which the credit is to be provided must be calculated in accordance with the appropriate rules and guidance;
iii. in relation to a retirement interest-only home finance agreement, where the
APR is calculated for the purposes of an illustration, the period for which the credit is to be provided must be determined in accordance with the appropriate rules and guidance;

iv. where, in any other case, the period for which credit is to be provided is
not ascertainable at the date of the making of the agreement, it must be assumed that credit is provided for beginning with the relevant date;
c. assumptions where the rate, or amount, is referenced to another factor – subject to
the following paragraphs, where the rate or amount of any item included in the total charge for credit, or any amount of any repayment of credit under a transaction, is to be ascertained by reference to the level of any index, or other factor, in accordance with a specified formula, the rate, or amount, must be taken to be the rate, or amount, so ascertained. The formula must be applied as if the level of the index, or other factor, subsisting at the date of the making of the agreement were that subsisting at the date by reference to which the formula is to be applied; d. assumptions where secured lending contracts provide for variation in the rate of interest and, under the paragraphs above, the variation will take place but the amount of the variation cannot be ascertained at the date of making the agreement –
i. where a secured lending contract provides a formula for calculating a
varied rate by reference to a standard variable rate of interest applied by the business, or any other fluctuating rate of interest, but does not enable the varied rate to be ascertained at the date of the making of the agreement because it is not known, on that date, what the standard variable rate will be, or (as the case may be), at what level the fluctuating rate will be fixed when the varied rate is due to be calculated, it must be assumed that the rate, or level, will be the same as the initial standard variable rate;
ii. where a secured lending contract provides for the possibility of any
variation in the rate of interest (other than a variation referred to in the paragraph above), which it is to be assumed will take place, but does not enable the amount of that variation to be ascertained at the date of making the agreement, it must be assumed that the varied rate will be the same as the initial standard variable rate; and in this paragraph – “initial standard variable rate” means –

the standard variable rate of interest which would be applied by the
mortgage lender, or mortgage administrator, to the agreement on the date of the making of the agreement where the agreement provides for interest to be paid at the mortgage lender, or mortgage administrator’s, standard variable rate with effect from that date; or
if there is no such rate, the standard variable rate of interest applied
by the mortgage lender, or mortgage administrator, on the day of the making of the agreement in question to other secured lending agreements, or, where there is more than one such rate, the highest such rate; “varied rate” means any rate of interest charged when a variation of the rate of interest is to be assumed under the paragraphs above; e. further assumptions –
i. where –
A. the period for which the credit, or any of it, is to be, or may be, provided cannot be ascertained at the date of the making of the agreement; and B. the rate, or amount, of any item included in the total charge for credit will change at a time provided in the transaction within one year beginning with the relevant date, the rate, or amount, must be taken to be the highest rate or amount under the transaction at any time in that year;
ii. where the earliest date on which credit is to be provided cannot be
ascertained at the date of making the agreement, it must be assumed that credit is provided on that date;
iii. in the case of any transaction, it must be assumed –
A. that a charge payable at a time, which cannot be ascertained at the date of the making of the agreement, is to be payable on the relevant date, or, where it may reasonably be expected that a customer will not make payment on that date, on the earliest date at which it may reasonably be expected that they will make payment; or B. where more than one payment of a charge of the same description is to be made at times which cannot be ascertained at the date of the making of the agreement, that the first such payment will be

payable on the relevant date9
(or, where it may reasonably be expected that a customer will not make payment on that date, at the earliest date on which it may reasonably be expected that they will make payment), that the last such payment will be payable at the end of the period for which credit is provided and that all other such payments (if any) will be payable at equal intervals between those times. Total charges for credit – home finance agreements
8. For the purposes of home finance agreements, the total charge for credit, which may be
provided under an actual or prospective agreement, is the total of the charges specified in this Schedule, less the exclusions specified in this Schedule, which apply in relation to the regulated agreement and determined at the time of the making of the agreement.
9. The amounts of the following are included in the total charge for credit, in relation to an
agreement (subject to the exceptions set out below) – a. the total of the interest on the credit which may be provided under the agreement; b. other charges, at any time payable, under the transaction by, or on behalf of, the customer whether to the business or any other person; and
c. where the making, or maintenance, of a contract of insurance is required by the
business –
i. as a condition of making the agreement; and
ii. for the sole purpose of ensuring complete, or partial, repayment of the
credit and complete, or partial, payment to the business of such charges included, in the total charge for credit, as are payable to them under the transaction in the event of death, incapacity, illness, or unemployment of the customer, ‘relevant date’ is the date from which the borrower is entitled to receive funds or payment under the agreement or, if not specified, the date on which the agreement is made.

notwithstanding that the whole, or part, of the charge may be repayable at any time or that the consideration may include matters not within the transaction or subsisting at a time not within the duration of the agreement.
10. Charges required to be included within the total charge for credit must not be excluded
on the basis that those charges are refundable under certain circumstances.
11. The total charge for credit and APR must not reflect the ‘value’ of any cashback or similar
incentive linked to the agreement.
12. The following charges must not be included in the total charge for credit in relation to an
agreement – a. any charge payable, under the agreement, to the business upon failure, by the customer, to do, or not to do, anything which they are required to do, or not to do; b. any charge –
i. which is payable, by the business to any person, upon the failure, by the
customer, to do, or not to do, anything which they are required under the agreement to do, or not to do; and
ii. which the business may, under the agreement, require the customer to pay
to them, or to another person on their behalf;
c. any charge related to a regulated restricted-use credit agreement to finance a
transaction between the customer and the business (whether forming part of that agreement or not), or to finance a transaction between a person (the “supplier”), other than the business, which would be payable if the transaction were for cash; d. any charge (other than a fee, or commission, charged by a credit broker or intermediary), not within (1)(c) – Guidance This means, for example, that the following charges must be included within the total charge for credit –

any fee payable to a mortgage intermediary for arranging the contract; and
any higher lending charge.

i. of a description which relates to services or benefits incidental to the
agreement, and to other services, or benefits, which may be supplied to the customer; and
ii. which is payable to fulfil an obligation incurred by the customer under
arrangements which were effected before they applied to enter into the agreement and are not arrangements under which the customer is bound to enter into any personal credit agreement; e. any charge under arrangements for the care, maintenance or protection of any land or goods, except as at 13; f. charges for money transmission services relating to an agreement for a current account, under which the customer may, by cheques or similar orders payable to themselves or to any other person, obtain or have the use of the money held, or made available, by the business and which records alterations in the financial relationship between the business and customer – being charges which vary with the customer’s use of the agreement; g. any charge for a guarantee, other than a guarantee –
i. which is required by the business as a condition of making the agreement;
and
ii. the purpose of which is to ensure complete, or partial, repayment of the
credit and complete, or partial, payment to the business of such of those charges included in the total charge for credit as are payable to them, under the agreement, in the event of death, incapacity, illness or unemployment of the customer; h. charges for the transfer of funds (other those set out at f.) and charges for keeping an account intended to receive payments towards the repayment of the credit and the payment of interest and other charges, except where the customer does not have reasonable freedom of choice and where such charges are abnormally high – this does not exclude, from the total charge for credit charges for the collection of the payments to which it refers, whether these payments are made in cash or otherwise; and
i. a premium, under a contract of insurance - other than a contract of insurance set
out as being specifically included, in the total charge for credit, at paragraph 9c.
13. A charge under 12e. only has effect –

a. where, under the arrangement –
i. the services are to be performed if, after the date of making the agreement,
the condition of the land, or goods, becomes, or is in immediate danger of becoming, such that the land, or goods, cannot reasonably be enjoyed or used; and
ii. the charge will not accrue unless the service is performed; or
b. where –
i. provision of substantially the same description as to which the
arrangements relate is available, under comparable arrangements, from a person who is not the business, or a supplier, or a credit-broker, or a mortgage intermediary, who introduced the business and the customer;
ii. the arrangements are made with a person chosen by the customer; and
iii. if, in accordance with the agreement, the consent of the business, or of a
supplier, or of the mortgage intermediary or credit broker who introduced the customer and the business is required to the making of the agreement – where the agreement provides, such consent may not be unreasonably withheld because no incidental benefit will, or may, accrue to the business, or to the supplier, or to the credit broker, or to the mortgage intermediary, or on any other ground.
14. References, in this Schedule, to the business, a supplier, a mortgage intermediary, and a
credit broker include references to their near relative, partner, or a member of a group of which they are a member, any person nominated by them or any such person in relation to the arrangements, and to a near relative of that partner; and ‘near relative’ means, in relation to any person, the husband, wife, civil partner, father, mother, brother, sister, son or daughter of that person; and ‘group’ means the person (including a company) having control of a company together with all the companies directly, or indirectly, controlled by them.

SCHEDULE 3
Calculation of maximum early repayment fees in relation to Regulated Agreements

Regulated agreements (excluding home finance agreements)
Licensees must not charge more than one month of interest payments, as an early repayment fee, forregulated agreements with a remaining duration of less than twelve months. Licensees must not charge more than two months of interest payments, as an early repayment fee, on regulated agreements with a remaining duration of twelve months or more.
Regulated agreements that are home finance agreements
In the case of home finance agreements where the interest rate payable is fixed or discounted for a set period of time, in the first year of that set period, licensees must not charge early repayment fees in excess of 1% (one percent) of the outstanding principle of the loan, for each remaining year or part thereof, that the interest rate is fixed, or discounted, under the agreement. In the final year of the set period licensees must not charge early repayment fees in excess of 1.5% (one and a half percent) of the outstanding principle of the loan.

SCHEDULE 4
Unfair agreement terms in relation to Regulated Agreements

This Schedule contains an inexhaustive list of terms which the Commission would
consider to be unfair agreement terms in most circumstances.
When deciding whether a term is unfair the Commission will take all circumstances into
account. There are certain circumstances where a term, which would otherwise be considered unfair, would be permissible. List of Unfair Terms10
A term which has the object or effect of inappropriately excluding or limiting the
legal rights of the consumer in relation to the trader or another party in the event of total or partial non-performance or inadequate performance by the trader of any of the contractual obligations, including the option of offsetting a debt owed to the trader against any claim which the consumer may have against the trader.
A term which has the object or effect of making an agreement binding on the
consumer in a case where the provision of services by the trader is subject to a condition whose realisation depends on the traders will alone. 10 This list is not exhaustive and the Commission, at all times, retains discretion with respect to unfair agreement terms. Guidance For example, the following is a situation where a term, which would otherwise be considered unfair, would be permissible:
Changes made to interest rates to reflect changes in the base rate.
However, in this circumstance the Commission would expect that the customer would be notified immediately. An additional example would be where the FCA has agreed that a term is not unfair. This would only apply to the same product or circumstances that the FCA reviewed and licensees would need to prove, to the Commission that the FCA had made such a decision.
A term which has the object or effect of permitting the trader to retain sums paid by
the consumer where the consumer decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the trader where the trader is the party cancelling the contract.
A term which has the object or effect of requiring that, where the consumer decides
not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied.
A term which has the object or effect of requiring a consumer who fails to fulfil their
obligations under the contract to pay a disproportionately high sum in compensation.
A term which has the object or effect of authorising the trader to dissolve the
contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the trader to retain the sums paid for services not yet supplied by the trader where it is the trader who dissolves the contract.
A term which has the object or effect of enabling the trader to terminate a contract
of indeterminate duration without reasonable notice except where there are serious grounds for doing so.
A term which has the object or effect of automatically extending a contract of fixed
duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express a desire not to extend the contract is unreasonably early
A term which has the object or effect of irrevocably binding the consumer to terms
with which the consumer has no real opportunity of becoming acquainted before the conclusion of the contract.
A term which has the object or effect of enabling the trader to alter the terms of the
contract unilaterally without a valid reason which is specified in the contract.
A term which has the object or effect of permitting the trader to determine the
characteristics of the subject matter of the contract after the consumer has become bound by it.
A term which has the object or effect of enabling the trader to alter unilaterally
without a valid reason any characteristics of the goods, digital content or services to be provided.
A term which has the object or effect of giving the trader the discretion to decide the
price payable under the contract after the consumer has become bound by it, where no price or method of determining the price is agreed when the consumer becomes bound.
A term which has the object or effect of permitting a trader to increase the price of
goods, digital content or services without giving the consumer the right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.
A term which has the object or effect of giving the trader the right to determine
whether the goods, digital content or services supplied are in conformity with the contract, or giving the trader the exclusive right to interpret any term of the contract.
A term which has the object or effect of limiting the trader’s obligations to respect
commitments undertaken by the trader’s agents or making the trader’s commitments subject to compliance with a particular formality.
A term which has the object or effect of obliging the consumer to fulfil all of the
consumer’s obligations where the trader does not perform the trader’s obligations.
A term which has the object or effect of allowing the trader to transfer the trader’s
rights and obligations under the contract, where this may reduce the guarantees for the consumer, without the consumer’s agreement.
A term which has the object or effect of excluding or hindering the consumer’s rights
to take legal action or exercise any other legal remedy, in particular by – a. requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, b. unduly restricting the evidence available to the consumer, or
c. imposing on the consumer a burden of proof which, according to the
applicable law, should lie with another party to the contract.
A term which has the object or effect of excluding or limiting the trader’s ability in
the event of the death of or personal injury to the consumer resulting from an act or omission of the trader.
A term which prevents consumers form taking out further loans with other credit
providers.
Guidance
Cancellation without reasonable notice does not include a term by which the business reserves the right to terminate, unilaterally, a contract of indeterminate duration without notice where there is a valid reason, and the business is required to inform the customer of the cancellation immediately and advised of the date from which the change will take effect. Variation without a valid reason does not include a term by which the business reserves the right to alter the interest payable by, or due to, the customer, or the amount of other charges for services, where there is a valid reason, provided –

the business is required to inform the customer of the alteration
at the earliest opportunity, and
the customer is free to dissolve the agreement immediately.

THE LENDING, CREDIT AND FINANCE RULES and
GUIDANCE, 2022
The Lending, Credit and Finance Rules, made in accordance with the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 20201 (“the Law”), are set out in this document. Further guidance, provided by the Guernsey Financial Services Commission (“the Commission”), is set out in shaded boxes. 1 Order In Council No. *

Contents
INTRODUCTION ............................................................................................................5
1.1 Application............................................................................................................................5
CORPORATE GOVERNANCE AND EFFECTIVE MANAGEMENT .....................6
2.1 Application............................................................................................................................6
2.2 Governance responsibilities................................................................................................6
2.3 Supervised roles ...................................................................................................................8
2.4 Competence and effective management...........................................................................8
2.5 Conflict of interest................................................................................................................9
2.6 Account rules......................................................................................................................10
2.7 Actions of auditors.............................................................................................................11
2.8 Annual Review...................................................................................................................12
2.9 Annual Return....................................................................................................................12
2.10 Electronic filing...................................................................................................................13
2.11 Record keeping...................................................................................................................13
2.12 Outsourcing ........................................................................................................................15
2.13 Employee screening and training ....................................................................................18
2.14 Qualifications......................................................................................................................19
CONDUCT OF BUSINESS............................................................................................20
3.1 Fitness and propriety.........................................................................................................20
3.2 Best interests of customers................................................................................................20
3.3 Customer relations.............................................................................................................21
3.4 Complaints..........................................................................................................................27
3.5 Customer money................................................................................................................28
3.6 Annual Percentage Rate (“APR”) and total charge for credit – Regulated credit
agreements ......................................................................................................................................33
3.7 Business transfer ................................................................................................................35
3.8 Promotion and Advertising..............................................................................................35
PRUDENTIAL ................................................................................................................38
4.1 Insurance .............................................................................................................................38
4.2 Financial resources.............................................................................................................40
COOPERATION WITH THE COMMISSION AND NOTIFICATION OF THE
USE OF UNFAIR TERMS .................................................................................................................41
5.1 General provision...............................................................................................................41

5.2 Notification by a licensee ..................................................................................................41
CONSUMER PROTECTION AND UNFAIR AGREEMENT TERMS...................45
6.1 Application..........................................................................................................................45
6.2 Unfair agreement terms ....................................................................................................45
PART II LICENCES........................................................................................................48
7.1 Requirement for multiple licences...................................................................................48
7.2 General Obligations ...........................................................................................................49
7.3 Equivalence.........................................................................................................................49
7.4 Applications and regulated activities..............................................................................49
7.5 Appointed retailers ............................................................................................................50
7.6 Early repayment.................................................................................................................51
7.7 Information to customers..................................................................................................51
7.8 Cooling-off period..............................................................................................................52
7.9 Maximum cost of credit ....................................................................................................53
7.10 Treatment of surplus following default..........................................................................53
7.11 Appointed Service Providers ...........................................................................................53
PROVISION OF ANCILLARY SERVICES UNDER PART II LICENCES..............55
8.1 General obligations ............................................................................................................55
8.2 Provision of advice.............................................................................................................55
8.3 Debt administration...........................................................................................................56
PART III FINANCIAL FIRM BUSINESS LICENCES ...............................................58
9.1 Requirement for multiple licences...................................................................................58
9.2 Equivalence.........................................................................................................................58
PART III VASP LICENCES...........................................................................................59
10.1 Requirements for multiple licences .................................................................................59
10.2 Equivalence.........................................................................................................................59
10.3 Applications and regulated activities..............................................................................59
10.4 Environmental declaration ...............................................................................................63
10.5 Safekeeping of customer virtual assets ...........................................................................65
PART IV LICENCES......................................................................................................67
11.1 Requirement for multiple licences...................................................................................67
11.2 Applications and regulated activities..............................................................................67
11.3 General Obligations ...........................................................................................................67

11.4 Customer limits ..................................................................................................................68
11.5 Information for customers ................................................................................................69
APPLICATIONS FOR EXEMPTIONS FOR LICENSING ........................................71
12.1 Applications to the Commission......................................................................................71
GENERAL PROVISION................................................................................................72
13.1 Interpretation......................................................................................................................72
CITATION AND COMMENCEMENT.......................................................................75
14.1 Citation and commencement............................................................................................75
SCHEDULE 1 The Principles……………………………………………………………………....76
SCHEDULE 2 Recognised equivalent jurisdictions and regulatory regimes…………………78
SCHEDULE 3 Calculation of APR………………………………………………………………...79
SCHEDULE 4 Calculation of maximum early repayment fees………………………………..93
SCHEDULE 5 Unfair agreement terms…………………………………………………………..97

the Rules set out the standards to be met; and
guidance notes set out the Commission’s approach to regulation and
present suggested ways of showing compliance with the Rules.
Alternative measures to those set out in the guidance may be adopted so long as it is possible to demonstrate that such measures achieve compliance. The text contained in shaded boxes is Commission guidance and does not form
part of the Rules.

CORPORATE GOVERNANCE AND EFFECTIVE
MANAGEMENT
2.1 Application
(1) This section applies to all licensees.
2.2 Governance responsibilities
(1) The licensee must ensure that at least two individuals with the responsibility of directing the business are resident in the Bailiwick. (2) The board and senior management, of a licensee, must take all reasonable steps to ensure that all employees of the licensee act so as to avoid material damage either to - (a) Potential and current customers; (b) the licensee’s reputation; (c) the licensee’s financial position; and (d) the reputation of the Bailiwick as an international finance centre. (3) The board of a licensee – (a) must ensure that the licensee – (i) has in place effective and appropriate policies, procedures, and controls to ensure compliance with all applicable legislation, rules, codes, and guidance;

(ii) recruits, trains, and supervises relevant personnel to ensure compliance with all applicable legislation, rules, codes, and guidance; and (iii) operates robust arrangements for meeting the requirements of these Rules and all other relevant legislation; (b) at all times, retains responsibility for any functions it outsources; and (c) must evaluate its compliance with the Code of Corporate Governance2 on a regular basis. (4) In the case of a Part III VASP Licensee - (a) the board must ensure that the licensee has sufficient resources, within the Bailiwick, to effectively oversee and control the activities and business of the licensee; and (b) to maintain effective oversight, the board and senior management of the licensee must ensure that they have sufficient knowledge, understanding, and expertise with respect to the activities of the licensee and the services it provides. Instrument made on 30 September 2011. Guidance For the avoidance of doubt, the relevant legislation and rules include The Criminal Justice (Proceeds of Crime)(Bailiwick of Guernsey) Law, 1999 and the Handbook on Countering Financial Crime and Terrorist Financing. Provision of Services Ancillary to the Provision of Credit is not included in the definition of financial service business at Schedule 1 of the Proceeds of Crime Law and is outside the scope of the Handbook. General insurers who are licensed credit providers, in respect of providing credit for payment by instalments for general insurance products, will also fall outside the scope of the Handbook.

2.3 Supervised roles
(1) The following sections of the Law –
(a) section 43, Notification of and objection to holders of approved supervised roles; (b) section 44, Notification of and objection to holders of vetted supervised roles; (c) section 45, Notification of change of holder of supervised role, apply to all licensees engaging persons in any of the roles designated as ‘supervised roles’, under section 41 of the Law.
2.4 Competence and effective management
(1) A licensee must comply with these Rules, and any other applicable legislation, codes, or guidance and must understand and comply with its contractual and other legal obligations arising under any relevant customer agreements. (2) A licensee must – (a) ensure that the responsibilities and authority of relevant personnel are clear and appropriate to their qualifications and experience; (b) record and monitor compliance with these Rules and all other relevant legislation; (c) keep a breaches register which logs all instances of non-compliance with these Rules; and (d) satisfy the minimum criteria for licensing.

(3) A licensee is responsible for the behaviour of any Appointed Retailers and must ensure that they are aware of, and comply with, these Rules.
2.5 Conflict of interest
(1) Subject to the terms of any constitutional documents and applicable laws, a licensee must – (a) be impartial; (b) not unfairly place its interests above those of its customers; and (c) ensure fair treatment between customers. (2) A licensee must – (a) establish, implement, and maintain an effective written conflicts of interest policy which is appropriate to the nature, scale, and complexity of the business; (b) ensure that adequate procedures are implemented to either avoid any conflict of interest arising or, where conflicts do arise, manage or minimise them; (c) keep records of any conflicts of interest and how they are managed; (d) without prejudice to these Rules, the Handbook3 , the Prevention of Corruption (Bailiwick of Guernsey) Law, 20034 and any other related legislation, not solicit, receive, or accept bribes, gifts, inducements, rewards, or advantage that are likely to conflict with the licensees’ duty to any customer. 3 Handbook on Countering Financial Crime and Terrorist Financing, Guernsey Financial Services Commission. 4 Order in Council No.1 of 2004.

2.6 Account rules
Accounting records and accounting period of a licensee (1) The accounting records must – (a) show and explain transactions; (b) enable financial statements to be prepared; and (c) present, with reasonable accuracy at any time, all assets, liabilities, income, and expenditure. (2) All licensees are required to prepare audited accounts unless they are solely providers of ancillary services under Part II of the Law. (3) Audited accounts must – (a) present a true and fair view of the financial position at the end of that accounting period; (b) present a true and fair view of any profit and loss during that accounting period; (c) be prepared in accordance with either – (i) UK accounting standards5 ; (ii) US accounting standards6 ; or 5 As issued by the Financial Reporting Council. 6 As issued by the Financial Accounting Standards Board.

(iii) International Financial Reporting Standards7 ; and (d) must be accompanied by an auditor’s report prepared in accordance with the International Standards on Auditing as issued by either – (i) the Financial Reporting Council; or (ii) the International Auditing and Assurance Standards Board. (4) The accounting period, of a licensee, must be set and – (a) must not exceed 12 months, and (b) must not be altered without prior written permission from the Commission. Availability of audited accounts (1) All licensees, required to produce audited accounts, must ensure that those accounts are also made available to the public on request.
2.7 Actions of auditors
(1) All licensees, required to produce audited accounts, must comply with
section 57 of the Law. In particular, the Commission must be notified of the
–
(a) appointment of an auditor;
7 As issued by the International Accounting Standards Board.

(b) removal of an auditor;
(c) resignation of an auditor;
(d) signing-off of a qualified audit report.
2.8 Annual Review
(1) The Annual Review requirements, set out in section 67 of the Law – (a) must only be undertaken by those licensees specifically directed to do so by the Commission; and (b) must review all matters set out in the Commission’s direction to the licensee.
2.9 Annual Return
(1) A licensee, at the end of the Annual Return Period, must make an Annual Return, to the Commission, of their regulated activity. (2) The Annual Return Period must coincide with the licensee’s financial year. (3) The Annual Return must be submitted in such electronic format as the Commission makes available. (4) An Annual Return must be made, to the Commission, within four calendar months of the end of the Annual Returns Period to which it relates. Guidance For example, the Commission may consider requiring some Part III VASP licensees to carry out an Annual Review, when appropriate.

(5) Annual Returns must include –
(a) either –
(i) audited accounts and an auditor’s management letter and any report prepared by an internal of external auditor, an accountant, or a consultant which addresses any breakdown of, or any material weaknesses in, internal control procedures; or (ii) where a licensee is not required to produce audited accounts, unaudited financial statements, including any notes; (b) an up-to-date, narrative, business plan; (c) complaints data, in a format determined by the Commission; and (d) any other information which the Commission may, from time to time, specify.
2.10 Electronic filing
(1) Returns filed with the Commission, under rule 2.8 and 2.9, must be submitted in such electronic format as the Commission makes available.
2.11 Record keeping
Records of the licensee’s own business
(1) A licensee, in relation to its own business, must ensure that all appropriate records are kept up to date, complete, and accurate including but not limited to –

(a) records of all regulated agreements;
(b) records of customer communications and transactions; and (c) records of any decisions as to the treatment of customers. Data security (1) A licensee must maintain adequate policies and procedures for the maintenance, security, privacy, and preservation of all documents and records belonging to the licensee and its customers so that they are reasonably safeguarded against loss, unauthorised access, alteration, or destruction. (2) Any policies and procedures must conform with the Data Protection (Bailiwick of Guernsey) Law, 20178 . Retention of records (1) A licensee must keep and preserve for a minimum of six years, or for a period required under an applicable law, whichever is greater, – (a) records of its own business prepared in accordance with these Rules; and (b) any documents relating to customers which were prepared in compliance with these Rules. (2) A licensee who is ceasing to carry out regulated activities must have appropriate arrangements to retain all documents and records, prepared in accordance with these Rules, for a minimum period of six years following the surrender of the licence. The Commission may extend this period by serving written notice prior to the end of the initial six-year period. 8 No. VI of 2018.

(3) Where a licensee is aware of any matter which is subject to investigatory or disciplinary procedures, or appeals against such procedures, all documents which are, or may be, relevant to this matter must not be amended or destroyed without written consent from the Commission. Outsourcing record maintenance (1) Where the licensee outsources the maintenance of its own records, customer records, or both, the licensee must ensure it is satisfied that – (a) the documents are kept secure and any operational risks are appropriately managed; (b) the records are readily accessible; (c) all regulatory and confidentiality laws are complied with; and (d) the Commission can have reasonable access to the records at all reasonable times.
2.12 Outsourcing
Responsibility
(1) Subject to rule 2.12.6, a licensee may outsource functions but the board retains responsibility and accountability for the outsourced functions. Responsibilities include – (a) the maintenance of effective oversight of the outsourced functions; and

(b) ensuring that the licensee continues to comply with these Rules and all other relevant legislation. Risk assessment (1) The board of a licensee must be fully aware of and understand the risks arising from outsourcing its functions. (2) Where outsourcing is proposed a licensee must carry out a risk assessment which includes, but is not limited to – (a) risks associated with a breakdown in the provision of the outsourced services; and (b) risks which could arise from the failure of the outsourced service provider. Due diligence in selection of outsourced service providers and monitoring outsourced service provider’s performance (1) A licensee must – (a) exercise due diligence, on the outsourced service provider, to ensure that they can be satisfied that the outsourced service provider has the ability and capacity to undertake the provision of the service effectively; (b) document the capability and suitability of the proposed provider of the outsourced service; and Guidance For the avoidance of doubt, when a firm offers a product, activity, or service that requires a licence under the Law, outsourcing the carrying out of that activity does not remove the need for a licence.

(c) establish clear internal responsibility for monitoring the conduct of the outsourced services and for reporting to the board. Outsourcing agreements (1) A licensee must ensure that there is a written outsourcing agreement in place for every outsourced activity. (2) The outsourcing agreement must – (a) have appropriate content reflecting the nature, scale, and complexity of the outsourcing arrangements; and (b) for significant outsourcing arrangements, include a contractual requirement for the services provider to – (i) give the Commission the right to direct access to material which it holds in relation to the business of the licensee; and (ii) inform and obtain agreement, from the licensee, prior to sub-outsourcing any functions. Contingency plan (1) The licensee must ensure that there is, established and maintained, an appropriate contingency plan which enables alternative arrangements to be set up, with minimal disruption, in case of the failure of the outsourced service provider or any other breakdown in the provision of services.
Part III VASP Licensees
(1) A Part III VASP licensee must not, without the Commission’s written agreement, outsource any function outside the Bailiwick.

2.13 Employee screening and training
(1) A licensee must maintain appropriate and effective procedures when hiring employees, or admitting any person as a partner, for the purpose of ensuring high standards of probity and competence. These procedures should be proportionate to the nature, risk profile, and size of the business. (2) To ensure that individuals are of the required standard of competence and probity the licensee must, at the minimum, give consideration to the collection and confirmation of the following during the recruitment process – (a) appropriate references; (b) details of any regulatory action taken against the individual, in any jurisdiction; (c) details of any action, taken against the individual, by any professional body; (d) details of any criminal convictions, including the provision of a check of the individual’s criminal record9 ; and (e) details of employment history, qualifications, and professional memberships. (3) A licensee must ensure that individuals receive any training which is necessary for their roles and - (a) formulate plans for training and development; and (b) keep training and development plans current and relevant. In accordance with the Rehabilitation of Offenders (Bailiwick of Guernsey) Law 2002, Order in Council No. XIV of 2002.

2.14 Qualifications
(1) Any person providing advice, to customers, must be suitably trained. (2) Providers of services relating to home finance and lending against an individual’s home must ensure that any individual, providing advice in respect to regulated agreements, holds an Approved Qualification. Guidance Approved qualifications – A list of appropriate qualifications can be found on the Commission’s website.

CONDUCT OF BUSINESS
3.1 Fitness and propriety
(1) A licensee must observe the Principles, set out at Schedule 1, when carrying on its regulated business. (2) A licensee must not attempt to avoid or contract out of its responsibilities set out in these Rules.
3.2 Best interests of customers
(1) All licensees must –
(a) act with due skill, care, and diligence to fulfil the responsibilities undertaken; (b) establish and maintain policies, procedures, and controls to monitor and ensure there are always the requisite capacity and resources to provide the services agreed with its customers; (c) ensure that all decisions taken, or transactions entered into, by or on behalf of the customers, are actioned in a timely manner and appropriately authorised and handled by persons with an appropriate level of knowledge, experience, and status. This includes the establishment, transfer, or closing of business relationships; and (d) maintain confidentiality except where disclosure of information is – (i) required or permitted by an applicable law; or (ii) authorised by the person to whom the duty of confidentiality is owed.

(2) Subject to the terms of the agreement, and any applicable legislation, a licensee must promptly provide customers with information to which they are entitled or, if this is not possible, explain why such information cannot be provided.
3.3 Customer relations
Customer agreements
(1) A licensee must inform any person with whom it proposes to enter into an agreement in respect of the provision of regulated activities, in writing, of its terms of business and must retain a record of that person’s agreement to those terms. (2) The agreement shall include, but is not limited to – (a) a clear description of the services to be provided; (b) the fees, including exit fees, to be charged – setting out the nature and scale of the fees and the basis of the calculation of those fees; (c) the means by which complaints can be made; (d) details of the licensee’s complaints resolution procedures including, where applicable, contact details for the Channel Islands Financial Ombudsman (“CIFO”) and a statement that the CIFO may be available to consider complaints which are not resolved through the licensee’s complaints resolution procedure; (e) a record of any provision for the termination of the agreement and the consequences of the termination; and (f) a statement that the licensee is licensed by the Commission.

(3) A licensee must not recommend a service to a customer, or encourage a customer to enter into an agreement, unless it has taken reasonable steps to make them aware of the risks involved and any conflicts of interest. Rules applicable to Part II Licensees Commissions and disclosures (1) Licensees must disclose the existence and nature of any commission, fee, or other payment made by them, or received by them, in the process of effecting a regulated agreement. (2) Disclosure must be prominent and clear and made prior to the customer entering into any regulated agreement. (3) Arrangements facilitating commission payments, used by licensees, must not permit the payment of additional commission as a result of the increase of charges applied to the customer. (4) Licensees must not allow ancillary service providers (“ASPs”) to increase the overall cost of credit to the customer. (5) Payments of commission based on the difference in charges (“DIC”) methodology are not permitted. Guidance Licensees are obliged to treat customers fairly. While the primary responsibility for ensuring that any credit arrangement is suitable for customers rests with the credit provider entering into the agreement, ancillary service providers (brokers) should be transparent in their advice. Where they provide credit in addition to advising customers or acting as a broker, they are expected to disclose this information, to advise whether they are acting in their capacity as a broker or lender and where there is a potential conflict of interest. In treating customers fairly it is expected that advice should be impartial and should not, for example, favour “own brand” offerings over those from other providers which are more suitable or are cheaper overall for the customer concerned.

(6) Providers of ancillary services must disclose, to customers on request, all fees and commissions received for arranging the regulated agreement on behalf of a lender. (7) Mortgage advisors, mortgage brokers, and providers of ancillary services relating to home finance agreements must disclose all fees and commissions before the customer enters into the agreement. Suitability (1) A licensee, at the outset of its provision of services to a customer, must ensure that it has obtained sufficient information, from that customer, to ensure that any service provided is suitable to the requirements, needs, and position of the customer. (2) When recommending a product, or arranging or effecting an agreement, a licensee must consider – (a) the information received, from the customer, with regard to their circumstances; (b) the terms of any proposed agreement; (c) whether the agreement is suitable to the requirements of the customer; (d) the creditworthiness of the customer, including whether the agreement is affordable; (e) whether the customer – (i) presents any indications of vulnerability; (ii) is over 75 years of age; or

(iii) requires any additional care or assistance; and (f) any other relevant facts, about the customer, of which the licensee is, or reasonably should be, aware of. (3) Licensees must take a proportional approach to assessing the creditworthiness of a customer, bearing in mind – (a) the value of the credit; (b) the nature of any security; and (c) the circumstances of the customer. (4) A licensee must have a written procedure in place detailing how creditworthiness is assessed, including – (a) the customer’s ability to meet the payments as they fall due; (b) whether the payments are affordable for the customer; (c) whether the customer will be able to meet the payments, and whether they will remain affordable, as a consequence of interest rate rises; and (d) where appropriate, whether the customer will be able to meet the payments, and whether they will remain affordable, should the customer’s circumstances change. (5) Where a customer is a High Net Worth Individual, (1)-(4) do not apply. Guidance Affordability Affordability is a well understood concern for retail lending but the precise understanding of the definition varies for different providers. In the Commission’s view it is an essential part of the assessment of customer creditworthiness.

Vulnerable customers
(1) A licensee must have a written procedure in place detailing how vulnerability is assessed. (2) Licensees must take extra care when dealing with vulnerable customers and those over the age of 75 and must consider – (a) the availability and accessibility of products; (b) whether they require additional assistance to understand the agreement; or (c) whether forbearance may be appropriate. Guidance Vulnerability and vulnerable customers The fact that a customer is vulnerable should not prevent them from accessing financial services or licensees dealing with them or providing them with services. Licensees should not automatically reject applications for services because a customer is vulnerable and should take steps to accommodate their needs. Guidance – Affordability, continued It is intended that considerations of affordability should be appropriate and proportionate to the circumstance of the credit being provided and the circumstances of the customer – it is not a prescriptive or “one size fits all” approach. Credit providers should take steps to understand the circumstances of their customers. For customers in more secure longer-term employment, and for smaller value purchases, the consideration may be less onerous. Increased scrutiny of affordability may be needed for larger value purchases, where the customer has a patchy credit record, or where they are employed on a casual basis. In such circumstances it may be appropriate to consider whether the customer would be able to afford repayments in the event of a change in circumstances.

Customers experiencing payment difficulties
(1) Where appropriate, licensees must ensure that this rule is applied to guarantors as well as borrowers. (2) A licensee must take reasonable steps not to recommend or effect an agreement if it is not suitable or affordable. (3) A licensee must have a written procedure in place detailing their approach to dealing with customers experiencing payment difficulties. When dealing with vulnerable customers experiencing difficulties, additional consideration must be given to forbearance. (4) When dealing with customers experiencing repayment difficulties, licensees must give due consideration to applying some form of forbearance, including, but not limited to – (a) repayment holidays; (b) temporarily halting charges; Guidance – Vulnerability and vulnerable customers, continued Vulnerability includes many factors. Anything which results in difficulty in accessing and understanding information can be seen as a vulnerability – e.g. frailty or mobility issues (whatever the cause), impaired vision, impaired hearing, difficulties in understanding English. Firms should accommodate vulnerable customers by providing information in a form which is accessible to their customers and should consider, among other things –

ensuring that more time is available for discussions;
information is made available in large prints, or other formats;
meeting in locations that are accessible;
allowing family and friends to assist.
Firms own guidance on vulnerability should consider the indicators of vulnerability and how they can provide suitable assistance to vulnerable customers.

(c) restructuring repayment schedules.
(5) Where a customer is a High Net Worth Individual, (1)-(4) do not apply. Periodic information (1) Licensees must provide customers with regulated agreements, at least annually, with a report showing – (a) interest charged; (b) payments made; (c) the outstanding principal of loan remaining; and when no further sums are due, send the customer a closing statement confirming the loan is fully repaid.
3.4 Complaints
(1) A licensee must –
(a) have and comply with a written procedure for the effective consideration and fair, proper, and timely handling of complaints; (b) maintain a log of all complaints and their current status; (c) as appropriate, explain the complaints handling process to customers; (d) keep the complainant informed about the progress of the complaint including details of any actions being taken to resolve the complaint, except where this conflicts with or is prohibited under another law; (e) inform the complainant that, in cases of significant complaints or where a complaint remains unresolved for longer than three months, the licensee is under an obligation to inform the Commission of the complaint;

(f) on agreement with the complainant, ensure that the matter is settled as soon as possible; (g) where the complaint is not upheld, clearly state the reason for rejecting the complaint and inform the complainant of their right to refer the complaint to the CIFO; and (h) advise the complainant when the complaint is considered closed. (2) Where the status of the complaint is closed, the licensee should ensure that the following information is retained - (a) the nature of the complaint; (b) the reason for the closure of the complaint; and (c) where applicable, details of any agreed compensation.
3.5 Customer money
Application
(1) This rule applies all licensees holding customer money.
Customer money
(1) Customer money must be held separately, from the licensee’s own money, in one or more dedicated customer money bank accounts. (2) Customer money may be held in a different currency to that in which it was received.

Customer money bank accounts
(1) All customer money, received by the licensee, and all money payable to the licensee which becomes customer money, must be held in a customer money bank account with an approved bank. (2) When a licensee opens a customer money bank account it must give written notice, to the bank, requiring the bank’s written acknowledgment that – (a) all money standing to the credit of that account is held by the licensee as trustee and that the bank is not entitled to combine the account with that of any other account, or to exercise any right of set-off or counter-claim against money in that account, in respect to any sum owed to it on any other account of the licensee; (b) interest earned on the account will be credited to the account or to an account of the same type; and (c) the title of the account sufficiently distinguishes the account from any other account containing money that belongs to the licensee and is in the form requested by the licensee, unless the bank provides this automatically. (3) If, where a customer money bank account is held with an approved bank outside Guernsey, the bank declines to provide the acknowledgment in subsection (2), or if the licensee has any other ground for believing that customer money will not be protected as effectively as it would be if held in a customer money bank account in Guernsey, the licensee must not pay or transfer customer money into that account. (4) Customer money held, or received, by a licensee must either be paid into a customer money bank account, or to the customer, as soon as possible and not later than the next business day.

(5) Money held, or received, by a licensee, in the form of a cheque, draft, or electronic transfer, drawn down in favour of the licensee, which includes customer money, must be paid into a customer money bank account unless it represents money payable to one customer only in which case it may be endorsed over, or paid to, the customer concerned or dealt with as the customer instructs. (6) Money received, which is not customer money, must be paid out of the customer money bank account no later than one business day after the day on which the money has been cleared. (7) Subsection (7) does not apply to amounts of less than £25. Payments from customer money bank accounts (1) Money ceases to be customer money if it is paid – (a) to the customer; (b) into a bank account in the name of the customer, not being an account which is also in the name of the licensee; or (c) to the licensee itself, where it is due and payable to the licensee.

(2) The following items may be withdrawn from a customer money bank account – (a) money, which is not customer money, paid into the account for the purposes of opening or maintaining the account; (b) money paid into the account in contravention of these Rules; (c) money properly required for payment to or on behalf of a customer; (d) money properly required for, or towards, payment of fees or commissions payable to the licensee and specified in a statement delivered to the customer showing how those fees and commissions have been calculated; (e) money drawn on a customer’s authority or in conformity with any agreement between the licensee and the customer; (f) money which may be properly transferred into another customer money bank account; (g) if a cheque is paid into a customer money bank account and that cheque includes money which is not customer money, that money must be withdrawn from the account; and (h) interest withdrawn from the customer money bank account. (3) Money must not be withdrawn from a customer money bank account for, or towards, payment of fees or commissions payable to the licensee unless the basis of calculation of those fees or commissions have been disclosed, in writing, and agreed by the customer. (4) Where a licensee draws a cheque, or other payable order, the money does not cease to be customer money until the cheque, or order, is dispatched.

3.6 Annual Percentage Rate (“APR”) and total charge for credit – Regulated credit
agreements
Application
(1) This rule applies to regulated agreements.
Total charge in relation to customer credit agreements (1) The total charge for credit under an agreed, or prospective, customer credit agreement is the total cost of the credit, to the customer, determined in accordance with the requirements of subsections (2) to (5). (2) Subject to (3), the following costs must be included in the total cost of credit to the customer – (a) any fee or charge payable, by the customer, to any intermediary, in connection with the agreement; (b) the costs of maintaining an account recording both payment transactions and drawdowns; (c) the costs of using a means of payment for both payment transactions and drawdowns; (d) other costs relating to payment transactions. (3) The costs at (2) must not be included in the total cost of credit to the customer where – (a) the opening of the account is optional and the costs of the account have been clearly and separately shown in the regulated credit agreement or in any other agreement made with the customer; and (b) in the case of an overdraft facility, the costs do not relate to that facility.

(4) Costs, in respect of ancillary services, must be included in the total cost of credit to the customer if the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed. (5) The total cost of credit must not include – (a) any charges payable by or on behalf of the customer for noncompliance with their commitments contained in the regulated agreement; or (b) charges which, for the purchases of goods or services, the customer is obliged to pay dependent upon whether the transaction is effected in cash or credit. (6) The total cost of credit must not take account of any discount, reward (including cash-back), or other benefit to which the customer might be entitled, whether such an entitlement is subject to conditions or otherwise. (7) All intermediaries and ancillary service providers must disclose their fee to the credit provider. (8) Credit providers must take reasonable steps to ascertain whether a fee is payable to the ancillary service provider and, if so, the amount of the fee. Guidance In this rule ‘intermediary’ includes, but is not limited to, credit brokers and introducers. An ancillary service is a service that relates to the provision of credit and includes, in particular, an insurance or payment protection policy. The total cost of credit includes all fees or charges payable, by the customer, to any intermediary, if the fee or charge is known to the credit provider. Credit providers should ensure that intermediaries inform them of any charges made, to customers, in connection with the provision of a credit agreement. The Commission would expect that any fees payable, to the credit broker, are clearly set out in any contractual agreement between the credit provider and the credit broker.

(3) The licensee is, at all times, responsible for all financial promotions and advertisements, that relate to their products and services, whether published or issued directly by the licensee or by others. Issue of materials (1) The licensee must ensure that any materials used – (a) are clearly identifiable as advertisements; (b) are clear, fair, and not misleading; (c) do not contain any statement, promise, or forecast which is untrue; (d) are not designed in such a way as to distort or conceal any relevant subject material; (e) do not employ phrases such as “tax-free” or “tax-paid” without making it clear which taxes are being referred to; (f) not contain information about past performance unless it contains a warning that past performance is not necessarily a guide to future performance; and (g) are not likely to be misunderstood. (2) A licensee must take all reasonable steps to ensure that advertisements and communications do not violate the laws of the Bailiwick of Guernsey and, if advertising outside the Bailiwick, the legislation in force in that jurisdiction. (3) The regulatory status of the licensee is to be included in all communications, in relation to regulated activities, and it is not to be used in a way which is misleading. (4) A licensee should not signify in any way that an advertisement is approved by the Commission.

(5) Licensees must ensure that any applicable advertisements and promotions issued comply with the UK Code of Non-broadcast Advertising and Direct and Promotional Marketing (the “CAP Code”), as issued by the Advertising Standards Authority. Specific requirements of Part II Licensees (1) If an advertisement or promotion includes the cost of credit, or indicative repayment values, it must include total cost of credit and the structure and value of all repayments. (2) If a licensee includes indicative interest rates in an advertisement or promotion it must be an APR calculated in accordance with Schedule 3. (3) Where an indicative or example APR is used, there is an accompanying example and explanation showing that the actual rate may be different. (4) Any indicative rates used must be available to customers and fairly represent an APR that is readily obtainable. Guidance Guidance for Part II Licensees In order to ensure that they treat customers fairly, licensees should follow the principle that promotions and advertising should be fair, transparent, and honest. They should include sufficient information for customers to understand the cost of credit providers, and to make clear the likely total cost of credit for a customer who takes up the credit arrangements on offer.

PRUDENTIAL
4.1 Insurance
Application and general requirements
(1) This rule only applies to home finance brokers and lenders.
(2) In addition to requirements under the Minimum Criteria for Licencing, a licensee must always maintain insurance cover which is commensurate with the size and nature of its business activities. Cover must include professional indemnity insurance and insurance against employee dishonesty or fraud. Minimum requirement (1) A licensee must maintain the minimum cover as set out in (2). The board is responsible for ensuring that the insurance arrangements for the licensee are adequate. Where the licensee concludes that the amount of insurance required, for the size and nature of the business, is greater than the maximum amount set out in (2)(b) then the amount of cover the licensee is required to maintain is the higher amount. (2) Subject to (3), every licensee must maintain professional indemnity insurance, and employee dishonesty or fraud insurance, with the following minimum limits – (a) on the basis of each and every loss, cover of at least £1,000,000; and (b) on an annual basis, £1,000,000, or three times income from regulated activities, whichever is greater.

(3) Where the licensee also carries out unregulated activities, the licensee must consider whether the minimum indemnity limit of its insurance policies, and the scope of the insurance cover, are appropriate and sufficient for its business as a whole, taking into account possible claims that may also arise from the unregulated business. (4) Notwithstanding (3), a licensee is not required to have aggregate insurance cover exceeding £10,000,000, provided that the board of the licensee has considered and decided that such level of cover is appropriate and sufficient for its business. The licensee must be able to evidence the board’s assessment if requested by the Commission. (5) A licensee must always maintain cover for – (a) negligence, errors, or omissions by the licensee or its employees; (b) any liability for the dishonest or fraudulent acts of employees which may fall on licensees; (c) liabilities of its employees who, in the course of their duties to the licensee, perform functions in their own names; (d) liabilities which the licensee might incur, in any jurisdiction, in which it should reasonably foresee that it may be held liable for damages and costs; (e) where relevant, ombudsman awards; and (f) legal defence costs. (6) The rule applies to all licensees from the date on which the licence was issued by the Commission.

4.2 Financial resources
Application
(1) This Rule does not apply to licensees who hold a licence issued under – (a) The Banking Supervision (Bailiwick of Guernsey) Law, 2020; or (b) The Insurance Business (Bailiwick of Guernsey) Law, 2002. Requirements (1) Subject to (2), licensees must ensure that – (a) sufficient liquid resources are always held in reserve in order to allow for an orderly wind-down over a three-month period; (b) the level of these resources is monitored and checked on a quarterly basis, at least; and (c) the Commission is notified, immediately, where it is found that there are no longer sufficient resources to comply with this rule and the steps which are being taken to rectify this. (2) VASPs must meet the individual requirements agreed, with the Commission, at the time of licensing.

COOPERATION WITH THE COMMISSION AND
NOTIFICATION OF THE USE OF UNFAIR TERMS
5.1 General provision
(1) A licensee must deal openly and honestly with, and cooperate with, the Commission and any other regulatory authorities to whose supervision they are subject.
5.2 Notification by a licensee
(1) A licensee must notify the Commission in writing as soon as is practicable but, in any case, within 14 days of becoming aware of any of the following – (a) any significant changes to the information submitted as part of an application for a licence; (b) any matter that might reasonably be expected to affect its ability to – (i) maintain the minimum criteria for licensing; (ii) undertake its regulated activities; or (iii) comply with the Rules; (c) the agreement, or refusal, to grant any application made, either by the licensee, or any holding company, or subsidiary, for authorisation to carry on any financial services business in any jurisdiction;

(d) the revocation, or the attachment of conditions to, an authorisation for the licensee, its holding company, or subsidiary, to carry on any financial services business in any jurisdiction; (e) the commencement of proceedings against a licensee, its holding company, or subsidiary, in any jurisdiction; (f) the appointment of anyone acting under any regulatory authority to investigate the affairs of the licensee, its holding company, or subsidiary; (g) the imposition of disciplinary measures, or sanctions, against the licensee, its holding company, or subsidiary, by any regulatory authority; (h) the conviction of the licensee, its holding company, or subsidiary, or any personnel, of any offence, under any jurisdiction, relating to financial services, companies, or insolvency laws where such offences involve fraud, dishonesty, money laundering, or tax evasion; (i) with regard to outsourcing – (i) any significant outsourcing arrangements entered into; (ii) any material changes to significant outsourcing arrangements; and (iii) where there is a failure of an outsourced service provider, or other breakdown in the provision of outsourced services, which causes significant disruption to the licensee’s business; (j) with regard to PII –

(i) when a notification under a PII policy is made to its insurer; or (ii) if there is any payment made, by the insurers, under the PII cover; (k) with regard to complaints – (i) of any significant complaint made against the licensee; (ii) when the licensee has been unable to resolve a complaint within three months of the date of the initial receipt of the complaint; or (iii) when a complaint is upheld by the CIFO; (l) the imposition of a sanction against the licensee following a breach determination by the Data Protection Authority; (m) the making, or the proposal for the making, of a compromise or arrangement with any creditors of the licensee; (n) the summoning of a meeting to consider a resolution to wind-up the licensee or any of its holding companies or subsidiaries; (o) the presentation of any application for the commencement of insolvency proceedings including désastre, winding up, or the appointment of a receiver, administrator, or liquidator under the law of any jurisdiction, in relation to the licensee, or to a company which is a holding company or subsidiary of the licensee; (p) the making of an application to wind-up, or to dissolve, any licensee which is a partnership; including limited partnerships and limited liability partnerships; (q) changes to a notification of an approved supervised role;

(r) changes to a notification of a vetted supervised role; and (s) changes to a notification of a notified supervised role. (2) Notifications made under rule 5.2(1)(o) and (p), relating directly to the licensee, must be followed by a cessation of business plan setting out arrangements that the licensee proposes to put in place in relation to its customers.

CONSUMER PROTECTION AND UNFAIR AGREEMENT
TERMS
6.1 Application
(1) Part 6 applies to all regulated agreements between customers and credit providers and all agreements to provide ancillary services in connection with regulated agreements.
6.2 Unfair agreement terms
(1) A term, within an agreement covered by this Part, will be unfair if, contrary to the requirements of good faith, it causes significant imbalance in the parties’ rights and obligations, to the detriment of the customer. (2) The following terms will be considered unfair and must not be used in agreements covered by this Part: – (a) terms which exclude or restrict a business’ liability arising from a breach of customer rights provided by law; (b) terms which relieve a business from providing services with reasonable skill and care; (c) terms that the Commission deems to be unfair. (3) Where an agreement, covered by this Part, includes any terms which would be considered to be unfair under subsection 2, then those clauses, containing the unfair terms, will be unenforceable. (4) Licensees must not enforce unfair terms.

Significant Imbalance – is concerned with the parties’ rights and
obligations under the agreement. The requirement is met if a term is so weighted in favour of the business that it tilts the rights and obligations significantly in its favour (for instance, by imposing a disadvantageous burden on the customer). This is not restricted to cases in which a purely financial burden, or cost, is imposed on the customer; the focus should be upon the customer’s legal rights and obligations generally. A contract may be considered balanced if both parties enjoy rights of equal extent and value, taking into account the nature of the agreement.
Customer Detriment – A finding of unfairness does not require proof that
a term has already caused actual harm. The fairness assessment is concerned with rights and duties and its focus is on potential, not actual, outcomes.
Good Faith – relates to the substance of terms as well as the way they are
expressed. It is based on the general principle of ‘fair and open dealing’, where terms are expressed fully, clearly, and legibly, and with due respect for the customer’s interests. Transparency This assessment relates to how an agreement is expressed. Agreements, made with customers, should be expressed in plain, understandable language, and be legible. Legibility and simple clarity of language are not enough to ensure compliance. Documentation needs to be drafted so as to put customers into a position where they can make a balanced and informed decision whether or not to enter into an agreement.

the provision of credit, loan of money
sale of goods or services on credit, including hire purchase
hiring or leasing of goods for longer than three months
issue of credit and charge cards
B. Ancillary service providers (for services ancillary to the provision of credit)
assisting a person entering into a regulated agreement
effecting an introduction for the purposes of entering into a
regulated agreement
acting as a broker in respect of a regulated agreement
acting as an intermediary or broker in respect of a regulated
agreement
entering into a regulated agreement
debt administration
as well as any other activity, under A or B, which may be specified by Regulations of the Policy and Resources Committee.

7.2 General Obligations
(1) All Part II Licence holders must meet the minimum criteria for licensing as set out at Schedule 4 of the Law. (2) All Part II Licence holders must treat their customers fairly and follow the Principles for conduct of business, as set out at Schedule 1.
7.3 Equivalence
(1) Any business regulated in another jurisdiction, to undertake activities which would, if they were undertaken in the Bailiwick, require a Part II Licence to be held, may qualify for an exemption from the requirement to hold a Part II Licence where the business – (a) is regulated in a jurisdiction, or under a regulatory regime, included at Schedule 210, for those relevant activities; and (b) has notified the Commission that it may qualify for an exemption.
7.4 Applications and regulated activities
(1) Applications for licences must specify the regulated activities which the applicant intends to engage in. (2) Licensees must not engage in any regulated activities outside of those declared on the original licence application without the prior, written, approval of the Commission. 10 Schedule 2 – Recognised equivalent jurisdictions and regulatory regimes.

(3) Applications for extensions to the regulated activities, covered by the licence, must be accompanied by the relevant fee.
7.5 Appointed retailers
(1) Appointed retailers must be subject to a formal, written, contract of engagement between the licensee and the appointed retailer. (2) The conduct of the appointed retailer is the responsibility of the licensee and the licensee must – (a) ensure the appointed retailer is aware of and acts in compliance with these Rules; (b) provide appropriate training, with respect to the provision of its services, to the appointed retailer and relevant employees, including, but not limited to – (i) dealing with credit applications; and (ii) recognising vulnerable customers. Guidance Appointed Retailers Appointed Retailers may offer and promote third party credit from a provider. Firms carrying out these activities, but not meeting the requirements for being Appointed Retailers (e.g. they do not have a written agreement with a third party lender) may be considered to be credit providers, in their own right, or providers of services ancillary to the provision of credit, and will require their own licence under Part II of the Law. While Appointed Retailers are not licensed and are not directly accountable for compliance with the Rules, in respect of any regulated activity carried on by a third party lender, the Commission may wish to visit them to understand how responsibilities are managed by the licensed credit

7.6 Early repayment
(1) Licensees must allow customers to make full early repayment of the principal of the credit provided under a regulated agreement. (2) The maximum early repayment fee, that licensees can charge, must be calculated in accordance with the requirements set out in Schedule 4. (3) The same limits apply where the licensee accepts a partial early repayment.
7.7 Information to customers
(1) In addition to the requirements set out at rule 3.3.1, licensees must ensure that the following information is provided to customers, in writing, before entering into a regulated agreement – (a) the interest payable, including the APR; (b) the total cost of the credit; (c) the repayment schedule, including the value and timing of all repayments; (d) details of the cooling-off period, or period of reflection; and (e) the arrangements for early repayment, including any fees or charges for early repayment.

7.8 Cooling-off period
Regulated agreements, excluding home finance agreements (1) For regulated agreements which are not home finance agreements, licensees must allow customers a cooling-off period of no less than two weeks from the date on which the agreement is entered into. (2) During the cooling-off period licensees must allow customers to cancel the regulated agreement, subject to the customer returning any credit, or goods, or services, provided. (3) Licensees must not impose additional charges or fees when the customer decides to cancel the regulated agreement before the loan is drawn down or any goods, or services, are provided. (4) Any fee charged in relation to the cancellation of a regulated agreement, during the cooling-off period, must be based on the costs to the licensee and not a percentage of the value of credit. Home finance agreements (1) For home finance agreements, licensees must allow customers a period of reflection of not less than two weeks from the date the licensee makes a final and unconditional offer of credit. (2) During the period of reflection licensees must not withdraw or amend the offer. (3) During the period of reflection licensees must not actively pursue, pressure, or contact, the customer. (4) When a property transaction, associated with a home finance agreement, does not proceed, licensees must allow the customer to return any drawn down funds and cancel the agreement. In these circumstances, the licensee must not charge any additional fees.

7.9 Maximum cost of credit
(1) For regulated agreements that are not home finance agreements, the total cost of credit must not exceed 100% of the principal value of the credit provided.
7.10 Treatment of surplus following default
(1) When a licensee takes possession of assets provided as security, as a result of a borrower defaulting on their obligations under a regulated agreement, whether via saisie proceedings or otherwise, any surplus realised from the sale of those assets must be returned to the borrower. (2) When a licensee sells assets, as a result of a default on a regulated agreement, they must do so on an arms-length basis and take reasonable steps to realise a market value for those assets. (3) In this rule, “surplus” refers to the amount left over, from the sale of the assets, following the settlement of the amount outstanding on the regulated agreement and the licensee’s reasonable expenses generated in the course of realising the security assets.
7.11 Appointed Service Providers
(1) When a licensee is an Appointed Service Provider (“ASP”), to an exempt private lender, they must – (a) have a written agreement in place for each private lender they represent; (b) ensure that each private lender complies with – (i) all rules relating to regulated agreements;

(ii) the Handbook; and
(iii) any conditions, on the exemption, issued by the Commission; (c) report, to the Commission on an annual basis, on the activities of the private lenders they represent; and (d) notify the Commission of any significant changes in circumstances of the private lenders they represent.

PROVISION OF ANCILLARY SERVICES UNDER PART II
LICENCES
8.1 General obligations
(1) All ancillary service providers must meet the minimum criteria for licensing set out at Schedule 4 of the Law. (2) All ancillary services providers must treat their customers fairly and follow the Principles for conduct of business set out at Schedule 1. (3) Ancillary service providers must disclose any links they have with specific lenders to the customer. (4) Where a licensee is both a provider of ancillary services and a credit provider it must make clear, to each customer, the capacity in which it is acting with respect to that customers credit arrangements.
8.2 Provision of advice
(1) Ancillary service providers must have due regard for the circumstances of the customer when providing information or offering advice on credit agreements, re-negotiations on such agreements, and debt administration. Guidance These general obligations apply irrespective of whether firms charge customers for their services directly or are remunerated by the lender through commission or any other arrangement. Links which must be disclosed to the customer include, for example, where the service provider is part of the same group as the credit provider or has exclusive or preferential arrangements in place with the credit provider.

(2) Where an ancillary service provider searches the market for suitable credit services, on behalf of a customer, it must disclose the extent of this search to the customer. (3) An ancillary service provider which arranges credit with a limited number of credit providers must disclose the extent of this limitation to the customer and provide a list of the financial firm businesses which it utilises.
8.3 Debt administration
(1) A Part II Licence must be held where debt administration activities have an effect on the terms and conditions of credit provision. (2) Debt administrators, requiring a Part II Licence, must follow the rules which apply to the provision of regulated agreements. (3) Debt administrators, providing the restructuring of home finance, must hold relevant qualifications in accordance with rule 2.14. Guidance Having due regard to the customers circumstances includes, but is not limited to, whether the product is affordable for the customer and whether there are any factors which the licensee knows, or reasonably ought to know, would make the product unsuitable for the customer. Where an ancillary services provider uses a preferred list of credit providers, this list should be disclosed to the customer. Providers should not purport to offer the best available products, or to search the market, when they do not do so. This may deter the customer from shopping around themselves and, potentially, identifying more suitable or better value products.

Guidance
Debt administration is a broad term and debt administration activities may be carried out by various ancillary service providers, as well as specialist debt counselling and debt administration services. As a guide, it often involves the renegotiation, or replacement, of existing credit agreements with new, or consolidated, arrangements. Examples of relevant effects on the terms and conditions of credit provision include, but are not limited to, restructuring, or extending debt payments.

PART III FINANCIAL FIRM BUSINESS LICENCES
9.1 Requirement for multiple licences
(1) Holders of licences, under any of the regulatory Laws, are not required to hold Part III Financial Firm Business (“FFB”) Licences but are expected to comply with the relevant rules in respect of any FFB activities.
9.2 Equivalence
(1) Any business regulated for activities licensed under a Part III FFB Licence in another jurisdiction must also hold a Part III FFB Licence in accordance with the Law. Guidance The Commission does not recognise equivalence with respect to a Part III FFB Licence. Guidance Firms previously registered under The Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 will be required to hold a
Part III Financial Firm Business Licence.

PART III VASP LICENCES
10.1 Requirements for multiple licences
(1) Holders of licences, issued under any of the regulatory Laws, who carry on activities regulated under Part III VASPs, must hold a Part III VASPs Licence.
10.2 Equivalence
(1) Any business regulated for Part III VASP activities in another jurisdiction must also hold a Part III VASP Licence in accordance with the Law.
10.3 Applications and regulated activities
(1) VASP licensees are only permitted to provide VASP services to institutional and wholesale counterparties. (2) VASP licensees are prohibited from dealing in, trading in, or offering – (a) virtual assets, or virtual asset services, which aim to obscure the parties to the transaction; or (b) virtual assets, or virtual asset services, which aim to obscure the flow of the assets. Guidance The Commission does not recognise equivalence with respect to a Part III VASP Licence.

(3) Applications for licences must specify the VASP activities which the applicant intends to engage in. (4) Licensees must not engage in any VASP activities not specified on the original licence application, without the prior, written, approval of the Commission. (5) Applications for extensions to the regulated activities, covered by the licence, must be accompanied by the relevant fee. (6) Part III VASP Licensees must only undertake the regulated activities permitted in accordance with their licence. Guidance Definition of virtual assets and virtual asset service providers The Law defines virtual assets and the activities that constitute being a virtual asset service provider when offered, or carried out, by way of business. These definitions should be interpreted broadly. The definition of ‘virtual assets’ (“VAs”) states that it does not include – “…digital representations of – (a) fiat currencies, or (b) general securities and derivatives within the meaning of category 2 in Schedule 1 to the Protection of Investors Law and other financial assets.” Digital representations of fiat currency and general securities or derivatives is intended to cover things like digital records of ownership, such as bank accounts in digital form and digital security registers. It would also include central bank digital currencies. The Law defines VASP activities as follows – “(a) exchange between virtual assets and fiat currencies, (b) exchange between one or more forms of virtual asset, (c) transfer of virtual assets, (d) safe-keeping and/or administration of virtual assets or instruments enabling control over virtual assets,

Guidance – continued
(e) participation in and provision of financial services relating to an issuer’s offer and/or sale of a virtual asset (including, without limitation and by way of example, an initial coin offering), whether by the issuer of the asset or a service provider affiliated or unaffiliated with the issuer in respect of the issue, offer, sale, distribution, ongoing market circulation and trading of the asset (including book-building, underwriting and market making),…” These activities should also be interpreted broadly and generally in line with the definitions within the FATF Standards and Recommendations. Activity (a), of the definition of VASP, refers to any activity in which VAs can be given in exchange for fiat currency or vice versa. If parties can pay for VAs using fiat currency, or can pay using VAs for fiat currency, carrying out this activity when acting by way of business is acting as a VASP. Similarly, in activity (b), if parties can use one kind of VA as means of exchange or form of payment for another VA, carrying out this activity, when acting by way of business, is acting as a VASP. It should be emphasised that activities (a) and (b) include the above activities regardless of the role the business plays vis-à-vis its users as a principal, as a central counterparty for clearing or settling transactions, as an executing facility, or as an intermediary facilitating the transaction. A VASP does not have to carry out every element of the exchange or transfer in order to qualify as a VASP, so long as it conducts the exchange activity by way of business. Activity (c) in the definition of VASP covers any activity that transfers ownership, or control, of a VA to another user, or transfers VAs between VA addresses or accounts held by the same user. “Transfer” includes moving a virtual asset from one virtual asset address or account to another. To help illustrate what this covers in practice, it is useful to consider the nature of the VA following a purported transfer. If a new party has custody or ownership of the VA, has the ability to pass control of the VA to others, or has the ability to benefit from its use, then transfer is likely to have occurred. This control does not necessarily have to be unilateral and multi-signature processes are not inherently excluded. Similarly, if a person maintains unilateral control of their assets at all times, this may indicate that “transfer” has not occurred. However, it could still fall under activity where it actively facilities the transfer. This also includes transfers between and among users of the same VASP, including where a VASP uses an off-chain internal recordkeeping system, and the VA remains in the same on-chain omnibus wallet or account.

Guidance – continued
As noted in the definition, activity (e) includes activities related to ICOs, in particular participation in an issuer’s offer, or sale of, VAs and the provision of financial services in relation to the same. For the avoidance of doubt, financial services include activity such as promoting the issue or sale of virtual assets. For clarity, the sole act of issuing a VA, entirely on its own, is not a VASP activity. However, any person who carried out activities of transfer or exchange, by way of business, in relation to that VA would be a VASP. The discrete act of creating VA software to issue a VA does not make the creator a VASP, unless the creator also performs the VASP activities mentioned in the definition by way of business. When considering whether a potential licensee is carrying out VASP activities, the Commission will take a functional approach by focussing on the real and economic effect of a potential licensee’s business model and activities – and less on terminology or legal structure. For example, outsourcing the carrying out of an activity to a group company, or third party, would not remove the need for a licence. However, providing services to a VASP, such as IT support services, cloud services, and administration services would not require licensing (if the service provider does not itself carry out any of the VASP activities). In addition, a merchant that accepts payment for goods or services in VAs, or a charity that accepts donations in VAs, is not carrying out a VASP activity, however the firm that facilitates the payment between the purchaser and the merchant is likely to be carrying out VASP activities. Businesses and charities that accept virtual assets should take care that they are not used as a means to exchange VAs into fiat currency by, for example, bad actors making multiple purchases or transactions, in VAs, then requesting refunds in fiat. For the avoidance of doubt, VAs do not include –

a transaction in which a person grants value as part of a store or gift card,
affinity or rewards programme, where said value cannot be taken from or exchanged with the person for legal tender, bank credit, or any digital asset; or
a digital representation of value issued by or on behalf a publisher of games
and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform. The above bullet points should be read as a general description and guide, not a strict definition as there may well be a number of “on the edge” cases. If in doubt, firms should contact the Commission.

10.4 Environmental declaration
(1) Part III VASP Licensees must publish information, annually, about the carbon emissions and energy consumption generated by their Virtual Asset (VA) activities; the environmental declaration. (2) An environmental declaration must include, but is not limited to – (a) the carbon emissions and energy consumption of its own, direct, activities; Guidance – continued Application and licensing process The Commission intends to use its Soundbox approach when considering potential VASP licensees. As part of this process, when the Commission initially grants a licence to a VASP applicant it will, in most cases, have a limited duration and may be subject to a number of conditions. These conditions may include, without limitation –

restrictions on the volume of business the firm can carry out;
restrictions on the kinds of business the firm can carry out;
more frequent reporting requirements; and
additional capital and liquidity requirements.
Following completion of the initial period of licensing, the Commission will decide whether to renew the licence, how long for, and whether to amend any of the restrictions. Given the diverse nature of potential VASP business models and activities, as part of this process the Commission may set additional requirements based on the business model and risk profile of potential licensees. Capital requirements and Rules for a virtual asset exchange are likely to be very different to those for a virtual asset custodian, for example.

(b) the carbon emissions and energy consumption of all VA transactions carried out by, or on behalf of, the licensee; (c) indirect carbon emissions generated by VA transactions carried out by, or on behalf of, the licensee; and (d) information regarding the method of calculation and the source of data used in the calculation. (3) The declaration must include gross emissions as well as mitigated emissions. (4) The licensee must ensure that, where estimations are used, this is noted and that they are prudent. (5) The period covered by the declaration must be the licensee’s financial year. (6) Annual environmental disclosures must remain readily accessible to the public. Guidance If a licensed VASP chooses to meet its disclosure requirements by publishing the information on its website, the location should be readily apparent and easy to navigate to. Both current and prior years disclosures should remain published and accessible. Licensees can make use of publicly available data and sources when calculating their emission and energy consumption but should consider the reliability of such sources and whether any assumptions are prudent and not overly optimistic. Indirect carbon emissions generated by VA transactions include, but are not limited to, emissions from the production of e-waste.

10.5 Safekeeping of customer virtual assets
(1) A Part III VASP Licensee which has custody of a customer’s virtual assets must – (a) keep safe, or arrange for the safekeeping by an eligible custodian, of – (i) any documents of title; (ii) cryptographic keys; or (iii) any other means of control, either over the customer’s virtual assets or relating to them; (b) ensure that virtual assets, bought or held for a customer in the course of conducting its VASP business, are properly recorded in the customer’s name or, with the customer’s consent, in the name of an eligible custodian or nominee with the addition, where appropriate, of an account designation name, or number, which is unique to the customer; (c) ensure that customer entitlements, to virtual assets, are identifiable from those in the beneficial ownership of the licensee, and any other customer of the licensee; (d) not use a customer’s virtual assets for its own account unless it has obtained that customer’s explicit, prior, written consent; (e) where the licensee holds customer’s virtual assets with a nominee of the licensee, accept responsibility for the acts or omissions of that nominee; (f) not lend, or arrange the lending, of customer’s virtual assets to a third party, unless –

(i) the customer has consented, in writing, and the loan is subject to appropriate documented terms and conditions; (ii) where customer’s virtual assets belonging to more than one customer are registered in the same name, each customer whose virtual assets are so registered has consented, in writing, to the lending of customer virtual assets registered in that name and each customer’s entitlement is clearly ascertained; (iii) adequate collateral is obtained and maintained for the duration of the loan, in accordance with any written instructions given by the customer; and (iv) the licensee arranges for all income, inclusive of dividends, fees, or commissions; other than any fees payable to the licensee for arranging the loan; either to be paid to the customer direct or to be received, by the licensee, on the customer’s account and treated as customer money unless the customer instructs otherwise. Guidance The Commission considers it to be sufficient, if deemed appropriate by the licensee, for a customer’s entitlement to be identified by an account designation name, or number, which is unique to that customer.

PART IV LICENCES
11.1 Requirement for multiple licences
(1) Holders of licences, issued under any of the regulatory Laws, who carry on activities regulated under Part IV of the Law must also hold a Part IV Licence.
11.2 Applications and regulated activities
(1) Applications for licences must specify the regulated activities which the applicant intends to engage in. (2) Licensees must not engage in any regulated activities, outside of those declared on the original licence application, without the prior, written, approval of the Commission. (3) Applications for extensions to the regulated activities, covered by the licence, must be accompanied by the relevant fee.
11.3 General Obligations
(1) Where a Part IV Licensee enters into a regulated agreement with a customer, via their platform, they must ensure that all the rules pertaining to regulated agreements are followed by the lender. Guidance NOTE: Where a Part IV Licensee provides credit to a customer they must be licensed under Part II or Part III of the Law, as appropriate.

(2) Part IV Licensees must treat all users of the platform as customers.
11.4 Customer limits
(1) A licensee must not allow a customer to lend, invest, or otherwise provide more than 10% of the customer’s net assets via transactions on the licensee’s platform, whether as a single transaction or a combination of transactions. (2) Net assets must not include – (a) property which is the customer’s primary residence; (b) existing finance where the customer’s primary residence has been put up as security against the loan; (c) any customer rights held under a qualifying contract of insurance; (d) any benefits, in the form of pensions or otherwise, which are payable on the termination of the customer’s service, or on their death or retirement, and to which they, or their dependants are, or may be, entitled to; (e) unless an investment is made jointly and severally by all parties, any funds the customer does not hold absolute title in; (f) funds held, in security, by another financial institution; and (g) funds, or assets, that have a charge, bond, or other form of security registered against them.

11.5 Information for customers
(1) Part IV Licensees must ensure that all information provided to customers is clear, fair, and not misleading. (2) At a minimum, licensees must provide the following information to a customer before they enter into a transaction - (a) who the parties to the transaction are; (b) the terms of the transaction including, but not limited to, - (i) its duration; (ii) all amounts payable by the customer and the timing of these payments; (iii) any return payments due to the customer and the timings of these return payments; (iv) how any amounts set out are calculated; (v) the obligations of the customer; and (vi) any rights granted to the customer; Guidance A licensee would be expected, where necessary, to collect sufficient information from their customers to be able to calculate that customer’s net assets.
Part IV Licensees may rely on self-certification, from customers, setting out their
net assets.

(c) all income and revenue to be received, by the licensee or any associated party of the licensee, along with the basis of their calculation; (d) a clear explanation of the risks of the transaction, and a customer agreement in accordance with rule 3.3. (3) A licensee must, after a transaction has been carried out on behalf of a customer, provide the customer with a statement relating to that transaction. This statement must include - (a) the name and address of the licensee; (b) the customer’s name and account number; (c) the date of the transaction; (d) the final terms of the transaction, including the information set out in (2)(b); and (e) any other relevant matters in relation to the transaction. Guidance Information on any rights granted to the customer would include, for example, any equity or security granted over assets. Obligations of the customer would include, for example, any rights granted to others or any security, or charge, granted over the assets. A clear explanation of the risks could include, but is not limited to –

The fact that some, or all, of the customer’s capital is at risk;
That any assets used as security could be lost;
The extent and value of any protections or guarantees that the platform
operator provides.

APPLICATIONS FOR EXEMPTIONS FOR LICENSING
12.1 Applications to the Commission
(1) The Commission will consider applications from businesses and individuals for exemptions from the need for licensing, on an application-by-application basis, where the application has been submitted as per the explanatory note on the Commission’s website. Guidance In addition to individual exemptions, the Commission intends to also issue a number of class exemptions which will disapply the requirement for certain classes of person from the requirement to hold a licence to carry on specific business regulated by the Law.

GENERAL PROVISION
13.1 Interpretation
(1) Terms have their ordinary meaning unless specifically defined in the Law or in these Rules. (2) The following definitions should be followed - “appointed retailer” refers to a provider of services ancillary to the provision of credit who offers credit for the purchase of goods or services, via a third party licenced credit provider, whilst acting as an agent of that third party under a written agreement; “Appointed Service Provider” means a Part II licensee that is appointed, by an exempt private lender, and is responsible for ensuring that the relevant rules and AML/CFT requirements are met by the private lender; “approved bank” means a person who is licensed under The Banking Supervision (Bailiwick of Guernsey) Law, 2020, or is registered under The Banking Business (Jersey) Law, 1991, or authorised under the Isle of Man Financial Services Act 2008, or is authorised to carry on a banking or deposit-taking business under the law of the UK, of any EU member state, or under the law of any country or territory which may be listed in notices issued by the Commission; “Approved Qualification”, in relation to those providing advice to customers relating to home finance and lending against an individual’s home, are those agreed by the Commission and listed, as Approved Qualifications, on the Commission’s website; “board” has the meaning given to it in the Companies (Guernsey) Law, 2008 or, in the case of an unincorporated entity, the committee or managing board of a partnership or other similar governing body; “block of business” means business that increases the receiving licensee’s, or reduces the transferring licensee’s, income by 15% or more; such figure being calculated using the last audited accounts of that licensee; “complaint” means any oral or written expression of dissatisfaction, whether justified or not, for or on behalf of a person about the provision of, or failure to provide, a financial service which alleges that the complainant has suffered (or may suffer) financial loss, material distress, or material inconvenience;

“consumer credit” refers to regulated agreements that meet the definition of subsection 6(1)(a) of the Law; “customer money” is money, in any currency, which a licensee holds for, receives from, or owes to a customer, in the course of carrying out their business, unless that money has been received for payment due under a regulated agreement; “exempt private lender” means an individual, or firm, that holds a discretionary exemption, issued by the Commission, from requiring a licence under Part II of the Law, subject to meeting a number of conditions including, but not limited to – (a) only making a limited number of loans per year, (b) maintaining a loan portfolio below a specified value, (c) complying with the Commission’s rules regarding their lending, and (d) appointing an ASP; “High Net Worth Individual (“HNWI”), means – (e) in relation to consumer credit agreements, an individual with income greater than one hundred thousand pounds (£100,000) per annum, or net assets in excess of one million five hundred thousand pounds (£1,500,000), and (f) in relation to home finance agreements, an individual with income greater than three hundred thousand pounds (£300,000) per annum, or net assets in excess of three million pounds (£3,000,000), where net assets must not include the individual’s primary residence, or any loan secured on it, or the benefits of a pension, or lump sum payable, on retirement or the termination of service of the individual concerned; “home finance” refers to regulated agreements that meet the definition of subsection 6(1)(b) of the Law; “interest rate” refers to an interest rate expressed as a fixed or variable percentage applied on an annual basis to the amount of credit which has been drawn down; Guidance Customer money – A licensee holds or receives money where either that money is not immediately due and payable on demand to the licensee for its own account, or, although due and payable, is held or received in respect of any obligation of the licensee which has not yet been performed. A licensee owes money where it is due and payable to the customer.

“open-end credit agreement” is a credit agreement of no fixed duration and includes credits which must be repaid in full within or after a period but, once repaid, become available to be drawn down again; “principal” the principal value of credit, advanced to a customer, is the amount loaned excluding any interest, fees or other charges; “regulated activities” are those activities, requiring a licence, as set out in sections 2, 16, 17 and 26 of the Law; and “significant complaint” means a complaint alleging a breach of the Law, mala fides, malpractice, impropriety, or repetition or recurrence of a matter previously complained of, whether significant or otherwise.

CITATION AND COMMENCEMENT
14.1 Citation and commencement
(1) These Rules may be cited as the Credit Rules 2022.
(2) These Rules come into force on *.

SCHEDULE 1
The Principles

Integrity
A licensee should observe high standards of integrity and fair dealing in the conduct of its business.
Skill, Care, and Diligence
A licensee should act with due skill, care, and diligence towards its customers and counterparties.
Conflicts of Interest
A licensee should either avoid any conflict of interest arising or, where a conflict arises, should ensure fair treatment to all its customers by disclosure, internal rules of confidentiality, declining to act, or otherwise. A licensee should not unfairly place its interests above those of its customers and, where a properly informed customer would reasonably expect that the business would place their interests above its own, the business should live up to that expectation.
Information about Customers
A licensee should seek from customers it advises, or for whom it exercises discretion, any information about their circumstances and investment objectives which might reasonably be expected to be relevant in enabling it to fulfil its responsibilities to them.
Information for Customers
A licensee should take reasonable steps to give a customer it advises, in a comprehensible and timely way, any information needed to enable them to make a balanced and informed decision. A licensee should similarly be ready to provide a customer with a full and fair account of the fulfilment of its responsibilities to them.
Customer assets
Where a licensee has control of, or is otherwise responsible for, assets belonging to a customer which it is required to safeguard, it should arrange proper protection for them, by way of

SCHEDULE 2
Designated equivalent jurisdictions and regulatory regimes For the purposes of these Rules the following jurisdictions and regulatory regimes are recognised for the purposes of equivalence.
Part II Licence Holders Only
UK

SCHEDULE 3
Calculation of the APR
Assumption for calculation

For the purposes of calculating the total charge for credit and the APR for customer finance
agreements – a. it is assumed that the regulated agreement is to remain valid for the period agreed and that the credit provider and the customer will fulfil their obligations under the terms and by the dates specified in that agreement; b. in the case of a regulated agreement that allows variations in –
i. the rate of interest; or
ii. where applicable, charges contained in the APR,
where these cannot be quantified at the time of the calculation, it must be assumed that they will remain at the initial level and will be applicable for the duration of the agreement; Guidance These assumptions are intended to ensure that the total charge for credit and APR are calculated in a consistent way to enable customers to make fair comparison between different offers. The assumptions are intended to apply where they are necessary in relation to the type of agreement under consideration, for example, assumptions concerning amounts drawn down or the duration of the credit agreements where they are otherwise uncertain. In general, the total charge for credit and APR will depend on the terms specific to the regulated agreement.

The amounts paid, by both parties at different times, shall not necessarily be equal and
shall not necessarily be paid at equal intervals.
The starting date shall be that of the first drawdown.
Intervals between dates used in the calculations shall be expressed in years or in
fractions of years.
A year is assumed to have 365 days (366 days for a leap year), 52 weeks, or 12 equal
months.
An equal month is assumed to have 30.41666 days (365/12) regardless of whether or
not it is a leap year.
The result of the calculation shall be expressed with an accuracy of at least one decimal
place; if the figure at the following decimal place is greater than or equal to 5, the figure at that decimal place is increased by one. The equation can be rewritten, as set out below, using a single sum and the concept of flows (Ak), which will be positive or negative, either paid or received during periods l to k, expressed in years. 𝑆 = ∑𝐴𝑘 𝑛 𝑘=1 (1 + 𝑋) 𝑘 −𝑡 S being the present balance of flows; if the aim is to maintain the equivalence of flows, the value will be 0

Calculation of home finance APR
3. The underlying formula for the calculation of APR, in respect of home finance calculations,
is the same as that set out at paragraph 2.
4. Underlying assumptions –
a. APR must be calculated on the assumption that the customer does not –
i. receive tax relief on their mortgage payment, other than any tax relief which
may be applicable in respect of relevant life insurance premiums in accordance with the tax rules applicable in the relevant part of the Bailiwick at the time of the agreement; and
ii. does not receive home purchase assistance or other support to buy the
property under any States of Guernsey arrangement or other scheme which may apply in the relevant part of the Bailiwick; b. the mortgage lender and customer, at all times, perform their obligations under the contract and the mortgage lender will not exercise any right to repayment at other times;
c. any variations in the interest rate, which are due to occur after a specific period of
time or are triggered by a specific event –
i. where the event is not certain to occur, and does not occur, the consequent
change in rate does not occur;
Guidance
These requirements are based on the UK Financial Conduct Authority’s rules, set out in MCOB 10.3, as at the time of its initial publication in July 2022 (based on the version dated 07/07/2022). Where a reference is made to any reference is made to a “mortgage arrangement” or “mortgage” it should be read as “home finance agreement” or other lending which is a regulated agreement secured against residential property, for the purposes of the Law. A “secured lending contract” refers to an agreement which is a regulated contract secured against residential property in the Bailiwick.

i. one three hundred and sixty-fifth part of a year, or, if it is a leap year, one
three hundred and sixty-sixth and a quarter part of a year; and
ii. every day must be taken to be a business day.
7. Where information cannot be ascertained by a home finance lender, or broker, at the time
of making an agreement then the following assumptions must be used in calculating the total cost of credit and the APR for that credit, in the following order (i.e. assumptions on the amount of credit must be applied before other assumptions and calculations are made) – a. assumptions as to the amount of credit –
i. where the amount of credit, to be provided under the agreement, cannot be
ascertained at the date of making the agreement – A. in the case of an agreement for running-account credit under which there is a credit limit, that amount must be taken to be that credit limit; and B. in any other case, that amount must be taken to be £100;
ii. where a mortgage lender makes a further advance, to the customer in
addition to the amount originally borrowed under the home finance agreement, the APR for the further advance must be calculated in respect of the further advance alone (and any related charges) and not in respect of the total amount borrowed; b. assumptions as to the period for which the credit is provided –
i. in relation to a lifetime home finance agreement, where the APR is
calculated for the purpose of a financial promotion, it must be assumed that the credit is being provided for a period of 15 years beginning with the relevant date;
ii. in relation to a lifetime home finance agreement, where the APR is
calculated for the purpose of an illustration, the period for which the credit is to be provided must be calculated in accordance with the appropriate rules and guidance;
iii. in relation to a retirement interest-only home finance agreement, where the
APR is calculated for the purposes of an illustration, the period for which the credit is to be provided must be determined in accordance wit the appropriate rules and guidance;

iv. where, in any other case, the period for which credit is to be provided is
not ascertainable at the date of the making of the agreement, it must be assumed that credit is provided for beginning with the relevant date;
c. assumptions where the rate, or amount, is referenced to another factor – subject to
the following paragraphs, where the rate or amount of any item included in the total charge for credit, or any amount of any repayment of credit under a transaction, is to be ascertained by reference to the level of any index, or other facto, in accordance with a specified formula, the rate, or amount, must be taken to be the rate, or amount, so ascertained. The formula must be applied as if the level of the index, or other factor, subsisting at the date of the making of the agreement were that subsisting at the date by reference to which the formula is to be applied; d. assumptions where secured lending contracts provide for variation in the rate of interest and, under the paragraphs above, the variation will take place but the amount of the variation cannot be ascertained at the date of making the agreement –
i. where a secured lending contract provides a formula for calculating a
varied rate by reference to a standard variable rate of interest applied by the business, or any other fluctuating rate of interest, but does not enable the varied rate to be ascertained at the date of the making of the agreement because it is not known, on that date, what the standard variable rate will be, or (as the case may be), at what level the fluctuating rate will be fixed when the varied rate is due to be calculated, it must be assumed that the rate, or level, will be the same as the initial standard variable rate;
ii. where a secured lending contract provides for the possibility of any
variation in the rate of interest (other than a variation referred to in the paragraph above), which it is to be assumed will take place, but does not enable the amount of that variation to be ascertained at the date of making the agreement, it must be assumed that the varied rate will be the same as the initial standard variable rate; and in this paragraph – “initial standard variable rate” means –

the standard variable rate of interest which would be applied by the
mortgage lender, or mortgage administrator, to the agreement on the date of the making of the agreement where the agreement provides for interest to be paid at the mortgage lender, or mortgage administrator’s, standard variable rate with effect from that date; or
if there is no such rate, the standard variable rate of interest applied
by the mortgage lender, or mortgage administrator, on the day of the making of the agreement in question to other secured lending agreements, or, where there is more than one such rate, the highest such rate; “varied rate” means any rate of interest charged when a variation of the rate of interest is to be assumed under the paragraphs above; e. further assumptions –
i. where –
A. the period for which the credit, or any of it, is to be, or may be, provided cannot be ascertained at the date of the making of the agreement; and B. the rate, or amount, of any item included in the total charge for credit will change at a time provided in the transaction within one year beginning with the relevant date, the rate, or amount, must be taken to be the highest rate or amount under the transaction at any time in that year;
ii. where the earliest date on which credit is to be provided cannot be
ascertained at the date of making the agreement, it must be assumed that credit is provided on that date;
iii. in the case of any transaction, it must be assumed –
A. that a charge payable at a time, which cannot be ascertained at the date of the making of the agreement, is to be payable on the relevant date, or, where it may reasonably be expected that a customer will not make payment on that date, on the earliest date at which it may reasonably be expected that they will make payment; or B. where more than one payment of a charge of the same description is to be made at times which cannot be ascertained at the date of the making of the agreement, that the first such payment will be payable on the relevant date (or, where it may reasonably be expected that a customer will not make payment on that date, at the earliest date on which it may reasonably be expected that they will make payment), that the last such payment will be payable at the end of the period for which credit is provided and that all

other such payments (if any) will be payable at equal intervals between those times. Total charges for credit – home finance agreements
8. For the purposes of home finance agreements, the total charge for credit, which may be
provided under an actual or prospective agreement, is the total of the charges specified in this Schedule, less the exclusions specified in this Schedule, which apply in relation to the regulated agreement and determined at the time of the making of the agreement.
9. The amounts of the following are included in the total charge for credit, in relation to an
agreement (subject to the exceptions set out below) – a. the total of the interest on the credit which may be provided under the agreement; b. other charges, at any time payable, under the transaction by, or on behalf of, the customer whether to the business or any other person; and
c. where the making, or maintenance, of a contract of insurance is required by the
business –
i. as a condition of making the agreement; and
ii. for the sole purpose of ensuring complete, or partial, repayment of the
credit and complete, or partial, payment to the business of such charges included, in the total charge for credit, as are payable to them under the transaction in the event of death, incapacity, illness, or unemployment of the customer, notwithstanding that the whole, or part, of the charge may be repayable at any time or that the consideration may include matters not within the transaction or subsisting at a time not within the duration of the agreement. Guidance This means, for example, that the following charges must be included within the total charge for credit –

any fee payable to a mortgage intermediary for arranging the contract; and
any higher lending charge.

Charges required to be included within the total charge for credit must not be excluded
on the basis that those charges are refundable under certain circumstances.
The total charge for credit and APR must not reflect the ‘value’ of any cashback or similar
incentive linked to the agreement.
The following charges must not be included in the total charge for credit in relation to an
agreement – a. any charge payable, under the agreement, to the business upon failure, by the customer, to do, or not to do, anything which they are required to do, or not to do; b. any charge –
i. which is payable, by the business to any person, upon the failure, by the
customer, to do, or not to do, anything which they are required under the agreement to do, or not to do; and
ii. which the business may, under the agreement, require the customer to pay
to them, or to another person on their behalf;
c. any charge related to a regulated restricted-use credit agreement to finance a
transaction between the customer and the business (whether forming part of that agreement or not), or to finance a transaction between a person ( the “supplier”), other than the business, which would be payable if the transaction were for cash; d. any charge (other than a fee, or commission, charged by a credit broker or intermediary), not within (1)(c) –
i. of a description which relates to services or benefits incidental to the
agreement, and to other services, or benefits, which may be supplied to the customer; and
ii. which is payable to fulfil an obligation incurred by the customer under
arrangements which were effected before they applied to enter into the agreement and are not arrangements under which the customer is bound to enter into any personal credit agreement; e. any charge under arrangements for the care, maintenance or protection of any land or goods, except as at 13.;

f. charges for money transmission services relating to an agreement for a current account, under which the customer may, by cheques or similar orders payable to themselves or to any other person, obtain or have the use of the money held, or made available, by the business and which records alterations in the financial relationship between the business and customer – being charges which vary with the customer’s use of the agreement; g. any charge for a guarantee, other than a guarantee –
i. which is required by the business as a condition of making the agreement;
and
ii. the purpose of which is to ensure complete, or partial, repayment of the
credit and complete, or partial, payment to the business of such of those charges included in the total charge for credit as are payable to them, under the agreement, in the event of death, incapacity, illness or unemployment of the customer; h. charges for the transfer of funds (other those set out at f.) and charges for keeping an account intended to receive payments towards the repayment of the credit and the payment of interest and other charges, except where the customer does not have reasonable freedom of choice and where such charges are abnormally high – this does not exclude, from the total charge for credit charges for the collection of the payments to which it refers, whether these payments are made in cash or otherwise; and
i. a premium, under a contract of insurance - other than a contract of insurance set
out as being specifically included, in the total charge for credit, at paragraph 9c.
13. A charge under 12e. only has effect –
a. where, under the arrangement –
i. the services are to be performed if, after the date of making the agreement,
the condition of the land, or goods, becomes, or is in immediate danger of becoming, such that the land, or goods, cannot reasonably be enjoyed or used; and
ii. the charge will not accrue unless the service is performed; or
b. where –

i. provision of substantially the same description as to the to which the
arrangements relate is available, under comparable arrangements, from a person who is not the business, or a supplier, or a credit-broker, or a mortgage intermediary, who introduced the business and the customer;
ii. the arrangements are made with a person chosen by the customer; and
iii. if, in accordance with the agreement, the consent of the business, or of a
supplier, or of the mortgage intermediary or credit broker who introduced the customer and the business is required to the making of the agreement – where the agreement provides, such consent may not be unreasonably withheld because no incidental benefit will, or may, accrue to the business, or to the supplier, or to the credit broker, or to the mortgage intermediary, or on any other ground.
14. References, in this Schedule, to the business, a supplier, a mortgage intermediary, and a
credit broker include references to their near relative, partner, or a member of a group of which they are a member, any person nominated by them or any such person in relation to the arrangements, and to a near relative of that partner; and ‘near relative’ means, in relation to any person, the husband, wife, civil partner, father, mother, brother, sister, son or daughter of that person; and ‘group’ means the person (including a company) having control of a company together with all the companies directly, or indirectly, controlled by them.

SCHEDULE 4
Calculation of maximum early repayment fees in relation to Regulated Agreements

Regulated agreements (excluding home finance agreements)
Licensees must use either Method 1 or Method 2 to calculate the maximum early repayment fee.
1.1 Method 1
Licensees must not charge more than one month of interest payments, as an early repayment fee, of regulated agreements with a remaining duration of less than twelve months. Licensees must not charge more than two months of interest payments, as an early repayment fee, on regulated agreements with a remaining duration of twelve months or more.
1.2 Method 2
The maximum early repayment fee that licensees can charge is the principle amount outstanding, minus the rebate, as calculated below. Items included in the calculation of rebate a. Subject to b., the rebate must be calculated by reference to all sums paid, or payable, by the debtor under, or in connection with, the agreement (whether to the creditor or any other person) and included in the total charge for credit. b. The following may be excluded from the calculation of the rebate –
i. taxes, duties, fees, and charges payable under legislation;
ii. sums paid, or payable, under linked transactions - except sums
paid before the settlement date in respect of cash, goods, or services to be supplied under the transaction wholly, or partly, after that date; Guidance “Rebate” refers to a rebate of charges for credit included in the total charge for credit.

iii. any fee or commission paid, by the debtor, under a credit brokerage
contract relating to the agreement , other than a fee or commission financed by the agreement. Calculation of the amount of rebate
c. The amount of the rebate is the difference between the total amount of the
repayments of credit that would fall due for payment after the settlement date, if early settlement did not take place, and the amount given by the following formula - ∑ 𝑚 𝑖=1 𝐴𝑖 (1 + 𝑟) 𝑎𝑖 minus ∑ 𝑛 𝑗=1 𝐵𝑗 (1 + 𝑟) 𝑏𝑗 where - Ai = the amount of the i th advance of credit; Bj = the amount of the j th repayment of credit; r = the periodic rate equivalent of the APR/100; m = the number of advances of credit made before the settlement date; n = the number of repayments of credit made before the settlement date; ai = the time between the i th advance of credit and the settlement date, expressed in periods; bj = the time between the j th repayment of credit and settlement date, expressed in periods; and ∑ represents the sum of all the terms indicated. d. In calculating the rebate, where the creditor so elects, any repayment of credit made at a time or a rate other than that provided for in the agreement must be taken to have been made at the time or rate provided for. Settlement date e. The settlement date for calculation of the rebate must be taken to be –

i. where the debtor has give notice with a view to discharging their
indebtedness under the agreement; the date falling 28 days after the date on which the notice was received by the creditor, or any later date specified as the date of early settlement in the notice, if the debtor pays the amount in question (less any rebate allowable under these Rules) not later than that date;
ii. the date specified as the date for payment of any sum by the debtor
involving early settlement in any notice served by the creditor requiring early settlement, any default notice, or any notice served by the creditor terminating the agreement; if the debtor pays the amount in question (less any rebate allowable under these Rules) not later than that date;
iii. in any other case, the date on which the debtor pays any sum
involving early settlement.
Deferment of settlement date f. Where the agreement provides for the credit to be repaid over, or at the end of, a period which is more than a year after the relevant date, the settlement date for the calculation of the rebate may be deferred by –
i. one month; or
ii. where the length of a month’s deferment would be more or less than
30 days, and the creditor so elects, 30 days.
Variation of rates and amounts g. Where, under a power contained in an agreement –
i. the rate or amount of any item included in the total charge for
credit;
ii. the amount of any instalment or repayment of credit; or
iii. the time fixed by the agreement for the debtor’s indebtedness to
be discharged, is or can be varied, the rate or amount of any such variation , for the purpose of the calculation of the rebate must be taken to be, in respect of any period of

time commencing on or after the settlement date, the rate or amount or time subsisting at that date.
2. Regulated agreements that are home finance agreements
In the case of home finance agreements where the interest rate payable is fixed or discounted for a set period of time, licensees must not charge early repayment fees in excess of 1% (one percent) of the outstanding principle of the loan, for each remaining year or part thereof, that the interest rate is fixed, or discounted, under the agreement.

SCHEDULE 5
Unfair agreement terms in relation to Regulated Agreements

This Schedule contains an inexhaustive list of terms which the Commission would
consider to be unfair agreement terms in most circumstances.
When deciding whether a term is unfair the Commission will take all circumstances into
account. There are certain circumstances where a term, which would otherwise be considered unfair, would be permissible. List of Unfair Terms11
A term which inappropriately excludes or limits the legal rights, of the customer, in
the event of total or partial non-performance, or inadequate performance, by the business of any of the agreement obligations – including the option of offsetting a debt owed to the business against any claim which the customer may have against the business.
A term which makes the agreement binding, on the customer, in a case where the
provision of services, by the business, is subject to a condition whose realisation depends on the business’ will alone.
A term which permits the business to retain sums paid, by the customer, where the
customer decides not to conclude or perform the agreement, without providing for the customer to receive compensation for an equivalent amount, from the business, where the business is the party cancelling the contract. 11 This list is not exhaustive and the Commission, at all times, retains discretion with respect to unfair agreement terms. Guidance For example, the following is a situation where a term, which would otherwise be considered unfair, would be permissible:
Changes made to interest rates to reflect changes in the base rate.
However, in this circumstance the Commission would expect that the customer would be notified immediately.
A term requiring that, where the customer decides not to conclude or perform the
agreement, the customer must pay the business a disproportionately high sum in compensation for services which have been supplied.
A term which requires that a customer, who fails to fulfil his obligations under the
agreement, pays a disproportionately high sum in compensation.
A term which authorises the business to dissolve the agreement, on a discretionary
basis, where the same facility is not granted to the customer – or permitting the business to retain any sums paid for services not yet supplied, by the business, where it is the business who dissolves the agreement.
A term enabling the business to terminate an agreement, of indeterminate duration,
without reasonable notice except where there are reasonable grounds for doing so.
A term which automatically extends an agreement of fixed duration, where the
customer does not indicate otherwise, when the deadline fixed for the customer, to express a desire not to extend the agreement, is unreasonably early.
A term which irrevocably binds the customer to terms with which the customer has
had no real opportunity of becoming acquainted with before the conclusion of the agreement.
A term which restricts customers from taking further loans with other credit
providers.
A term which enables the business to alter the terms of the agreement, unilaterally
and without a valid reason, which is specified in the agreement.
A term permitting the business to determine the characteristics of the subject matter
of the agreement after the customer has been bound by it.
A term which enables the business to alter, unilaterally and without a valid reason,
any characteristics to the services to be provided.
A term which gives the business the discretion to decide the price payable, under
the agreement, after the customer has been bound by it, where no price, or method of determining the price, is agreed at the time of entering the agreement.
A term which permits the business to increase the price of services without giving
the customer the right to cancel the agreement if the final price is too high, in relation to the price agreed when the agreement was entered into.
A term which gives the business the right to determine whether the services
supplied are in conformity with the agreement or give the business the exclusive rights to interpret any term of the agreement.
A term which limits the business’ obligation to respect the commitments undertaken
by the business’ agents – or making the business’ commitments subject to compliance with a particular formality.
A term which obliges the customer to fulfil their commitments where the business
does not perform their obligations.
A term which allows the business to transfer the business’ rights and obligations,
under the agreement, where this may reduce the rights or guarantees for the customer, without the customer’s agreement.
A term which excludes, or hinders, the customer’s rights to take legal action or
exercise any other legal remedy, by –

a. requiring the customer to take disputes exclusively to arbitration not covered by legal provisions; b. unduly restricting the evidence available to the customer; or
c. imposing, on the customer, a burden of proof which, according to the
applicable law, should lie with another party to the agreement.
Guidance
Cancellation without reasonable notice does not include a term by which the business reserves the right to terminate, unilaterally, a contract of indeterminate duration without notice where there is a valid reason, and the business is required to inform the customer of the cancellation immediately and advised of the date from which the change will take effect. Variation without a valid reason does not include a term by which the business reserves the right to alter the interest payable by, or due to, the customer, or the amount of other charges for services, where there is a valid reason, provided –

the business is required to inform the customer of the alteration
at the earliest opportunity, and
the customer is free to dissolve the agreement immediately.

EXPLANATORY NOTE

FORM *(2022)
ANNEX 4:
OTHER INFORMATION – VIRTUAL ASSET SERVICE PROVIDERS Name of Applicant:
Please indicate below which of the following activities are to be undertaken, for or on behalf of another natural or legal person:
i. Exchange between virtual assets and fiat currency ☐
ii. Exchange between one or more forms of virtual assets ☐
iii. Transfer of virtual assets ☐
iv. Safekeeping and/or administration of virtual assets or instruments
enabling control over virtual assets ☐
v. Participation in and provision of financial services related to an issuer’s
offer and/or sale of a virtual asset ☐

Please provide copies of the following, together with an indication as to where required
information can be located, if included as part of one or more of the other documents submitted:
Please only provide the below documentation in respect of the regulated activity(ies) to which this application relates. Submitted N/A a) Your assessment of the environmental impact of the activities to be undertaken, together with an independent expert report on the same; ☐ b) Details of the disclosure to be publicly available in relation to environmental impact; and ☐ c) Schedule identifying where the above can be found if not submitted as a separate document. ☐ ☐ Please note that the Commission will have additional questions contingent on the nature of the business activities undertaken. DRAFT

FORM *(2022)
ANNEX 2:
FOR ALL APPLICANTS APPLYING TO CARRY ON SERVICES ANCILLARY TO CREDIT IN RELATION TO REGULATED AGREEMENTS What is a regulated agreement? “Regulated agreements” are defined under section 6(1) of The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (“the Law”) as:
‘A regulated agreement is one made by or on behalf of, and between – a) a provider of credit and a customer who is an individual acting for purposes wholly or mainly outside that individual’s trade, business or profession, whereby credit is provided and interest or other charges may be levied on the customer, or b) a provider of credit and any customer, whereby credit is provided and interest or other charges may be levied on the customer and the credit is secured against real property situated in the Bailiwick and used for residential purposes.’ What if my business provides services ancillary to credit, but none of the credit arrangements are regulated agreements? A licence is not required for this activity unless it falls within the financial firm business (Part III) list of activities. Please check the financial firm business decision tree [hyperlink to be inserted] to check whether your firm should instead apply under this licence type. If so, please complete annex 3 to the application form. Name of Applicant:

Please provide copies of the following:
Please only provide the below documentation in respect of the regulated activity(ies) to which this application relates. Submitted N/A a) Policy in relation to vulnerable customers; and ☐ b) Procedures for assessing affordability DRAFT (where applicable). ☐ ☐

FORM *(2022)
ANNEX 2(a):
OTHER INFORMATION – BROKERS
2. Names of lenders who make/will make available regulated agreements brokered by the
Applicant:
Lender name and trading name if different
DRAFT

FORM *(2022)
ANNEX 2(b):
OTHER INFORMATION – BROKERS REQUIRED TO ADOPT CONSUMER PROTECTION RULES ON BEHALF OF EXEMPT LENDERS
3. Names of peer-to-peer lenders who are exempt from the requirement to be licensed, on behalf
of whom the Applicant adopts/will adopt consumer protection rules:
Lender name or trading name(s) (if different):
Address:
DRAFT

FORM *(2022)
ANNEX 2(c):
OTHER INFORMATION – DEBT ADMINISTRATORS
4. Please provide copies of the following:
Please only provide the below documentation in respect of the regulated activity(ies) to which this application relates. Submitted a) Policy and procedures in respect of instances of defaults and arrears; and ☐ b) Forbearance policy. ☐ DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 2:
FOR ALL APPLICANTS APPLYING TO CARRY ON SERVICES ANCILLARY TO CREDIT IN RELATION TO REGULATED AGREEMENTS

Total number of customers to whom the Applicant provides services ancillary to the provision
of credit as at 31 December 2022:
Total gross income from all business activity during the year ending 31 December 2022 (£):
Total gross income from credit ancillary services activity during the year ending 31 December
2022 (£):
Number of complaints received in the course of services ancillary to credit provision during
the year ending 31 December 2022:
Of which, how many were considered “significant complaints” (i.e., ‘a complaint alleging a breach of the Law, mala fides, malpractice, impropriety, or repetition or recurrence of a matter previously complained of, whether significant or otherwise,’) as per section 13.1 [Interpretation] of The Lending, Credit and Finance Rules and Guidance, 2022. Please provide a brief explanation of the nature of these complaints. DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 2(a):
(TO BE COMPLETED BY BROKERS ONLY)
5. Value of loans/credit brokered during the year ending 31 December 2022:
Value of consumer credit/loans brokered (£):
Value of home finance loans brokered (£):
Total value of loans/credit brokered (£):
6. Total gross income from broking activity in relation to regulated agreements during the year
ending 31 December 2022:
Total gross income from consumer credit broking (£):
Total gross income from home finance broking (£):
Total gross income from finance broking activity not related to regulated agreements (£):
7. Number of customers for whom loans/credit were brokered during the year ending 31
December 2022:
Number of consumer credit customers: Number of home finance customers:
DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 2(b):
(TO BE COMPLETED BY BROKERS REQUIRED TO ADOPT CONSUMER PROTECTION RULES ON BEHALF OF EXEMPT LENDERS ONLY)
8. Number of customers of this activity and value of loan/credit book, per lender, as at 31
December 2022 (£):
Lender: Number of customers: Value (£):
9. Number and total value of loans (in respect of this activity) rolled over or extended during the
year ending 31 December 2022, per lender:
Lender: Number of loans: Total value of loans (£):
10. Number and total value of loans (in respect of this activity) placed in arrears during the year
ending 31 December 2022, per lender:
Lender: Number of loans: Total value of loans (£):
DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 2(c):
(TO BE COMPLETED BY DEBT ADMINISTRATORS ONLY)
11. Total value of debt handled during the year ending 31 December 2022 (£):
12. Total number of customers to whom the Applicant provides debt administration services as at
31 December 2022:
13. Total gross income (remuneration) from debt administration activity during the year ending 31
December 2022 (£):
14. Number of customers subject to debt administration and value of debt administered, by lender,
as at 31 December 2022:
Lender: Number of customers: Value (£):
DRAFT

FORM *(2022)
ANNEX 5:
OTHER INFORMATION – ALL APPLICANTS FOR A LICENCE TO CARRY ON PROVISION OF FINANCIAL PLATFORM AND INTERMEDIATION. Name of Applicant:

Please provide copies of the following:
Please only provide the below documentation in respect of the regulated activity(ies) to which this application relates. Submitted N/A a) Details of how the platform operates, including:
o How lenders are matched with borrowers; o The types of lenders and borrowers accepted on the platform; o How responsibilities (e.g., completion of affordability assessments, creditworthiness assessments, etc.) are allocated between the Applicant and the lender(s)/borrower(s), along with demonstration of how this is communicated; o How potential risks associated with transactions will be communicated to the lender; o How any charges taken by the platform will be communicated to the lender and the borrower; o To whom charges will be applied; o Details of the IT systems(s) / platform(s) that will be used by the Applicant for its regulated activity; and o Any other relevant details. ☐ b) Where a web-based platform, screenshots of, or access (via beta testing account or similar) to, the Applicant’s online platform from the perspective of a borrower/lender; and ☐ ☐ c) Policy in relation to vulnerable customers DRAFT . ☐

SUPPLEMENTARY QUESTIONS TO ANNEX 5:
FOR ALL APPLICANTS APPLYING FOR A LICENCE TO CARRY ON PROVISION OF FINANCIAL PLATFORM AND INTERMEDIATION

Total number of customers from all financial platform/intermediation activity as at 31
December 2022:
Total gross income from all business activity during the year ending 31 December 2022 (£):
Number of complaints received in the provision of financial platform and intermediation
activity during the year ending 31 December 2022:
Of which, how many were considered “significant complaints”, (i.e., ‘a complaint alleging a breach of the Law, mala fides, malpractice, impropriety, or repetition or recurrence of a matter previously complained of, whether significant or otherwise,’) as per section 13.1 [Interpretation] of The Lending, Credit and Finance Rules and Guidance, 2022. Please provide a brief explanation of the nature of these complaints. DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 5(a):
(TO BE COMPLETED BY PEER TO PEER FINANCIAL PLATFORMS ONLY)
4. Number of customers during the year ending 31 December 2022:
Number of peer to peer consumer credit customers:
Number of peer to peer home finance customers:
Total number of peer to peer customers:
5. Value of loans arranged during the year ending 31 December 2022:
Value of consumer credit/loans arranged via peer to peer (£):
Value of home finance loans arranged via peer to peer (£):
Total value of loans/credit arranged via peer to peer (£):
6. Number and value of peer to peer loans per lender during the year ending 31 December 2022
(please complete one row per lender):
Full name of lender: Number of peer to peer loans made by this lender:
Value of peer to peer loans made by this lender (£):
DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 5(b):
(TO BE COMPLETED BY CROWDFUNDERS ONLY)
7. Total value funded during the year ending 31 December 2022 (£):
8. Total gross income from crowdfunding activity during the year ending 31 December 2022 (£):
9. Number of funders during the year ending 31 December 2022 (£):
10. Number of persons funded during the year ending 31 December 2022 (£):
DRAFT

FORM (2022)
Date received
For official use
THE LENDING, CREDIT AND FINANCE (BAILIWICK OF
GUERNSEY) LAW, 2022 (“THE LAW”)
FULL NAME OF APPLICANT:
*“Applicant” in this form refers to the entity applying to be licensed under the Law. We recommend that you review the lending, credit and finance (“LCF”) application decision trees [hyperlink to be inserted] prior to submitting an application. These have been designed to help you determine whether you need to submit an application, and if so, which type(s) of LCF licence will be required for the LCF business activity you conduct. If, having reviewed the application decision trees, you have any particular queries, please contact us at lcf@gfsc.gg. Please note that in some instances, more than one LCF licence type may be required. Applicants are required to review all relevant policies and procedures against The Lending, Credit and Finance Rules and Guidance, 2022 (“the Rules”). All necessary amendments should be made to the relevant policies and procedures to ensure that they comply with the requirements prescribed within the aforementioned Rules. You should undertake these revisions prior to submitting your application.
Section H includes a checklist and declaration which sets out the documents and information
that all Applicants are required to complete and include as part of the application. Within this is a requirement to confirm that the Applicant has reviewed all relevant policies and procedures and made any necessary amendments to ensure that they are compliant. This application form should not be submitted by firms licensed under The Banking Supervision (Bailiwick of Guernsey) Law, 2020, who undertake or propose to undertake regulated agreements falling within the scope of the Law. These licensees should instead submit the relevant application on their Online Submissions Portal timeline. Please complete all sections as fully as possible, attaching appendices where appropriate. Please note that your licence application will not be considered until it is DRAFT fully complete.

FORM *(2022)
Please indicate below the type(s) of LCF licence to which you are applying:
i. Credit provision in relation to regulated agreements (Part II) ☐
ii. Services ancillary to credit in relation to regulated agreements (Part II) ☐
iii. Financial firm business (Part III) ☐
iv. Virtual asset service provider (Part III) ☐
v. Provision of financial platform and intermediation (Part IV) ☐
In relation to each natural person named in response to questions 11, 12, 16, 17, 18, 19 and 20, where not already submitted, an Online Personal Questionnaire (“OPQ”) and/or Online Appointment form (“OA”) should be submitted through the Commission’s Online PQ Portal. Please note that both OPQs and OAs should be submitted at the time of application. Supervised Roles; Online Personal Questionnaire (“OPQ”) and Online Appointment (“OA”) forms:
What is a supervised role?
Supervised roles are defined in section 41 of the Law. Individuals must not act, or purport to act in either ‘approved supervised’ (section 41(1)) or ‘vetted supervised’ (section 41(2)) roles until they have received written confirmation that the Commission has no objection to the appointments. ‘Notified supervised’ roles are defined in section 41(3) of the Law. Where an OA relates to a notified supervised role (defined in section 41(3) of the Law), the Commission must be notified of these appointments within a period of 14 days immediately following the fact, via submission of an OA form. What is an Online Personal Questionnaire (OPQ) form? The Commission requires that any individual being appointed to a supervised role (as defined above) complete an OPQ. The OPQ is designed so that individuals can provide information to demonstrate that they are sufficiently fit and proper to undertake the supervised role, both at the outset and on an ongoing basis. Only one OPQ is required for each individual. What is an Online Appointment (OA) form? Individuals are responsible for submitting an OA for each supervised role they intend to be appointed to. In order to submit an OA, an individual must also have submitted an OPQ. What is the Online PQ Portal? This is the Commission’s online portal for submitting or updating OPQs and OAs, a link to which can be found here (please navigate to “Open PQ Portal”). New users will need to register before submitting their OPQs and OAs. Instructions detailing how to do so can be found on the PQ Portal homepage DRAFT , which can be found using the above link.

FORM *(2022)
Please send the completed form and prescribed fee (per the Financial Services Commission (Fees) Regulations, and as set out on the Commission’s website [hyperlink to be inserted] as follows:
Scan the fully completed application form (signed by the relevant officers) and supporting documentation (as itemised in the application form), together with an explanatory covering letter scheduling the contents. Please send electronically to lcf@gfsc.gg. Prescribed fee: Send by BACS to:
Bank: HSBC Guernsey Branch
Address: 20-22 High Street, St. Peter Port, Guernsey GY1 2LB Sort Code: 40-22-25 Account Number: 91460722 IBAN: GB53MIDL40222591460722 Swift: MIDLGGS1XXX Account Name: Guernsey Financial Services Commission Reference: “Applicant’s Name” Note: Review of the application will not commence until the fee is received. What if the individual already has an OPQ? Please ask all individuals who already have an OPQ to review, and update as necessary, the information held in their OPQ. Individuals who have not previously submitted an OPQ are required to do so via the Commission’s Online PQ Portal. If the individual has previously submitted a paper PQ, do they need to submit an OPQ? Any individual who has previously submitted a paper PQ but has not yet submitted an online PQ will be required to register online and submit an OPQ. Does an OA need to be submitted if the individual already holds that supervised role? All individuals being appointed to a supervised role are required to submit an OA form, unless that appointment has been previously notified to the Commission via OA or paper Personal Declaration form (i.e., for a firm already licensed or registered by the Commission), provided that the information held has not changed. Where this appointment was previously notified to the Commission via paper Personal Declaration form, and the individual is submitting an OPQ for the first time, please ensure that they include any active supervised roles within section 6 of their OPQ submission. When should I submit my OPQ/OA? Please submit any required OPQ/OA forms as soon as possible to ensure sufficient time for the Commission to consider these alongside your licence application. Please note that your licence application will not be considered until all necessary OPQs and OAs have been received by the Commission. Further information Further information can be found within the Help Online section of the Online PQ Portal. If you have any questions concerning the completion of an OPQ or OA, please email the Commission at lcf@gfsc.gg. DRAFT

FORM *(2022)
SECTION A: GENERAL DETAILS OF APPLICANT

Name or proposed name under which the Applicant will operate, and any trading name(s):
If the Applicant is an existing company or a branch of an existing company, please give details
of any trading and company names (state which and when used) used by the Applicant within the last 5 years, if different from its present company name and names listed above:
Please give the address and contact details of the registered office or proposed registered office
of the Applicant. (Please note that the Applicant email address you provide will be used for communications such as invitations, sector or industry circulars, questionnaires, etc. and to replace paper copy invoices):
Address:
Tel: Applicant email:
Please give the Applicant’s principal business address (if not its registered office address):
Where an entity is not incorporated within the Bailiwick of Guernsey, please set out below an
address for service in the Bailiwick of any notice or documents:
Please give the Applicant’s website address
DRAFT , if any:

FORM (2022)
SECTION B: OWNERSHIP / GROUP STRUCTURE
7. Is the Applicant part of a group?
Yes ☐ No ☐
If yes, please provide an organisation chart with sufficient detail to identify all holdings between the Applicant and its ultimate holding company, including the country of residence for each entity:
Attached: Yes ☐ N/A ☐
8. Please provide the latest audited financial statements, where available, for each of the following,
as applicable:
Applicant:
Attached: Yes ☐ N/A ☐
Controller (if different):
Attached: Yes ☐ N/A ☐
*These financial statements should be for the accounting period ending not more than 12 months before the date of this application. If they are for an accounting period ending more than 12 months before the date of this application, please also supply an unaudited balance sheet and profit and loss account to or at a date within the last 12 months.
9. If the Applicant’s financial position has changed materially between the date of the financial
statements and the date of the application, please give details:
10. If the shares in the Applicant or its ultimate parent are traded on a Recognised Stock Exchange,
please identify the Exchange:
DRAFT

FORM (2022)
11. Please provide the names and addresses of all natural persons who are ultimate beneficial owners
of 15% or more of the Applicant’s share capital, showing the percentage interest of each beneficial owner (current and proposed):
Full name of individual: Address: Percentage interest:
OPQ and/or OA Forms for each natural person listed above Relevant OPQ/OA form(s) submitted/updated: Yes ☐
12. Please identify any other controller(s) of the Applicant not named above, explaining the reasons
for any differences:
*For a definition of who the Commission would consider to be a controller, please refer to
section 90 of the Law for a definition of who the Commission would consider a controller.
OPQ and/or OA Forms
Relevant OPQ/OA form(s) submitted/updated: Yes ☐
13. Please identify any other licence or registration granted by the Commission to the Applicant or
any group company of the Applicant and the name(s) of the licensee(s):
14. Please supply any other information that is relevant to a full understanding of the control or
ownership of the Applicant:
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FORM *(2022)
SECTION C: DETAILS OF THE ACTIVITIES / PROPOSED ACTIVITIES OF THE
APPLICANT
15. Please provide a business plan, to include:
o An outline of the nature and scale of the proposed business, plans for the future development of that business, and particulars of the arrangements for the management of that business; o Whether this business is to be carried on through a branch office or subsidiary; o Details of the jurisdictions in which the Applicant conducts, or intends to conduct, business; o A detailed narrative setting out the products and services to be offered, the target market, the means of advertising and distribution, and the rationale for setting up the company in the Bailiwick of Guernsey; o Financial projections, covering at least the first 3 years of operations of the Applicant; o Details of any other forms of business being, or to be, undertaken by the Applicant; o The operational structure, to include, inter alia, adequate operational policies and procedures, internal control procedures and appropriate oversight of the Applicant’s regulated activities, including the management of the Applicant’s risk. The operational structure should reflect the scope and degree of sophistication of the proposed activities of the Application; o Plans for succession and disaster recovery/business continuity; o A wind down plan; o Details of any functions to be outsourced by the Applicant, including any required notice periods; and o A copy of the Business Risk Assessment Attached: Yes ☐ Please note that provision of a Business Risk Assessment is not a requirement for Applicants who only provide services ancillary to credit

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FORM *(2022)
SECTION D: MANAGEMENT AND CONTROL
16. Please provide a list of the names and addresses of all current or proposed directors of the
Applicant, identifying, as applicable, any directors with specific duties:
Full name of Individual: Address: Title / duties (e.g., parent representative, independent):
OPQ and/or OA Forms
Relevant OPQ/OA form(s) submitted/updated: Yes ☐
17. If a branch operation in the Bailiwick of Guernsey, which individuals will direct the business of
the Branch?
Full name of Individual: Address: Title / duties:
OPQ and/or OA Forms
Relevant OPQ/OA form(s) submitted/updated: Yes ☐
18. Please provide the name of the Money Laundering Reporting Officer (“MLRO”) of the Applicant
(this must be an individual resident in the Bailiwick of Guernsey and not a corporate entity):
Please note that the appointment of an MLRO is not a requirement for Applicants who only provide services ancillary to credit. OPQ and/or OA Forms Relevant OPQ/OA form(s) submitted/updated:
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Yes ☐ N/A ☐

FORM *(2022)
19. Please provide the name of the Money Laundering Compliance Officer (“MLCO”) of the
Applicant (this must be an individual resident in the British Isles and not a corporate entity):
Please note that the appointment of an MLCO is not a requirement for Applicants who only provide services ancillary to credit. OPQ and/or OA Forms Relevant OPQ/OA form(s) submitted/updated: Yes ☐ N/A ☐
20. Please provide the name of the Compliance Officer, if any, of the Applicant:
Please note that whilst the appointment of a Compliance Officer is not a requirement for any LCF Applicants, if the Applicant does have a Compliance Officer, there is a requirement to notify the Commission. If this is an individual, employed by the Applicant, please ensure that the relevant OPQ and OA are submitted. If this is a corporate appointment, please advise the name of the corporate entity and, if available, the name of the individual responsible for the compliance function. There is, however, no requirement for an OPQ or OA to be submitted in these circumstances. OPQ and/or OA Forms Relevant OPQ/OA form(s) submitted/updated: Yes ☐ N/A ☐
21. Please attach a staff organogram detailing directors, managers, and all other staff and reporting
lines within the Applicant:
Attached: Yes ☐
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FORM *(2022)
SECTION E: FINANCIAL INFORMATION
22. Please state the Applicant’s accounting reference date or proposed accounting reference date
(including the start and end dates of the first accounting year, if different):
Please note that questions 23-28 should only be answered where the application is to carry on credit provision in relation to regulated agreements or those applying as a virtual asset service provider.
23. Does the Applicant have any other sources of external finance (including facilities unused at the
time of application)?
Yes ☐ No ☐
24. If yes, please give the following details:
o Name of lender (in the case of a subordinated loan, please submit a copy of the loan agreement) o Amount o Nature (e.g., secured, unsecured) o Repayment terms o Interest payable Attached: Yes ☐ N/A ☐
25. Please give details of any financial guarantees or other financial commitments given to, or in
respect of, the Applicant, by any of its directors:
26. Please state whether the Applicant has any other charge on its assets not disclosed above and, if
so, please give details:
27. Please state whether the Applicant has given or intends to give, in writing, any financial
guarantees, indemnities or other commitments, including letters of comfort which are in effect at the date of the application, including those relating to other group companies. If such financial guarantees etc. DRAFT have been given, please provide details:

FORM *(2022)
28. Please state whether any financial guarantees, indemnities or other commitments, including
letters of comfort, have been given to the Applicant including those received from other group companies. If there are such financial guarantees etc., please provide details:
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FORM *(2022)
SECTION F: AUDITORS (where appointed or planned to be appointed)
Please note that the production of audited accounts and audited financial statements is not required for Applicants who only provide services ancillary to credit, as per section 2.6 of The Lending, Credit and Finance Rules and Guidance, 2022.
29. Please provide the name and address of the current or proposed auditor of the Applicant:
30. If not already appointed, please provide a copy of the auditor’s acceptance to act as auditor of
the Applicant:
Attached: Yes ☐ N/A ☐
31. Please confirm which generally accepted accounting principles will be used in the preparation
of the Applicant’s audited financial statements:
32. Please provide details of and reasons for any changes of auditors to the Applicant within the last
3 years:
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FORM *(2022)
SECTION G: OTHER INFORMATION
33. Where the Applicant is an existing company or a proposed branch of an existing company, please
indicate whether any of the following events have occurred or apply, in any jurisdiction:
o The winding up of the Applicant pending, or winding up of any group company of the Applicant at any time in the previous 10 years, or pending. ☐ o The winding up of any subsidiary of the Applicant at any time in the previous 10 years, or pending. ☐ o Civil legal proceedings lost (including by default) or settled on terms involving payment by the Applicant (including payment of another party’s costs) within the last 3 years. This should include details of whether the Applicant has agreed as a result of any such legal proceedings to an out of Court settlement (this should include any such proceedings at the time of the application). ☐ o A criminal conviction of the Applicant or any group company. ☐ o The Applicant has at any time in the previous 10 years had a Receiver, Administrative Receiver or Administrator appointed, or failed to satisfy a debt adjudged due, or a debt in respect of which a decree has been passed against it, or entered into a scheme of arrangement or composition of its debts with its creditors. ☐ o At any time in the last 10 years, the Applicant has been refused or had withdrawn any licence, recognition or authorization under the legislation of any country, or whether the Applicant has ever been refused or had revoked any authorisation to carry on activities in any country. ☐ o Any non-standard conditions on any licence or authorisation of the Applicant to carry on business within the last 10 years. ☐ o The Applicant has been subject to any disciplinary measure by any regulatory body of which it is, or was at the time, a member, or by any other regulatory body in any country in relation to its activities. ☐ o The Applicant’s affairs have been investigated by any regulatory body of which it is, or was at the time, a member, or by any other regulatory body in any country in relation to its activities, except investigations conducted in the course of normal monitoring and surveillance procedures with no material adverse findings. ☐ o The Applicant has been the subject of formal investigation under the legislation of any country. DRAFT ☐

FORM *(2022) o The Applicant or any of its senior management or shareholders have, in the previous 10 years, been criticised or disciplined in the Bailiwick or elsewhere by any regulatory or supervisory organisation or professional body. ☐ o A change of legal advisers to the Applicant within the last 3 years. ☐
34. If you have indicated that any of these apply to the Applicant, please provide further details
below, which the Applicant believes the Commission should be aware when considering this application. If you are attaching any continuation sheets, please state the number of sheets attached:
ACTIVITY SPECIFIC QUESTIONS: Please ensure that the relevant annex(es), specific to the activities currently, or intended to be, undertaken, are also completed and attached to this application. Please indicate which question set(s) have been completed:
1 Credit provision (to be completed by all Applicants for credit provision) ☐ 1(a) Home finance ☐ 2 Services ancillary to credit (to be completed by all Applicants for services ancillary to credit) ☐ 2(a) Brokers ☐ 2(b) Brokers required to adopt consumer protection rules on behalf of exempt lenders ☐ 2(c) Debt administrators ☐ 3 Financial firm business ☐ 4 Virtual asset service providers ☐ 5 Provision of financial platforms and intermediation (to be completed by all Applicants for the provision of financial platforms and intermediation) ☐ 5(a) Peer-to-peer ☐ 5(b) Crowdfunders DRAFT ☐

FORM (2022)
SECTION H: APPLICATION CHECKLIST AND DECLARATION
We hereby apply for licensing under The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 for the activity(ies) specified on page 2 of this form. We declare that the information given in and with this application is complete and correct to the best of our knowledge and belief and that we are aware of no other facts of which the Commission should be aware. We undertake to inform the Commission promptly of any changes material to the application which occur before it has been determined. We confirm that all items listed below have been completed as part of this application:
a) Review of, and amendment to (where applicable) all relevant policies and procedures, to ensure that we comply with all applicable requirements prescribed within The Lending, Credit and Finance Rules and Guidance, 2022; ☐ b) Completion of all relevant questions within sections A-G of this application form, and submission of all required documents. (Where information is included as part of one or more of the other documents submitted, we have indicated where the required information can be located); ☐ c) Completion of the relevant activity-specific annex(es), and submission of all required documents. (Where information is included as part of one or more of the other documents submitted, we have indicated where the required information can be located); ☐ d) Completion of the supplementary information form(s) relating to the relevant activity-specific annex(es) (where applicable); ☐ e) Submission of OPQ and OAs, where necessary; ☐ f) Review and update of all existing, relevant OPQs; and ☐ g) Completion of the below declarations. ☐ *This requirement applies to existing businesses only. This supplementary information will allow the States of Guernsey and the Commission to gauge the existing population of firms undertaking LCF activities within the Bailiwick, and to guide the Commission’s approach when supervising these businesses, prior to them submitting their first annual return. We are aware that it is an offence1 under section 109(1) of the of The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 in connection with an application under the Law for a person to:
(i) Make a statement which he knows or which he has reasonable cause to believe to be false, deceptive or misleading in a material particular; 1 Section 112(3) provides that any person who is guilty of an offence as stated shall be liable:
(a) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding twice level 5 on the uniform scale, or to both; (b) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both. DRAFT

FORM *(2022)
(ii) Dishonestly or otherwise, recklessly make a statement which is false, deceptive or misleading in a material particular; (iii)Produce or furnish or cause or permit to be produced or furnished any information or document which he knows or has reasonable cause to believe to be false, deceptive or misleading in a material particular; or (iv)Dishonestly or otherwise, recklessly produce or furnish or recklessly cause or permit to be produced or furnished any information or document which is false, deceptive or misleading in a material particular. A BACS payment has been made to the Guernsey Financial Services Commission’s bank account being the application fee payable in accordance with the relevant fees regulations, details of which are available on the Commission’s website at www.gfsc.gg. Name of first signatory:
Current or proposed Position:
Signature:
Name in block capitals:
Date:
Name of second signatory:
Current or proposed Position:
Signature:
Name in block capitals:
Date:
Note:
The Data Protection (Bailiwick of Guernsey) Law, 2017 For the purposes of The Data Protection (Bailiwick of Guernsey) Law, 2017 please note that any personal data provided to the Commission will be used by the Commission to discharge its regulatory activities and statutory functions. Further information, relating to the Commission’s Data Protection policy, can be located on the Commission’s website, at www.gfsc.gg/dataprotection. DRAFT

FORM *(2022)
ANNEX 3:
OTHER INFORMATION – FOR ALL APPLICATIONS FOR A LICENCE TO CARRY ON FINANCIAL FIRM BUSINESS ACTIVITY Name of Applicant:

Please tick all relevant boxes below to describe the type of financial services business (“FFB”)
carried out or to be carried out:
a) Lending (including, without limitation, the provision of consumer credit or mortgage credit, factoring with or without recourse, financing of commercial transactions (including forfeiting) and advancing loans against cheques) ☐ “Lending” here refers only to lending that is not conducted in relation to regulated agreements. “Regulated agreements” are defined under section 6(1) of The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (the “Law”) as:
‘A regulated agreement is one made by or on behalf of, and between – b) a provider of credit and a customer who is an individual acting for purposes wholly or mainly outside that individual’s trade, business or profession whereby credit is provided and interest or other charges may be levied on the customer, or c) a provider of credit and any customer, whereby credit is provided and interest or other charges may be levied on the customer and the credit is secured against real property situated in the Bailiwick and used for residential purposes.’ Where a firm provides any credit arrangements that are regulated agreements, a credit provision (Part II) licence may instead be required; please check the credit provision decision tree [hyperlink to be inserted] to check whether your firm should instead apply under this licence type. Please note that where a business provides credit under both regulated agreements and nonregulated agreements, only a credit provision (Part II) licence is required (i.e., a financial firm business licence is not required), as per section 1(2)(a) of Part 1 of Schedule 1 to the Law. b) Financial leasing ☐ c) Operating a money service business (including, without limitation, a business providing money or value transmission services, currency exchange (bureau de change) and cheque cashing) ☐ d) Buying, selling or arranging the buying or selling of, or otherwise dealing in, bullion or buying or selling postage stamps ☐ e) Facilitating or transmitting money or value through an informal money or value transfer system or network DRAFT ☐

FORM *(2022) f) Issuing, redeeming, managing or administering means of payment; including, without limitation, credit, charge and debit cards, cheques, travellers' cheques, money orders, bankers' drafts and electronic money ☐ g) Providing financial guarantees or commitments. ☐ h) Trading (by way of spot, forward, swaps, futures, options, etc.) in – (i) money market instruments (including, without limitation, cheques, bills and certificates of deposit), (ii) foreign exchange, exchange, interest rate or index instruments, and (iii) commodity futures, transferable securities or other negotiable instruments or financial assets ☐ i) Participating in securities issues and the provision of financial services related to such issues, including, without limitation, underwriting or placement as agent (whether publicly or privately) ☐ j) Providing settlement or clearing services for financial assets including, without limitation, securities, derivative products or other negotiable instruments ☐ k) Providing advice to undertakings on capital structure, industrial strategy or related questions, on mergers or the purchase of undertakings ☐ l) Money broking ☐ m) Money changing ☐ n) Providing individual or collective portfolio management services or advice ☐ o) Providing safe custody services ☐ p) Providing services for the safekeeping or administration of cash or liquid securities on behalf of customers or clients ☐ q) Carrying on the business of a credit union ☐ r) Accepting repayable funds other than deposits ☐ s) Otherwise investing, administering or managing funds or money on behalf of other persons ☐ DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 3:
FOR ALL APPLICANTS APPLYING FOR A LICENCE TO CARRY ON FINANCIAL FIRM BUSINESS ACTIVITY

Total number of customers for activities carried on as an FFB as at 31 December 2022:
Number of customers per FFB activity type (if more than one FFB activity) as at 31 December
2022:
Number of customers: Activity type:
Where the Applicant provides lending, value of loan/credit book as at 31 December 2022:
Total gross income from all business activity during the year ending 31 December 2022 (£):
Total gross income from all FFB activity during the year ending 31 December 2022 (£):
Total gross income per FFB activity type (if more than one FFB activity) during the year ending
31 December 2022 (£):
Income: Activity type:
Number of complaints received in the course of FFB activity during the year ending 31
December 2022
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:

Of which, how many were considered “significant complaints”, (i.e., ‘a complaint alleging a breach of the Law, mala fides, malpractice, impropriety, or repetition or recurrence of a matter previously complained of, whether significant or otherwise,’) as per section 13.1 [Interpretation] of The Lending, Credit and Finance Rules and Guidance, 2022. Please provide a brief explanation of the nature of these complaints. DRAFT

FORM *(2022)
ANNEX 1:
FOR ALL APPLICATIONS TO CARRY ON CREDIT PROVISION IN RELATION TO REGULATED AGREEMENTS What is a regulated agreement? “Regulated agreements” are defined under section 6(1) of The Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (“the Law”) as:
‘A regulated agreement is one made by or on behalf of, and between – (i) a provider of credit and a customer who is an individual acting for purposes wholly or mainly outside that individual’s trade, business or profession, whereby credit is provided and interest or other charges may be levied on the customer, or a) a provider of credit and any customer, whereby credit is provided and interest or other charges may be levied on the customer and the credit is secured against real property situated in the Bailiwick and used for residential purposes.’ What if my business provides credit, but none of the credit arrangements are regulated agreements? A financial firm business (Part III) licence may instead be required; please check the financial firm business decision tree [hyperlink to be inserted] to check whether your firm should instead apply under this licence type. If so, please complete annex 3 to the application form. What if my business provides credit under both regulated agreements and non-regulated agreements? Only a credit provision (Part II) licence is required (i.e., a financial firm business licence is not required), as per section 1(2)(a) of Part 1 of Schedule 1 to the Law. Name of applicant:

Please provide a list of all Appointed Retailers (if applicable):
Where some, or all, of an applicant/licensee’s credit facilities are arranged through retailers, those retailers may be considered Appointed Retailers, if the retailers themselves do not offer consumers advice or guidance in relation to that credit facility. Retailers can be deemed to be Appointed Retailers provided that they meet the criteria set out in section 7.5 of The Lending, Credit and Finance Rules and Guidance, 2022; i.e., there must be a formal, written, contract of engagement between the Appointed Retailer and the applicant/licensee, and the applicant/licensee must remain responsible for the conduct of any Appointed Retailer(s). If the Applicant uses any Appointed Retailer(s), please provide the company name(s) and any trading names (if different) below DRAFT , along with the relevant address(es).

FORM *(2022)
Company name (and any trading names): Address:
2. Names of brokers by whom lending is being/will be introduced (where such brokers are not
deemed to be Appointed Retailers):
Company name (and any trading names): Address:
3. Please provide copies of the following:
Please only provide the below documentation in respect of the regulated activity(ies) to which this application relates. Submitted a) Policy in relation to vulnerable customers; ☐ b) Procedures for assessing affordability; ☐ c) Policies and procedures in respect of instances of defaults and arrears; and ☐ d) Forbearance policy. ☐ DRAFT

FORM *(2022)
ANNEX 1(a):
OTHER INFORMATION – APPLICANTS PROVIDING/PROPOSING TO PROVIDE HOME FINANCE LENDING
4. Please provide a list of all staff who provide home finance advice (if applicable):
Full name and address of individual Date of birth Home finance qualifications
5. Please provide copies of the following:
Please only provide the below documentation in respect of the regulated activity(ies) to which this application relates. Submitted N/A a) Execution-only policy (if the lender offers direct to customer mortgages without advice); ☐ ☐ b) Exception policy (i.e., demonstrating how the Applicant deals with lending applications that fall outside of the normal lending criteria); and ☐ ☐ c) An explanation of niche product criteria (e.g., lending into retirement, newly self-employed, impaired credit, etc.). ☐ ☐ DRAFT

SUPPLEMENTARY QUESTIONS TO ANNEX 1:
FOR ALL APPLICATIONS TO CARRY ON CREDIT PROVISION IN RELATION TO REGULATED AGREEMENTS

Number of customers to whom credit is provided as at 31 December 2022:
Number of consumer credit customers:
Number of home finance customers:
Total number of customers
(including loans/credit arrangements that are not regulated agreements):
Value of loan/credit book as at 31 December 2022:
Value of consumer credit book (£):
Value of home finance book
(£):
Total value of loan/credit book (including loans/credit arrangements that are not regulated agreements) (£):
Total gross income from all business activity during the year ending 31 December 2022 (£):
Total gross income from provision of credit (in relation to regulated agreements) during the
year ending 31 December 2022 (£):
Income from consumer credit activity (£):
Income from home finance activity (£):
Total income from all lending activity (including loans/credit arrangements that are not regulated agreements) (£):
Number and total value of loans rolled over or extended during the year ending 31 December
2022:
Number of loans: Total value of loans (£):
Loans relating to regulated agreements:
Loans not relating to regulated agreements:
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Total number and total value of loans that went into arrears at any time during the year ending
31 December 2022:
Number of loans: Total value of loans (at the time each of these went into arrears) (£):
Loans relating to regulated agreements:
Loans not relating to regulated agreements:
Number of complaints received in the course of credit provision during the year ending 31
December 2022:
Of which, how many were considered “significant complaints”, (i.e., ‘a complaint alleging a breach of the Law, mala fides, malpractice, impropriety, or repetition or recurrence of a matter previously complained of, whether significant or otherwise,’) as per section 13.1 [Interpretation] of The Lending, Credit and Finance Rules and Guidance, 2022. Please provide a brief explanation of the nature of these complaints:
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Guernsey Financial Services Commission Consultation Paper on The Lending, Credit & Finance Rules, Guidance and Implementation

Lineage: In force