The Guernsey Financial Services Commission has come up with proposals to revise the island's financial regulatory infrastructure for lending, credit and other types of finance. The regulator, however, does not intend any resulting new law to replace codes produced by trade and industry associations, although it wants it to influence them.

In the preamble to its consultative document, the regulator envisions a period of transition to allow industry associations to update their codes and current practices. The deadline for comments is Monday 24 October.

The ultimate aim of the exercise is to help the Bailiwick cope with recent rapid advancements in technology and the diversity of products and services offered by financial service businesses. Eventually, there will be legislation "to balance affordability, transparency, financial awareness and financial promotions, including all forms of advertising and marketing."

Guernsey's regulator hopes that the end-product of this will be a repeal of the Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law 2008 and its replacement with a new one. It wants this new law to introduce rules and guidelines to govern consumer credit and innovative financial service businesses, while retaining all existing statutory AML and authorisation requirements, as currently described in the law of 2008.

The new law might apply to all Guernsey lending, credit and other finance businesses and NRFSB firms that are non-lending, credit and other finance businesses. The JFSC wants to introduce new categories of licence along the following lines (using the analogy of milk).

• Category 1 ('full fat') - an LCF licence. This could apply to all firms lending and/or providing credit facilities to retail (including HNW) clients from both Guernsey and abroad. It must comply with the consumer credit controls and measures stipulated in the new law.
• Category 2 (standard strength) - a limited licence. This is for firms whose activities are associated with lending, credit and finance and whose activities include innovative financial service businesses with an 'institutional focus.' The GFSC does not explain this phrase and never mentions it again, but it does not seem to apply to wealth management at all.
• Category 3 ('skimmed'). This is for firms that are not involved in lending, credit and finance but ought to register as part of their AML obligations.

The GFSC's reason for proposing lending as a Category 1 LCF licence is an absence of legislative and regulatory consumer credit controls in place in the Bailiwick. Indeed, the regulator believes that the legislative and regulatory lending, credit and finance laws in place in the other Crown Dependencies and the UK leave Guernsey's laws in the shade and wants to rectify this.

The regulator believes that an LCF Category 1 Licence ought not to "be able to derogate from the requirements in the same manner as a Category 2 limited licence." For example, a lending firm should be obliged to comply with the proposal to complete an affordability assessment as opposed to a 'Category 2' business that is peripheral to lending, credit and finance, one example being a credit reference agency. The lending firm determines the approval of a lending facility whereas the credit reference agency provides information to help someone come to a decision.

The following existing NRFSB activities are proposed as Category 2.

• The provision of individual or collective portfolio management services or advice.
• Financial leasing.
• Operating a money service business (a US term that made its way into British usage with the Proceeds of Crime Act 2002. British law formerly described MSBs as cheque cashers, bureaux de change and/or money transmitters).
• Transmitting money or value.
• Buying, selling or arranging the buying or selling of, or otherwise dealing in, bullion or buying or selling postage stamps.
• Facilitating or transmitting money or value through an informal money or value transfer system or network.
• Issuing, redeeming, managing or administering means of payment. Means of payment includes credit, charge and debit cards, cheques, travellers’ cheques, money orders and bankers drafts (and electronic money).
• Providing financial guarantees or commitments.
• Trading (by way of spot, forward, swaps, futures, options, etc.) in money-market instruments (including cheques, bills and certificates of deposit); foreign exchange, exchange, interest rate or index instruments; and 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 underwriting or placement as agent (whether publicly or privately).
• Providing settlement or clearing services for financial assets including securities, derivative products or other negotiable instruments.
• Money broking.
• Money changing.
• 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.

The regulator is proposing to put "innovative financial service businesses" in Category 2 as well. The idea is to provide a suitable degree of latitude for such innovative and embryonic businesses to flourish and grow without unnecessary barriers while at the same time retaining a suitable and proportionate level of consumer protection and financial crime prevention. Category 3, meanwhile, ought to include the provision of safe custody services, not including persons licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987 and collective investment schemes authorised or registered under that law.