Guernsey to regulate virtual asset service providers from 2023

The States of Guernsey passed the Lending, Credit & Finance (Bailiwick of Guernsey) Law 2022 on 14 July, which repeals the existing Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law 2008 and will replace the rules for ‘financial firm businesses’ previously included in the NRFSB Law.

The Law and accompanying rules also address fintech platforms operating crowdfunding and peer-to-peer platforms and virtual asset service providers (VASPS). It introduces licensing for a wide range of activities related to crypto currencies and other virtual assets that have not previously been regulated in Guernsey.

Under the Law, licences will be needed for carrying on financial firm business activities or providing various forms of consumer credit.

A Part III VASP Licence will be required for certain services or activities in relation to virtual assets, such as initial coin offerings, issuing tokens, exchanging between virtual assets and fiat currencies, and exchanging between one or more forms of virtual asset.

A Part IV Licence will be required for operating a peer-to-peer platform or a crowdfunding platform or providing non-bank credit or finance intermediation or brokerage services for the purposes of matching lenders with borrowers.

The Guernsey Financial Services Commission opened a consultation to set out its draft rules and approach for regulating the sectors covered by the new Law and to seek feedback. This consultation closed on 15 September.

“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”, said the FSC in a statement. “In doing so, industry would prefer the Bailiwick to adopt an approach aligned with, but significantly streamlined in comparison to, that of the UK.”

It also explained that licensing for a wide range of activities related to crypto currencies and other virtual assets was necessary to meet international standards and ensure that, as an international finance centre, it continued to be compliant in combatting financial crime.

“Regulation of VASPs is essential ahead of the forthcoming MONEYVAL evaluation of the Bailiwick,” said the FSC. “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.”

The law and its four associated licensing regimes are expected to come into force from 1 January 2023.

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