england-and-wales banking loan
Does a Limited company need a licence to lend money to an individual in the UK?
<p>A limited company (one director) lent money to me as an individual (£450,000). The initial loan was secured as a first charge on a property I owned but did not live in. Interest the first 2 years was substantial and lowered the subsequent years. Should the lender have been licenced ?</p>

<p>It is possible that the lender should have been authorised by the financial services regulators. If they were not, but should have been, then the agreement might be unenforceable. What happens then depends on the court, which might decide it would be fair to uphold its terms anyway, or might award compensation to the borrower, or other options depending on what is &quot;just and equitable in the circumstances&quot; (<a href="https://www.legislation.gov.uk/ukpga/2000/8/section/28" rel="nofollow noreferrer">Financial Services and Markets Act 2000, s.28(3)</a>).</p>
<p>The overall picture is very complex. The official guidance about figuring out whether somebody is subject to the regulations - the <a href="https://www.handbook.fca.org.uk/handbook/PERG/" rel="nofollow noreferrer">Perimeter Guidance Manual</a> - is 836 pages long. Even if somebody has authorisation, that might be subject to specified conditions, and it could be difficult to discover if the conditions were being met or not.</p>
<p>At a very broad level, the lender should be authorised if  they are acting &quot;by way of business&quot; and if what they did was a &quot;regulated activity&quot;. Many activities involving mortgages and credit are indeed regulated, but the agreement in the question might escape, depending on all the details. For example, this may be a &quot;regulated mortgage contract&quot; (even though the borrower doesn't live in the property), but not if the borrower is acting on a commercial basis (PERG 4.4). There are many other conditions and nuances.</p>
<p>In the same way, if the lender is not acting &quot;by way of business&quot; then they do not need to be authorised. The manual says (PERG 2.3):</p>
<blockquote>
<p>Whether or not an activity is carried on by way of business is ultimately a question of judgement that takes account of several factors (none of which is likely to be conclusive). These include the degree of continuity, the existence of a commercial element, the scale of the activity and the proportion which the activity bears to other activities carried on by the same person but which are not regulated. The nature of the particular regulated activity that is carried on will also be relevant to the factual analysis.</p>
</blockquote>
<p>A recent example of this law being applied is <a href="https://www.bailii.org/ew/cases/EWHC/Ch/2021/995.html" rel="nofollow noreferrer"><em>Jackson v Ayles &amp; Ors</em> [2021] EWHC 995 (Ch)</a>. In that case, the applicants obtained a loan secured against their home, from an individual who was not authorised by the regulators. On examination of all the circumstances, the court concluded that the lender was acting by way of business, that the loan agreement was therefore unenforceable (<a href="https://www.legislation.gov.uk/ukpga/2000/8/section/26" rel="nofollow noreferrer">FMSA s.26</a>), and that it would be unjust to enforce it because the lender ought to have known the rules. In different circumstances, say when the lender was not someone of &quot;considerable financial acumen&quot; (para 51) who had made many other loans to others (para 34), the outcome could have been different.</p>
<p>Overall, I hope the summary above has given an impression of what it would look like to invite a court to make such a determination. Specifically, expert legal advice would be needed, and such advice could also include an analysis of whether this is a viable option at all, compared to other ways of tackling the issues.</p>
