The City of London Law Society (CLLS) has published a letter addressed to HM Treasury raising concerns about the legal uncertainties caused by the Court of Appeal decision in Fons Hf v Corporal Ltd and another [2014] EWCA Civ 304.

In the Fons case, the court held that a loan agreement is an instrument which creates and acknowledges a debt and is therefore a debenture. The CLLS argue this effectively means that loan agreements now arguably fall under the list of regulated investments under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). Their letter therefore sets out some of the consequences of loan agreements becoming regulated investments, including:

• borrowers under loan agreements would need to be regulated in respect of borrowing since they would be carrying on the regulated activity of “dealing as principal” under article 14 of RAO;
• the activities of intermediaries in the loan market would be regulated activities and it is unlikely that all such activities would be covered by relevant exemptions;
• promotions to individual borrowers in respect of a loan would be financial promotions under the financial promotions regime and would need to be approved by a regulated entity;
• trading of loans in the secondary loan market could constitute the regulated activities of “dealing as principal” under article 14 of RAO or “dealing as agent” under article 21 of RAO; and
• discretionary management of assets where the assets include loans could constitute the regulated activity of discretionary management of assets under article 37 of RAO.

View CLLS letter to the Economic Secretary to the Treasury, 4 June 2014