The City of London Law Society (CLLS) recently sent a letter to HM Treasury regarding the England and Wales Court of Appeal decision in Fons Hf v Corporal Ltd and another as the decision may, in the view of the CLLS, have “serious implications for regulated and unregulated lenders, borrowers and loan intermediaries”.

The central issue of the decision is whether a loan agreement, regardless of whether loans made by reference to the agreement are drawn or undrawn, creates and acknowledges debt and is therefore a debenture. Although the Court of Appeal decision was not given in the context of the UK’s financial regulation framework, the CLLS argues that loan agreements may now be viewed to constitute regulated investments for the purposes of UK financial regulation and lists the legal implications of such a qualification, including the requirement for any person carrying out ‘regulated activities’ (which term would include, among others, dealing as principal, i.e. borrowing; administering loans; promotion of loans to individual borrowers; and buying and selling of loans in the secondary market) to be authorised under the Financial Services and Markets Act 2000.

The CLLS calls for HM Treasury to issue a clarifying statement to address the short term legal uncertainties caused by the decision and ultimately to take legislative action. We agree with the concerns raised by the CLLS and welcome clarification of the issue in due course.

By Edward Craft & Marlies Braun