Consumer credit—loans to employees and directors and employee share schemes
Produced in partnership with Jacqui Hatfield of Orrick Herrington & Sutcliffe UK LLP
Consumer credit—loans to employees and directors and employee share schemes

The following Financial Services guidance note Produced in partnership with Jacqui Hatfield of Orrick Herrington & Sutcliffe UK LLP provides comprehensive and up to date legal information covering:

  • Consumer credit—loans to employees and directors and employee share schemes
  • Loans to employees—do these fall within the scope of the consumer credit regime?
  • Employee share schemes—do these fall within the scope of the consumer credit regime?
  • What do I do if any of my company’s employees' loans or share schemes fall within the meaning of 'credit' outlined above?
  • What exemptions are available?
  • What are the implications for a firm if its arrangements fall within the scope of the UK consumer credit regime and are not exempt?

The Consumer Credit Act 1974 (CCA 1974), the Financial Services and Markets Act 2000 (FSMA 2000) and the Financial Services and Markets Act 2000 (Regulated Activities Order) SI 2001/544 (RAO) will need to be considered by firms which make loans to their directors or their employees.

This is because, in certain circumstances which are outlined in further detail below, a firm may be carrying on a 'regulated activity' within the meaning of FSMA 2000 and the RAO by providing credit to its employees and directors.

Under section 19 of the FSMA 2000, a firm which carries on a 'regulated activity' as part of its business in the UK must be authorised by the Financial Conduct Authority (FCA) or exempt in order to do so. This is known as the 'general prohibition'. Failing to comply with the general prohibition is a criminal offence, and may also result in agreements which are entered into in contravention of the FSMA 2000 being unenforceable against other parties without a court order or the permission of the FCA.

Loans to employees—do these fall within the scope of the consumer credit regime?

Yes, they may do.

The consumer credit regime in the UK has a very wide potential scope. Loans to employees may fall within the scope of the UK consumer credit regime if:

  1. they fall within the definition