Reed Smith Client Alert

The rapid growth in private credit over the last decade demonstrates the continued fundamental role of the asset class within global loan markets, particularly in event-driven and bespoke specialty financings. Despite the macroeconomic headwinds over the last year – which have impacted all asset classes, including private credit – there continues to be significant appetite for non-bank lender finance, particularly as banks and financial institutions provision for non-performing loans amidst economic turbulence.

Private credit remains a key business line for all interested parties: established sponsors are seeking new financing solutions as deal-making slows and investment cycles extend; borrowers seeking a broadened set of investment opportunities that require bespoke financing structures; and lenders continuing to innovate with a wide array of finance solutions.

As financing structures become even more bespoke, and as new providers of private credit continue to enter the market, this note serves as a reminder to any non-bank creditor that, whilst the private credit market is unregulated in general terms, they should be mindful of some of the UK regulatory pitfalls to be avoided.

In some jurisdictions like the UK, commercial lending is not generally an activity requiring a banking or investment licence. However, non-bank lenders must be mindful of a range of UK regulatory issues that can arise depending on how the arrangements are structured. We have highlighted some of the most common issues below.

While many of these considerations will be similar in a European context (given that they stem from the requirements of EU law, many of which have been retained in the UK), additional requirements are likely to be relevant, including from an ESG perspective. A number of European jurisdictions have local law regimes relating to the provision of credit by non-bank lenders that also need to be considered on a case-by-case basis.