No prudential regulator licenses a private credit fund the way OSFI supervises a bank or FSRA supervises an Ontario credit union. That absence is real, but it is not the same as no rule applying — a federal ceiling on the rate itself still binds every lender in Canada, private or not.
Key takeaways
SECTION 01 OF 03
A private credit fund lending into a Canadian business acquisition is not a bank under the Bank Act, not a credit union under a provincial credit union statute or the federal cooperative-basis test, and not a Crown lender constituted by its own Act the way BDC, FCC or EDC are. It generally holds no deposit-taking licence and answers to no prudential regulator equivalent to OSFI on its lending book. That is a genuine regulatory gap, worth stating directly rather than glossing over — a search for a specific statute licensing “private credit funds” as a category turns up nothing, because no such licensing statute exists in the way it does for a bank or a credit union.
What follows from that gap is narrower than it might sound. The absence of a prudential licence does not mean the absence of law — it means the applicable rules sit in different places: the criminal law, personal property security legislation, and the ordinary law of contract, all of which apply to a private lender exactly as they apply to a bank.
SECTION 02 OF 03
The Criminal Code sets a hard, universal ceiling on the cost of credit, independent of who is lending: “every person who enters or offers to enter into an agreement or arrangement to receive interest at a criminal rate… is (a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years…” (Criminal Code, s.347(1)). Section 347(2) defines the trigger precisely: “criminal rate means an annual percentage rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds 35 per cent on the credit advanced.”
This ceiling does not care whether the lender is a chartered bank, a credit union, a Crown corporation or an unregulated private fund — the 35% figure is a rate cap on the transaction, not a licensing condition on the lender. For a mezzanine or private-credit structure carrying a stacked coupon, PIK accrual, fees and warrant coverage, the all-in cost of credit, calculated on the actuarial basis s.347(2) specifies, is the number to test against 35% — not the headline coupon alone.
SECTION 03 OF 03
Beyond the criminal-rate ceiling, a private credit fund's security is registered and ranked exactly as any other lender's is — under the PPSA rules on registration order, purchase-money priority and subordination discussed at the article on PPSA purchase-money priority and the glossary entry on a general security agreement in this hub. Its loan agreement is enforced under ordinary contract and remedies law, its Interest Act disclosure obligations on a non-annual rate are the same s.4 obligation covered at the article on the Interest Act's rate-disclosure rule, and if it takes an equity kicker or warrant alongside its debt, securities-law considerations can apply to that component depending on how it is structured.
So the accurate statement is not “private credit is unregulated” — it is that private credit has no bank- or credit-union-style prudential licence, while remaining fully subject to the Criminal Code's rate ceiling, the PPSA's priority rules, and ordinary contract law. A borrower or advisor who treats the absence of a licensing regulator as the absence of any applicable rule is making the assumed-absence error this hub's own drafting standard warns against. A private lender's general security agreement raises the same practical questions as any other lender's — including how far it reaches over assets not yet acquired, addressed generally at Treadstone Law's answer on a general security agreement's reach over inventory not yet purchased.
No. No statute licenses private credit funds as a category the way the Bank Act licenses a bank or a provincial Act licenses a credit union, and they generally hold no deposit-taking licence or a prudential regulator equivalent to OSFI overseeing their lending book.
No. Criminal Code section 347 caps the all-in annualized cost of credit at 35% for every lender in Canada, private funds included, regardless of licensing status — and that ceiling is tested against the actual all-in cost, not just the headline coupon.
No. A private lender’s security is registered and ranked under the same PPSA rules on registration order, purchase-money priority and subordination that apply to any other secured lender, and its loan agreement is enforced under the same ordinary contract and remedies law.
Sources
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