As P2P authorisation deadline nears, how many will cross the line?

The Financial Conduct Authority took over regulating the consumer credit industry from the Office of Fair Trading in April last year. Since then, 178 pre-existing peer-to-peer lenders have obtained interim permission from the FCA, allowing them to continue to operate as the responsibility for regulation was transferred, but Bovill estimates that of the 114 applications from new peer-to-peer lenders, 30 have now been withdrawn.

Bovill stats show that seven lenders have been authorised by the FCA so far. Many firms with interim permissions are expected to receive full FCA authorisation following the deadline, but Bovill says that the large number of firms seeking FCA authorisation is likely to have taken the regulator by surprise, and have raised questions over how well the FCA can cope with the rush of firms seeking approval.

There has been speculation in the industry as to the total number of new lenders making applications, and how many of those will receive authorisation.

Since the FCA took over the regulation of peer-to-peer lending, firms have to segregate client assets, meet new reserve capital requirements and have plans in place to ensure outstanding loans can be transferred if the platform collapses.

Apart from tougher standards, Bovill says that the withdrawals may also be a result of a lack of understanding of what peer-to-peer lending actually involves amongst UK financial services firms. Businesses may have applied for authorisation assuming that their activities constitute peer-to-peer lending when they in fact do not, and are now needing to withdraw their application as a result.

Gillian Roche-Saunders, Head of Venture Finance at Bovill, commented:

“The high number of withdrawals suggests that the FCA is setting the bar high when it comes to full authorisation for P2P lenders - the process appears to be much tougher and more costly than many firms first anticipated.

“P2P lenders have enjoyed a relatively light touch approach from the regulator for some time. A rigorous authorisation process will have come as a shock to the system, particularly for smaller and less profitable lenders.

“The FCA is now leaving no stone unturned - looking carefully at how firms meet strict consumer protection requirements. They are particularly focused on conduct risk and on ensuring P2P lenders have the right level of experience in their management teams. The regulator is likely to put pressure on those they feel are not up to scratch to withdraw their application at an early stage.

“Many firms are now hiring compliance officers or sourcing external advice to help them navigate the authorisation process. The industry is still very new, however, which means finding the right level of expertise can be a challenge.”

However John Goodall, CEO and co-founder, Landbay, said that "this is an exciting step for peer-to-peer platforms", adding that full FCA regulation is the "next step in establishing peer-to-peer within mainstream financial services.”

Christian Faes, co-founder & CEO of LendInvest, added:

"After today's deadline passes, we hope to hear soon how many platforms made applications after weeks of speculation. Full regulation is something that the P2PFA has pushed for since our group was established. It will be a great thing for our industry and only add trust and credibility to what we do as a collective."

Rhydian Lewis, CEO at RateSetter, commented:
 
“The peer to peer sector has sought to be regulated for a number of years and we think that the FCA has taken a sensible approach by bringing platforms into full regulation on an interim basis while supporting innovation, growth and competition.

"We welcome the process for full authorisation - which is rightly a serious undertaking, and will support the growth of our industry over the next few years."