Peer-to-peer lending industry growing up fast
Peer-to-peer lending companies have signed up in droves for full regulation as the industry grows at its fastest rate yet.
Since the Financial Conduct Authority took on the oversight of the P2P lending sector, 114 companies have applied for full authorisation, up from 54 at the start of the year, while a further 178 companies have received interim permission to operate in the market.
The FCA has so far fully authorised only seven platforms as part of its batch-processing process, with a full regime expected to be in place by April 2017.
Bovill, a regulatory consultancy, told the Financial Times: "Everyone feels it’s a bit of a land grab now there’s more certainty about the regulatory regime.”
New figures from the P2P Finance Association last month showed that over £500m of new consumer and small business loans have been provided by P2P platforms in the second quarter, the fastest rate of growth the industry has seen, with cumulative lending by the association's members topping £3.15bn.
Earlier in July, Chancellor George Osborne proposed that peer-to-peer loans will be covered by a new, third type of ISA from next April.
Under plans set out in April 2014, rules for investment-based and loan-based crowdfunding platforms, mainly peer-to-peer lenders, were separated to apply a less onerous regime for the latter.
The FCA has been moving towards a full regulatory regime in which companies obey client money rules, hold £20,000 in reserve capital and create a "living will" so outstanding loans can be transferred if a platform collapses.
The thorny issue of regulating the markets was indicated by a July consultation paper launched by the government to look at the deduction of income tax from interest on peer to peer lending, as who should deduct and pay taxes is not clear when the borrower receives funding from many sources – which remain unknown – and if the tax burden is placed on the platform this could “constrain development of the market and the way P2P loans are sold and managed”.
New consumer focused P2P platforms will be a timely addition to the market as more than 5,000 payday lenders, log book lenders, credit brokerages, debt management firms and credit information and repair services have shut up shop despite being granted temporary approval by the FCA.
The Telegraph reported that almost 17,000 of the 50,000 firms given interim consumer credit licences were required to apply for full authorisation by April 1 this year, but that 5,172 have failed to do so, requiring them to shut that line of business.