Finance · 12 October 2015

P2P lenders struggling to cope with FCA’s tougher regulatory requirements

The FCA is setting the bar high when it comes to full authorisation for P2P lenders
The FCA is setting the bar high when it comes to full authorisation for P2P lenders

Over a quarter of applications from P2P lenders hoping to win approval from the financial watchdog have been withdrawn, with businesses struggling to meet tougher regulatory requirements.

The financial services regulatory consultancy Bovill reported that since the Financial Conduct Authority took over regulating the consumer credit industry in April 2014, 30 of the 114 applications from new P2P lenders have been withdrawn.

Of those, seven were full withdrawals, while 23 were partial ones as firms removed P2P activities from their application but proceeded with other regulated business.

Prior to April 2014, the Office of Fair Trading oversaw regulation.

Lenders like these are aiming to challenge the banks with better rates and the government has tried to widen options by bringing in mandatory referral. When a bank turns down a customer, it has to then refer the business onto an alternative lender that might be able to provide the sought after funds. It is estimated that some 250,000-500,000 small businesses have a loan request turned down every year.

The head of venture finance at Bovill, Gillian Roche-Saunders, said 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 firms first anticipated”.

He added that P2P lenders had been enjoying “a relatively light-touch approach from the regulator for some time”, so a rigorous authorisation process “will have come as a shock to the system”.

Roche-Saunders feels the regulator is likely to put pressure on those it believes “are not up to scratch to withdraw their application at an early stage”, which makes for an interesting backdrop against rumours being reported that a P2P company is in financial difficulty.

A collapse could damage the sector’s burgeoning reputation as a viable alternative to the big banks. Anthony Hilton discussed the potential failure in the Evening Standard, with those involved ruminating over what would occur should a lender fail.

While the “sums are not large in the greater scheme of things”, because the firm being discussed “is one of the smaller of the 100 or so firms in the business and operating under Financial Conduct Authority regulation that is in trouble”, it was, as Hilton pointed out “a test nevertheless”.

Some City institutions have been sceptical as to whether P2P lending is sustainable – with firms quick to point out how much they are lending on the platforms, rather than how much they earn.

Image: Shutterstock

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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