Full authorisation in the P2P space is just around the corner.
114 companies have sought full authorisation since the advent of the FCA’s interim regime in April 2014. 178 companies are currently operating under interim permissions. These stats come courtesy of the industry specialist consultancy group Bovill. The pace of platform proliferation appears to have surprised even the regulator, which estimated in late 2014 that 56 platforms were in operation.
“Everyone feels it’s a bit of a land grab now there’s more certainty about the regulatory regime. There are an awful lot of new entrants to the market, including many niche players.”
Full regulation takes hold in October this year, and will require platforms to obey client money rules, hold £20k in reserve capital and create a “living will” – in order to transfer outstanding loans in the event of a platform collapse. The new requirements remain relatively light touch, but the new client money rules could prove challenging for some of the smaller firms. Ms. Roche-Saunders indicated that these rules are as strict for P2P players as they are for any other financial services firm – perhaps more so.
The FCA intends to have a fully implemented P2P regime up and running by April 2017. Seven platforms have been fully authorised to date, and we hear that the many outstanding applicants will be authorised in bunches. Ms. Roche-Saunders commented on the potential danger of a protracted authorisation process:
“The FCA have their work cut out for them to meet the current wave of demand from the P2P lending sector.”
“It’s difficult to see how the FCA can be expected to authorise such a large number of firms in a timely manner - as well as ensuring that the approval process is done thoroughly – unless the Government is prepared to throw increased resources at the regulator.”
“If that doesn’t happen, it’s likely we’ll see some P2P lenders waiting for months to get authorised, and that could mean many viable businesses may not get off the ground.”
Bovill has emphasised the importance of sound preparation as a means of speeding up regulatory inspection. Jay Tikam of Vedanvi – another specialist consultancy firm – recently prepared a useful guide to the authorisation process for AltFi News.
With so large a number of horses in the running, should we expect the raising of regulatory fences to shrink the field? Consolidation has already claimed a few victims, in the form of GraduRates, Yes-Secure and Be The Lender. GraduRates had its loan book assumed by RateSetter, Yes-Secure was able to pay its lenders back, and it’s unclear what became of Be The Lender.
The dawn of a fully blown regulatory framework will likely herald a more intense period of consolidation within the P2P space. But the true scale of that consolidation will be immensely difficult to track. There are currently 22 debt-based platforms in the Liberum AltFi Volume Index UK. That’s 22 platforms that have transacted at least 0.1% (c. £4.2m) of the cumulative transaction value of the entire UK alternative finance industry to date. Ergo, there are 156 platforms currently operating under interim permission from the FCA that have yet to hit the £4.2m mark in cumulative lending, and many of those platforms won’t even be close. It’s likely that a large number of these outfits will fold quietly, but will their private lenders be left in the lurch?