Today marks the closing of the application window for peer-to-peer lenders wishing to be fully authorised by the FCA.
The authorisation process has already drawn a fair amount of attention from the press. Specialist consultancy firm Bovill has kept us topped up with the statistics, which suggest that 114 companies have sought full authorisation since the FCA's interim regime began in April 2014. In October, we learnt that as many as 30 applications had been withdrawn, with some firms reportedly unable to cope with the demands of the full authorisation process.
For those that have remained in the running, today represents their final opportunity to submit an application to the regulator. We’ve spoken to every peer-to-peer lending platform that currently holds a spot within the Liberum AltFi Volume Index UK (LAVI UK). By rule, every one of these platform must have to date accounted for a minimum of 0.1% of the cumulative funding total of the UK alternative finance space. The status of each platform’s application is listed below:
Zopa – pending approval
RateSetter – pending approval
Lending Works – pending approval
Funding Secure – pending approval
Lendable – pending approval
Funding Circle – pending approval
ThinCats – pending approval
Assetz Capital – pending approval
Rebuildingsociety – pending approval
FundingKnight – pending approval
Abundance – N/A*
Saving Stream – pending approval
Folk2Folk – pending approval
LendInvest – pending approval
Wellesley & Co. – pending approval
Money&Co – pending approval
ArchOver – pending approval
UK Bond Network – pending approval
Relendex – pending approval
Landbay – pending approval
*We spoke to Abundance Founder and CEO Bruce Davis, who explained that his platform occupies a separate space in the mind of the regulator. Peer-to-peer lending is not a regulatory term, the regulatory term is “loan based crowdfunding”. Abundance has not had to file for full authorisation as a loan based crowdfunder, because the platform is defined by the FCA as an “investment based crowdfunder”, placing it within the same regulatory space as equity-based companies, like Crowdcube. What this means is that Abundance – unlike other “peer-to-peer” players – has to quiz investors on the risks of investing via the platform prior to their on-boarding, in order to confirm that they fully understand the product offering. It also means that Abundance has in fact been authorised since 2011 as an investment based crowdfunder, under a regime that was updated in early 2014, to include 10% caps for inexperienced investors.
Some interesting feedback on the application process itself came of the morning’s many conversations. One platform (which chose to remain unnamed) identified some major inefficiencies in the process, explaining that they’d dealt with four different case managers since having submitted their application a little under a year ago.
Gillian Roche-Saunders, Head of Venture Finance at Bovill, tells us that a few players (somewhat bizarrely) have been given an extended window within which to submit their applications. This is reportedly due to a glitch in the FCA’s online systems. Having said that, Gillian asserted that 90% of applications will be in by the day’s end.
It’s worth noting also that there are a few platforms – that are not yet members of the LAVI UK – but that are in fact already fully authorised. Funding Tree is one example. Dillen Iyavoo runs the debt and equity based platform. He explained that Funding Tree originally applied to the FCA for authorisation as an investment based crowdfunder, and to the Office of Fair Trading (OFT) to have its loan offering regulated. Dillen described the OFT’s requirements as largely similar to the requirements of full FCA authorisation for loan based crowdfunding – i.e. client money rules, reporting standards, and so on. The OFT advised Dillen to go in search of an interim licence for loan based crowdfunding from the FCA, but because all of the boxes for full authorisation had already been ticked, “loan based crowdfunding” was simply added to Funding Tree’s list of existing permissions.
The results of our probing suggest that the now-withdrawn P2P applications are likely to have been filed in the first instance by smaller players. Whether or not we find out for sure remains to be seen.
But what have some of the industry’s more prominent figures made of the authorisation process? Giles Andrews, Executive Chairman of Zopa, praised the FCA’s approach:
“We think regulation is very good for our business and the industry. Zopa led the charge in lobbying for regulation, and we were pleased to work with the regulator to help define the regulatory framework for peer-to-peer lending. The application process has been smooth and our dealings with the regulator have been very constructive.”
“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."
"After today's deadline passes, we hope to hear soon how many platforms made applications after weeks of speculation. The number that applied may be smaller than the 120 that was originally suggested. For some, the reality of the cost of being regulated might be too much, and that's where the regulatory landscape will most probably have a sensible filtering effect on the market.”
"Regulation is something that the P2PFA has advocated since our group was established. It will be a great thing for our industry - enhancing the trust and credibility in what we do as a collective."