Over a quarter (26%) of applications from peer-to-peer lenders seeking UK regulator the Financial Conduct Authority’s (FCA) authorisation have been withdrawn, a Freedom of Information request has revealed.
The FOI request showed that the FCA has received 114 applications from new peer-to-peer (p2p) lenders seeking full authorisation since the start of April 2014, when the FCA took over the regulation of the consumer credit industry from the Office of Fair Trading (OFT).
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Bovill, the financial services regulatory consultancy, said this raised concerns over firms’ ability to meet new regulatory requirements.
The 114 firms were either with interim permission which had applied outside a prescribed FCA ‘landing slot’ or firms without interim permission, with the data accurate as of July 2015.
30 p2p lender’s applications have now been withdrawn in total: 23 of which were partial withdrawals where the applicant withdrew p2p lending activities specifically from its application, but proceeded with its application to carry on other regulated activities, while 7 were full withdrawals.
In addition, 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.
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By GlobalDataBovill said that since the FCA took over the regulation of peer-to-peer lending, it has looked to raise standards and ensure higher levels of consumer protection. Firms now 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.
Bovill said the withdrawals may also, in part, be a result of a lack of understanding of what peer-to-peer lending involves amongst UK financial services firms. Businesses may have applied for authorisation mistakenly assuming that their activities constitute p2p lending when they do not, resulting in withdrawn applications.
Gillian Roche-Saunders, head of venture finance at Bovill, 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 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."
