In view of the changes taking place affecting peer-to-peer (P2P) lending from April 6 2016, the Financial Conduct Authority (FCA) issued a statement on March 31 about its progress in authorising P2P firms.
In this statement, the regulator said it had “received a lot of applications for firms wanting permission to operate a P2P platform.” However, it reminded applicant firms that it may take as long as 12 months to reach a final decision on a firm’s application, and also that firms are not permitted to trade in the P2P market unless they hold either full permission or interim permission.
Exactly how long it takes the FCA to reach a decision depends on: whether the application is complete when first received, the complexity of the firm’s operations and the extent to which the initial application demonstrates that the firm can comply with its regulatory obligations.
At the time of the statement, only eight firms in the UK hold full permission to operate a P2P lending platform. 44 firms currently hold interim permission, and are permitted to trade while the FCA reaches a decision on their application to upgrade to full permission. This means that a total of 52 P2P firms are currently legally able to operate.
Another 42 firms have applied to enter the P2P market for the first time, and these firms are not permitted to carry out regulated activity relating to P2P until such time as the FCA approves their application.
The statement describes the P2P arena as “a young and innovative market” and the FCA goes on to say that the new Innovative Finance ISA (IFISA), launched for the 2016/17 tax year, will “further increase consumers’ awareness of peer-to-peer lending.”
P2P agreements administered by firms that still hold interim permission cannot be included within the IFISA wrapper, so it seems that this product may take some time to take off, given that there are still only eight full permission firms.
Advising on P2P agreements became a regulated activity on April 6, and all firms authorised to give investment advice have automatically received permission to advise on P2P agreements. Essentially firms are subject to similar requirements when giving P2P advice as those that apply when giving investment advice, including:
• The need to ensure suitability of advice
• A requirement for advisers to hold a Level 4 financial advice Diploma
• A requirement for advisers to be appropriately supervised and assessed as competent
• A ban on receiving commission or other inappropriate inducements from providers
• The financial promotions rules relating to investments
When advising on IFISAs, firms are expected to provide clients with an explanation of the tax situation, the potential impact if the P2P agreement is not repaid and the potential impact if the P2P platform operator fails. They should also explain how an IFISA can be cashed in, or transferred to another provider – here transfers can only be made if all outstanding loans have been repaid. Firms should give an indication to affected clients of how long the transfer is expected to take.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.