The Treasury has clarified that firms who borrow via a peer-to-peer (P2P) platform will not need to obtain a banking licence to do so, unless of course banking is actually the firm’s core business activity.

The Treasury described the announcement as “a boost of confidence” for the P2P sector, and added:

“The legislation will ensure that the industry can continue to thrive and innovate while still benefiting from the UK’s high quality regulatory standards.”

With many firms seeking to finance growth via P2P lending, the concern had been that these firms would be classed as deposit takers once they accepted P2P funding, and would therefore require a banking licence. If this had been the case, costs would have increased significantly for both P2P firms and borrowers. The sustainability of some P2P business models could have been called into question, raising the possibility of P2P firms going out of business, or at least needing to dramatically reduce the amounts they could lend.

The Treasury added that the P2P sector provided more than £1.2 billion of funding to UK businesses in 2016, equivalent to 15% of all new bank lending to small businesses.

Stephen Barclay MP, the Economic Secretary to the Treasury, said:

“Peer-to-peer lending has brought about real benefits, not only for the UK’s small and medium sized business community, but our economy at large. This vital clarification will mean that businesses can continue to access the finance they need to grow and expand, helping us to build an economy that is fit for the future.”

P2P firms should however expect to remain under close regulatory scrutiny, and should keep a close eye on any communications from the regulator, the Financial Conduct Authority (FCA), which may introduce new rules for the sector during 2018.

P2P advisers are already required under existing FCA rules to display the same level of competence and qualifications as those advisers who give investment advice. Firms must also have systems and controls in place for monitoring P2P advice, which should be equivalent to the controls a firm might have in place for other investment advice.

Additionally, firms giving P2P advice must hold the same level of capital resources as any other investment advice firm. Like investment advisers, they can only be remunerated via fees and not through commission. The financial promotions rules for P2P advisers are now also the same as for investment advisers.

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.