Tougher rules hit peer-to-peer sector

More than a quarter of applications from peer-to-peer lenders seeking the financial watchdog’s seal of approval have been withdrawn as companies struggle to meet stricter regulatory requirements, new figures reveal.

The Financial Conduct Authority took over regulating the consumer credit industry from the Office of FairTrading in April last year.

Since then, 30 of the 114 applications from new peerto-peer lenders, which are challenging the banks with better rates, have been withdrawn, according to the financial services regulatory consultancy Bovill. Of these, seven were full withdrawals, while 23 were partial withdrawals as firms removed peer-to-peer activities from their application but proceeded with other regulated business.

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 [peerto-peer] 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.

“The regulator is likely to put pressure on those they feel are not up to scratch to withdraw their application at an early stage.”

Rumours are circulating that a peer-to-peer company is in trouble financially. A collapse could put at risk the sector’s growing reputation as a genuine alternative to the high-street banks. Meanwhile City institutions are sceptical about whether peer-to-peer lending is a sustainable model that makes money as companies tend to boast about how much money is lent on their platforms rather than how much they earn.

However, the property lending platform LendInvest, one of the UK’s largest peerto-peer firms, has unveiled its second annual profit in only two years as a business. The company, which matches investors with property entrepreneurs looking for mortgage finance, more than doubled profits to £3.1m last year on revenues of £15m, three times higher than in 2014.

P2P lenders have enjoyed a relatively light-touch approach from the regulator for some time