Only 9% of P2P platforms fully regulated

Only 9% of P2P platforms fully regulated

Only eight firms are fully authorised to operate peer-to-peer lending platforms in the UK, meaning most are unlikely to be able to offer the Innovative Finance Isa in time for its launch next week.

In a statement published today (31 March), the Financial Conduct Authority revealed 86 firms are still waiting for approval under its P2P framework, meaning only 9 per cent have been granted the necessary permissions to offer the new Isa.

The authorised P2P firms are: Go2Partners, Formax Credit UK, Crowdstacker, Resolution Compliance, Clasp Investments, Crowd2Fund, Gracombex, EdAid.

Just over half of the 86 P2P platforms were previously licensed by the Office of Fair Trading, which regulated consumer credit before the FCA.

These 44 firms currently have interim permission, which means they are able to continue carrying out consumer credit activities until the FCA decides whether to fully authorise them.

Changes to legislation have been made this year which clarify how operating a P2P platform fits with other regulated activities.

Announced in last year’s Summer Budget, the Innovative Finance Isa gives consumers the opportunity to invest in peer-to-peer loans, while benefitting from the tax-free Isa wrapper.

The FCA licensing process can take up to 12 months, then P2P platforms must apply for Isa manager status, which can take an additional two weeks.

A spokesman for the regulator said firms must meet “rigorous statutory standards” and the amount of time it takes to consider an application depends on the completeness of the application, the complexity of the business and the firm’s compliance with regulatory requirements.

Yesterday, P2P platform Abundance became the first to receive full authorisation to offer the new Isa, while the larger platforms still wait for approval.

Only P2P loans on platforms with full authorisation will be eligible to offer investments for the Innovative Finance Isa.

The new Isa has come under fire by senior industry figures for not having robust credit underwriting processes in place in the event of a severe economic downturn.

In a separate note, HM Revenue & Customs has today issued guidance which sets out the rules on how to apply income tax relief on P2P investments when a loan cannot be recovered.

Michael McLintock, director at Adelp Financial Solutions, said: “I think a P2P platform borrower is likely to default quicker than the FCA could get the platform authorised.

“P2P is a niche investment and I’m concerned about the way they are marketed via glossy websites with little or no advice.”

Mr McLintock said he was not confident the delay is due to the FCA having a robust process that’s in the long term interest of clients.

“It’s a delay due to their bureaucracy which is designed to make sure they filled in the right form and ticked a box to cover their own backside, rather than one to make sure the client has meaningful protection.”