At the end of last month, P2P lending platforms had to submit their paperwork to the Financial Conduct Authority in order to gain permission to continue operating after April next year. At that point, the interim permissions that the FCA granted to everyone that met a few basic conditions from April 2014 will expire – if you don’t succeed in making the transition to full authorisation it’s game over. Already, reports have surfaced via the  that quite a number of platforms have given up on getting full authorisation to operate as P2P lenders.  

 

Having chatted to a couple of large platforms in recent days, it’s easy to see why. Ratesetter says it has spent about £500,000 this year getting ready for full authorisation. Not all of those costs will be recurring, given the platform’s spending on consultants to help it prepare its submission and write the internal documents it needs to have, such as a compliance handbook. However, a large percentage of those costs – perhaps two-thirds or more – will recur each year.

 

It’s clear then that building a compliance operation from scratch and putting in place the necessary processes to operate in line with FCA regulation from here on is going to add several hundred thousand pounds a year to a large platform’s overheads. Smaller players with lower volumes will probably get away will less, but the burden will still be significant. Kevin Caley at ThinCats has been working with consultants for months in order to be ready to submit by October 31. There was no choice: “The big platforms don’t want to get caught out,” he argues.

 

Given that many operators remain unprofitable, this level of additional cost is a big deal and is likely to speed up the process of determining who is going to be around for the long haul and who isn’t. These overheads are not going away and the only way to support them in future will be to operate profitably or to be close enough to profitability to make the risk look attractive to your equity backers.

 

This, therefore, is a big moment for the P2P movement – in effect, the regulators provided a two-year window during which entrants had the opportunity to build their position without very much pressure or oversight. That window is now closing.

 

Given the inevitable focus on regulation and its costs for platforms in the months ahead, the next Alternative Funding Network event on December 7 will look at the new regulatory landscape with a panel of experts who have been closely involved in helping alternative finance platforms prepare for full authorisation. Do join us if you can. .