There’s been a lot written about regulation of P2P lending firms – indeed it was the topic of our final AFN Research Seminar of 2015 in December – and many are now well into the process of applying to the Financial Conduct Authority for authorisation. To date, most P2P platforms are still operating on interim permissions from the FCA that have been available since responsibility for regulating P2P passed to it in April 2014. The hurdle for obtaining interim permission was pretty low but becoming authorised is a much more laborious process.

 

Everyone using an interim permission has until March 31 to apply for authorisation or shut up shop, although it’s clear that most will have to wait a good while after that date to find out whether they’ve made it through. This is because, as Martin Smulian, Head of Legal and Compliance at Funding Knight, told our December seminar, it is taking four months or more for a platform’s application to be allocated a case officer and it is only once that has happened that the clock starts on the FCA’s one-year deadline to process it. Plenty of applicants could end up waiting well into 2017 for the FCA to finish the job.

 

To be fair to the regulator, the backlog extends well beyond P2P applications so the fintech crowd is not being singled out. And there are also suggestions that some firms may be allowed to use the FCA’s “sandbox”, a sort of regulatory nursery that entrants with innovative business models can use as a “safe harbour”, enabling them to start operating in a small way without falling foul of the regulator while it considers how best to deal with them. But that isn’t expected to go live until the spring so it’s not year clear who will be able to use that route.

 

In the meantime, six pioneering firms have made it all the way through the process already and are temporarily alone in having authorisation from the FCA to carry on “loan-based crowdfunding” as the regulator likes to call it. For the curious, the six are:

 

• 
  
• Go2 Business Loans
• 
  
• Formax Credit – the UK arm of a Chinese group, offering personal and business loans from £1k to £25k
• 
  
• Crowdstacker – a business lender
• 
  
• InvestDen – business loans and equity opportunities
• 
  
• Crowd2Fund – business loans, mini-bonds, revenue-based lending, equity funding and donations
• 
  
• Resolution Compliance
• 
  

 

This last one is interesting. It’s not a platform operator but instead is part of Thistle Initiatives, a regulatory consultancy. The idea is to enable P2P firms that want to enter the market but are now too late to obtain an interim permission to become “Appointed Representatives” of Resolution, which holds the necessary permissions itself. In return for a monthly fee, would-be P2P challengers can begin operating under the watchful eye of Resolution Compliance, which vouches for them to the regulator and takes responsibility to making sure that everything is done in line with the rules. It’s effectively a kind of incubator that lets a company “rent” the regulatory permissions it needs until it is ready to apply in its own name. Given how long the waits are likely to be to get through the authorisation process, becoming an Appointed Representative of an outfit like Resolution is likely to be a popular way of getting into the market in future.

 

Although a potentially long wait to become fully authorised won’t stop existing platforms from getting on with their lives in the meantime, it does have at least one annoying implication, for some at least. The Innovative Finance Isa, which will allow retail investors tax free gains on P2P lending, is due to come into being this April. But the catch is that the only P2P platforms that will be able to offer it will be those that are already authorised – ie not those that are still relying on interim permissions to operate.

 

This is likely to mean that most platforms will not have their own IF Isa offering come April and will instead have to partner with one or more of the independent providers that are gearing up to launch Innovative Finance Isas. This would enable investors that take out an IF Isa to access any of the platforms that agree to work with the Isa provider. How hard the independent Isa providers will be able to market the new products will obviously depend on how big their marketing budgets are, but also on how much cash platforms are prepared to spend helping to promote an Isa that can channel money to someone else’s platform as well as their own.

 

I suspect that the arrival of the IF Isa could be a more subdued affair than many in the industry had hoped.