The first peer to peer lending licence issued under the Financial Markets Conduct Act 2013 (FMC Act) has been granted to an online provider, Harmoney.
Peer to peer lending involves the provision of a facility, usually online, by an intermediary. The facility is used to offer of debt securities (or loans) principally to match lenders (investors) with borrowers (issuers) who are seeking loans for personal, charitable or small business purposes. The provider must ensure that a borrower does not use the service to raise more than $2 million in any 12 month period.
The framework for peer to peer lending is set out in the Financial Markets Conduct (Phase 1) Regulations 2014 that came into force on 1 April 2014.
Under the Regulations, peer to peer providers are required to provide:
- a disclosure statement outlining the type of service, how investors money is received and dealt with, the type and extent of the checks and assessments completed on borrowers (issuers) and the risks involved and fees payable
- a client agreement to be entered into by investors which is required to outline how the provider will monitor compliance by the issue with its repayment obligations.
The Regulations impose a number of criteria on providers including:
- having systems and processes to assess the risk that a borrower will not repay lending and the disclosure of that information to investors;
- implementation of a 'fair dealing policy' to exclude any borrowers from using the peer to peer lending service if the provider has a reason to believe the borrower has engaged in misleading or deceptive conduct, or made a false, misleading or unsubstantiated representation in contravention of the FMC Act.
The Financial Markets Authority has further information available on its site, including information about the risks of peer to peer lending.
FMC Act – Next Steps
Consultation on three exposure drafts of phase 2 of the FMC Regulations has been completed and it is anticipated that the full set will be released in October 2014, with the FMC Act coming into full force on 1 December 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.