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Peer2Peer Finance News | October 23, 2018

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New rules clarify P2P business borrowers are not deposit takers

New rules clarify P2P business borrowers are not deposit takers
Suzie Neuwirth

THE GOVERNMENT has clarified that a business does not need a banking licence to borrow through a peer-to-peer lending platform, in a move that is understood to underline its support for the industry.

In an announcement titled ‘protecting the future of P2P lending’, the Treasury said that no P2P business borrower needs to be regulated as a ‘deposit taker’ – often referred to as a ‘banking licence’ – unless that is their core business.

This clarification will be added to the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001.

Read more: P2P business lending now largest segment of alternative finance

“The draft legislation will provide certainty for UK businesses across a range of sectors including manufacturing, construction, and hospitality who finance their growth with P2P lending,” the Treasury said on Thursday.

“Without this legislation, P2P platforms lacked clarity on whether some of their borrowers would require a ‘banking licence’ to borrow through their platform. This would have dramatically increased costs for platforms and borrowers, and impacted the sustainability of P2P business models, reducing the finance available to businesses.”

Peer2Peer Finance News understands that the legislation resulted from discussions between the Financial Conduct Authority (FCA) and the Treasury, who felt the industry needed better clarification on this point.

The definition of a ‘deposit taker’ is very broad and it is thought that the relative nascence of P2P regulation meant that there was some uncertainty about whether its business borrowers would fall into that category.

It is understood that the government is keen to be seen to support the P2P industry by offering this clarification, as it sees the sector as an area of significant growth.

Read more: FCA uses P2P as example of balancing competition and innovation

“P2P lending has brought about real benefits, not only for the UK’s small- and medium-sized business community, but our economy at large,” said City Minister Stephen Barclay.

“This vital clarification will mean that businesses can continue to access the finance they need to grow and expand, helping us to build an economy that is fit for the future.”

In 2016 over £1.2bn of finance for businesses was facilitated by the P2P industry, and it provided the equivalent of 15 per cent of all new bank lending to small businesses, according to data cited by the Treasury.

The P2P industry is still waiting for the outcome of the FCA’s post-implementation review into the sector, almost 18 months after the City watchdog first announced a call for input.

Interim findings were published last year, which indicated that the FCA is likely to strengthen rules on the sector.