THE PEER-TO-PEER lending sector could face a bill of up to £1.5m to implement new regulations proposed by the Financial Conduct Authority (FCA).
A cost-benefit analysis by the City watchdog, which was included in its long-awaited consultation following the post implementation review of the P2P sector, assesses the one-off and ongoing costs of the possible rule changes for the 63 firms regulated at the time the paper was written.
One-off costs total £1.49m, based on the City watchdog’s highest estimates, before ongoing costs are included.
The FCA estimates the one-off cost of allocating responsibility for the risk management framework to an approved senior manager, who may need to be recruited and apply for regulatory approval, to be around £3,710 and the ongoing cost as between £140 and £450.13 per firm.
Therefore, for the sector the one-off costs are estimated to be £185,500, and ongoing costs between £7,000 and £22,500, to implement the regulator’s risk management proposals.
Changes to marketing restrictions will cost £3,300 on average, so £207,900 across all 63 platforms, based on new IT systems, programming and compliance needed to introduced self-certification checks.
It is estimated that new rules on disclosure of wind-down plans could cost £704 per day for a director to review a platform’s arrangements, including the resolution manual, as part of their annual review.
The number of days needed to conduct such a review will differ from platform to platform, the FCA said, but taking account of the proposed requirements it estimates that this could be in the region of one to five days, at a cost of £704 to £3,520 per platform, and £45,352 to £221,760 for the sector.
Platforms may also be required to improve how much information they show in their loanbook and on their website about how risk is assessed and how they manage defaults.
The FCA estimates a one-off cost per platform of £1,848 for two days’ training for compliance directors on the new rules, consisting of £88 per hour for a compliance director and £220 per day for a trainer, and £9,240 for reviewing financial programmes and web programming over a period of 10 days, consisting of £88 per hour for a director and £220 per day for a web programmer.
Applying these figures to the 63 platforms affected by the proposals, the cost to the industry is estimated to be approximately £700,000.
Platforms offering contingency funds will also have to improve and draft disclosures, which the FCA assumes should take three working days at a cost of £88 per hour for a compliance director to draft the text and £220 per day for a web programmer.
This is expected to lead to a one-off cost of £2,772 per platform. For the whole sector this would be a maximum of £175,000.
“Increased compliance costs will increase platforms’ operating costs,” the FCA said.
“This could have indirect effects on the market, such as increased barriers to entry and, possibly, as a result, discourage innovation, reducing choice for consumers.
“However, we consider that these additional costs are likely to be manageable for platforms as overall costs per platform are small.
“We do not expect the overall impact on innovation in the crowdfunding market to be material or these proposals to act as a significant barrier to entry.”