For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
FCA regulation: A game changer for the good
For many peer-to-peer lending (P2P) platforms, it’s now crunch time as the deadline for applications for full authorisation from the Financial Conduct Authority (FCA) of 31 October is fast approaching.
The stringent set of rules which need to be complied with include having a minimum level of operating capital and provisions in place to service loans in the event of platform failure, in addition to high standards of business conduct, strict requirements around managing client money, treating customers fairly, complaints handling, financial promotions and systems and controls. The exhaustive application process and continued compliance with the FCA’s framework requires a significant allocation of firms’ resources, both in terms of time and money.
Over 100 platforms will have applied for full authorisation by the deadline, and many will likely fall by the wayside. Indeed, since the FCA took over regulation of the sector in April 2014 a number of firms have already exited the market - the cost of compliance being deemed too great a burden.
Why all of this is good for P2P
Despite all of the above, the response to FCA regulation from the major platforms has been overwhelmingly positive. There aren’t many businesses who welcome additional costs, time-consuming process implementation and paperwork – least of all bankers, who’ve had their wings clipped since the recession. But perhaps that is what sets peer-to-peer lending apart. The emphasis for us isn’t on cutting corners, and milking every penny – come what may – from the consumer. Instead, the priority is on doing everything to underscore our credibility, and pioneer a sustainable and enduring model for our operations.
Brutal as it may sound, a clearing of the decks leaves behind those best placed to represent our sector and serve those who matter most – the customer. As our CEO Nick put it in a recent interview with the Financial News, those who succumb to the cull “most likely shouldn’t be trading anyway, and would undermine the very integrity that so many of us have worked hard to cultivate.”
FCA regulation at Lending Works
Lending Works was set up with the FCA’s regulatory regime in mind; however there is no denying that the cost of ongoing compliance is still significant as a young business. But the benefits of gaining the stamp of approval from the most important financial regulatory body in the UK are worth the significant efforts required to achieve it. The disillusionment with personal finance that followed the banking crisis is very much on the wane, as consumers are increasingly embracing the fast-growing world of fintech and alternative finance. Peer-to-peer lending figures prominently in this positive shift, and it has already developed a good rapport with consumers and a reputation for treating its customers fairly.
But FCA regulation holds the key to driving this home, and is a vital step up as we look to make the progression from ‘alternative’ to mainstream. Only the strongest (and worthy) will survive; no longer will the many credible platforms be at risk of being tainted by those few which are unfit to facilitate lending safely and fairly. This, in turn, will perpetuate a positive cycle of increased consumer confidence in lending and borrowing their money via UK P2P platforms, itself leading to a more-widespread uptake and thus more people benefiting from a truly streamlined and efficient business model.
And we’re nearly there too. It’s a notch on the belt, and an acknowledgement of how far peer-to-peer lending has come since its inception just over 10 years ago. The game-changing announcement that the FCA would regulate the sector has now become a reality, and for platforms, borrowers and lenders alike, this is absolutely something to celebrate.
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The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
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