Like riding a bike through Sydney or getting to Melbourne airport, launching a peer to peer lending platform in Australia is possible but not as easy as it should be. The Financial System Inquiry recommended changes and the Government’s response seemed to agree, but we are yet to see what will be done to facilitate innovation in marketplace lending.
Currently, there is no tailored regulatory structure for peer to peer lenders. They are forced to fit into the existing financial services and credit regimes.
At its purest, peer to peer lending is completely disaggregated and involves a person advancing money directly to a borrower. No middle man. Currently, if you’re targeting retail investors and consumer borrowers, this sort of pure peer to peer lending is not possible. Perhaps that’s why the Australian Securities and Investment Commission (ASIC) is championing the term “marketplace lending” in its place.
The structure de jour for marketplace lending in Australia is a registered managed investment scheme (MIS) built around a unit trust, with the trustee (and possibly a custodian) holding an Australian Financial Services Licence (AFSL) and Australian Credit Licence (ACL). Where pure peer to peer lending is disaggregated and direct, MISs are fundamentally a vehicle for pooled, indirect investment. It’s not surprising then that the MIS regime is ill fitting and requires adjustment for peer to peer lenders.
A small number of peer to peer lenders have already launched in Australia using an MIS structure, but each has needed multiple elements of bespoke regulatory relief from ASIC to do so.
It would also be possible to build a peer to peer lending platform around a debenture structure, but this too would have its challenges. ASIC recently commented that this approach, though possible, has not yet been tried.
ASIC intends to issue an information sheet before year end about the regulatory landscape for marketplace lending. This will provide much needed guidance, but will not make significant structural change. The Government’s response to the Financial System Inquiry committed to consulting with the community on ‘crowd sourced debt funding’, which we can only hope will mean a simpler regulatory path for peer to peer lending platforms.