Marketplace lending how-to from the Australian regulator
The Australian Securities and Investments Commission (ASIC) has released guidance for marketplace lenders navigating Australia’s existing dual licensing regimes for credit and financial products. While the guidance is helpful, it does not overcome the need for marketplace lenders, like other fintech innovators, to contort themselves into existing regulatory boxes.
ASIC’s Information Sheet 213 focuses on establishing a marketplace lending platform using Australia’s managed investment scheme regime, by far the most popular Australian structure where a trust is interposed between borrowers and lenders. This regime was designed for pooled collective investment vehicles, such as traditional managed funds, and is not well adapted to pure peer-to-peer lending. Individual regulatory relief is often needed to overcome these challenges – for example, to facilitate investor withdrawals – and the Information Sheet helpfully outlines the relief ASIC has previously given to industry players.
The most notable features of ASIC’s guidance are as follows:
- ASIC describes the licences and authorisations needed for operators, custodians and promoters under various structures. Typically, an AFSL and ACL are required.
- A common alternative to obtaining your own AFSL is becoming an authorised representative of an existing licensee. ASIC appears to be discouraging this model by highlighting its limitations. This emphasis is different than ASIC’s previously approach.
- ASIC encourages operators to have regard to its consumer education website (MoneySmart) as an example of marketplace lending risk disclosure and suggests disclosure documents could refer investors to this website.
- ASIC previously discouraged operators from publishing credit scores for borrowers, but the Information Sheet allows the practice. Scores should not take the form of traditional credit ratings (eg AAA or BB) however.
Last year, Australia’s Financial Systems Inquiry recommended more extensive regulatory changes to facilitate marketplace lending. While the Australian Government accepted the recommendation, we have not yet seen what more will be done. The Information Sheet, in this respect, does no more than flag the possibility of future regulatory change.