ASIC’s REP 448 Overview of licensing and professional registration applications: January to June 2015 gives an insight into ASIC’s approach to peer-to-peer lending, which ASIC considers is more appropriately referred to as ‘marketplace lending’.
The peer-to-peer market involves an intermediary facilitating lending by matching borrowers (usually consumers or small businesses) with potential lenders using technology or a website-based platform to display a range of loans and investments consumers can acquire. This is a growing alternative to borrowing directly from a bank or other financial institution.
Peer-to-peer loans typically involve a number of lenders contributing small amounts to a loan however larger investors can also be involved.
Lending platforms have been established in Australia as licensed managed investment schemes and operators have obtained an Australian Financial Services Licence in respect of investments by lenders.
As lenders, peer-to-peer funds require an Australian Credit Licence.
ASIC has established an internal working group for marketplace lending and is preparing an information sheet to provide guidance to operators of marketplace lending platforms on:
(a) the legal obligations for marketplace lenders under the Corporations Act, the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the National Consumer Credit Protection Act 2009 (National Credit Act);
(b) assisting consumers to understand the product and ensuring that they are not misled—in particular, by the use of certain industry terminology (e.g. when comparing the product to banking products); and
(c) the advertising requirements to ensure that advertising is clear and not misleading or deceptive.
ASIC is also concerned about how a borrower’s creditworthiness is expressed to potential investors.
ASIC plans to periodically survey platform operators about their business to better understand developments and any changes in risk profile of the business.
ASIC has considered a number of applications from marketplace lending businesses seeking to obtain an AFS licence authorisation to operate an investor directed portfolio service (IDPS) or IDPS-like scheme. ASIC has noted that, while marketplace lending platforms share similarities with IDPS and IDPS-like schemes, they also exhibit the characteristics of typical managed investment schemes. In ASIC’s view, the applications it has received to date required a managed investment scheme authorisation.
Depending on how the business model is proposed, this does not mean that a marketplace lending product is precluded from:
(a) being operated as an IDPS or IDPS-like scheme; or
(b) being included as an investment option on an IDPS platform.
ASIC has tailored a number of AFS licence authorisations to reflect the specific nature of web-based marketplace lending platforms.
Peer-to-peer lenders must also comply with the AML/CTF Act and the privacy and credit reporting provisions of the Privacy Act 1988.
David Jacobson can advise you on the regulatory issues that apply to the different business models.
