In a move which will be welcomed by an industry seeking legitimacy and regulation in Australia, ASIC has demonstrated its structural understanding of peer-to-peer lending and outlined its regulatory approach.
ASIC recently released information sheet 213 (INFO 213) on peer-to-peer (P2P) lending products. In a sign that ‘true’ P2P lending to consumers may not be possible in Australia, the regulator has adopted the term ‘marketplace lending’ in the sheet.
To a large extent, the sheet confirms ASIC’s approach to the regulation of P2P lending.
- Depending on the type of investment structure adopted (eg, managed investment scheme, issue of securities) the P2P lender will be expected to comply with all the existing legal requirements in relation to that structure, including holding an Australian Financial Services Licence (AFSL), and issuing applicable disclosure documents.
- If the P2P lender lends to individuals or strata corporations for domestic, household, personal or residential investment purposes, it must hold an Australian credit licence, and comply with the legal regime applying to licence holders, including responsible lending obligations.
The sheet also provides that any applications for relief from the regulatory regime will only be considered under the existing provisions.
What’s new and interesting?
The paper introduces some new information, and gives an insight into ASIC’s view on P2P lending.
- True P2P lending to consumers may not be possible in Australia, due to the regulatory regime and specifically, the need for an entity to hold an AFSL and an Australian credit licence. The sheet does mention the possibility of loans being made directly between investors and consumers, but only with the involvement of an intermediary (a marketplace lending provider) to engage in credit activities on behalf of the lender.
- In the past, ASIC has suggested that the investment structure should always be structured as a managed investment scheme (and the scheme must be registered if the investment product is offered to retail customers). The sheet suggests that other investment structures are available, including the issue of debentures and the operation of a financial market.
- ASIC has raised concerns for participants in the P2P lending industry who rely on certain licence exemptions. ASIC has suggested limitations on those exemptions which may prevent some P2P lending participants relying on an exemption from holding an AFSL.
- Specific guidance is provided on advertising of P2P products, including on borrower creditworthiness. Borrower creditworthiness is key to the success of P2P lending schemes. ASIC states that alphanumeric ratings used by traditional ratings agencies should not be used to describe the creditworthiness of borrowers using P2P products. If any quantitative descriptions of creditworthiness are used, they must be accompanied by sufficient information to explain the description.
- Since P2P is new to Australia, ASIC suggests providing an optional ‘knowledge test for investors’ to potential investors to assist them in understanding the product prior to investing. ASIC does not provide any guidance about what is involved in the knowledge test, and it appears this is the first time that a knowledge test is suggested as a strategy to assist investors, and to assist an entity with meeting its AFSL obligations.
- Specific guidance is provided on what should be included in a PDS for a P2P managed investment scheme.
- The use of online platforms to facilitate loan requests is mentioned. This is likely to be good news for an industry currently undergoing an unprecedented amount of change due to the fintech revolution, and the increased use of online loan origination platforms.
Where to from here?
Given its relatively recent arrival, and the differences between P2P and conventional lending arrangements, ASIC’s knowledge and understanding of different P2P structures and its willingness to publish its views is positive news for the industry. New and existing players should be able to get on with offering their products with a degree of certainty regarding the regulator’s expectations.