In the past few years, social lending, i.e. the practice through which private and institutional investors can lend their money to individuals or businesses through online platforms without the direct involvement of a traditional financial institution, has experienced a tremendous growth, thus becoming one of the hottest industries in fintech.
The interest around this practice captured the attention of regulators all over the world and also the central bank of Italy, Bankitalia, has recently proven to have been looking at this space.
On November 9, 2016 Bankitalia published the Provisions for the collection of savings by entities other than banks (Disposizioni in materia di raccolta del risparmio da parte dei soggetti diversi dalle banche, the “Provisions”) which entered into force on January 1, 2017.
Among others, the Provisions contain a section dedicated to social lending, detailing information on the extent to which web platforms matching borrowers and lenders may be operated in accordance with the limitations related to the soliciting investments from the general public, which is illegal in Italy.
In a nutshell the key innovations introduced by Bankitalia are the following:
- There are a number of situations in which the activities of the platforms may not be considered as a way to collect savings from the general public, such as (i) the receipt of funds to be included in payment accounts used exclusively for the provision of payment services by the platform operators, if allowed to operate as payment institutions, electronic money institutions or financial intermediaries; and (ii) the receipt of funds for the issuance of e-money made by authorized operators.
- As for borrowers, also (i) the acquisition of funds on the basis of customized negotiations with individual lenders, with the operator simply supporting the performance of previous negotiations for the formation of the contract; and (ii) the acquisition of funds from entities subject to prudential supervision, operating in the banking, finance, securities, insurance and social security sectors, do not constitute activities of collection of savings from the public.
- The operation of online platforms is allowed as far as it is compliant with the rules governing the activities reserved to particular categories of persons (e.g. banking activity, credit mediation, provision of payment services as well as provision of credit to the public).
- A limitation to the funds that may be acquired via social lending platforms by borrowers shall be provided so as to prevent non-banks to raise funds for a significant amount from an undetermined number of savers. In this respect, note that Bankitalia does not have any power to limit such collection under the current regulatory framework. Thus, the platform operator itself will have to define this aspect.
- No limitations are set for banks carrying out activities of social lending through online portals.
Bankitalia has definitely made a first step towards the recognition of this practice, also talking into consideration the European experience. However, a lot more may done and it will be interesting to see how the situation will evolve in the next few years.