In July 2018, the Commissioner of the Capital Market, Insurance and Savings Authority published draft guidelines that will enable P2P lending platform operators to operate a system that offers loans from their own nostro accounts. This issue triggered numerous debates during legislation of the law regulating the activities of lending platforms, and many players in this market have waited in anticipation for the draft’s publication.
The purpose of the draft is to define the conditions under which a P2P lending platform operator, or entities related to it, can offer loans from its own funds. The draft focuses on preventing conflicts of interest in a P2P lending platform, when, on the one hand, it is supposed to broker between borrowers and lenders and, on the other hand, it itself functions as a lender. Consequently, the Commissioner prescribed several rules designed to prevent conflicts of interest:
- A P2P lending platform operator will be allowed to offer loans out of its nostro funds only after it has given priority to external lenders;
- Even after the platform operator has granted a loan, if a new external lender materializes that is interested in participating in granting the loan, the operator will be obligated to sell its rights to the loan to the external lender (apart from loans with a past due date, for which the platform operator will continue to bear the risk of default);
- P2P lending platform operators will be obligated to define fair, nondiscriminatory procedures for selling their rights to loans and to publish these on their websites.
Another objective of the Commissioner’s draft is to spur momentum in P2P lending activities that can compete in the consumer credit market, which is currently dominated by the banks. Enabling P2P lending platforms to invest in this market will help them overcome the liquidity management challenge they currently face. However, in order to preserve the unique characteristics of P2P lending platforms, and to prevent them from eventually becoming merely another form of ordinary non-bank credit providers, the draft prescribes that, during the first three years after the final guidelines are published, P2P lending platform operators will be able to grant loans from their nostro accounts at a volume of up to 30% of their total accumulated credit (the total amount of all borrowers’ debts to lenders and the total amount of the lenders’ money transferred to the platform operator which have not yet been allocated as loans to the borrowers). Subsequently, they will be able to grant loans from their nostro accounts at a volume of only 5% of their total accumulated credit.
The draft guidelines also prescribe that the financing of loans by P2P lending platform operators must be carried out using an automated, mechanized process without any human intervention. Moreover, any process that relates to a change in loan terms must apply equally to all lenders, without giving preference to money invested by the lending platform operator.
The draft guidelines also set a rule whereby the volume of financing that a lending platform operator is allowed to provide for a single loan cannot exceed 50% of the total loan. An exception to this rule is that a lending platform operator can provide loan financing at a ratio exceeding 50% of the total loan if at issue is financing for a period of only ten days, or until an external lender is found, whichever is later. (During this interim period, the platform operator will not be allowed to lend additional funds from its nostro account.)
We wish to emphasize that the possibility of P2P lending platform operators providing loans from their own nostro accounts does not derogate from their obligation as to obtain a license to provide credit (in addition to the license to operate a credit brokerage system they are obligated to obtain in order to operate the P2P platform).
These draft guidelines are open to public comments until August 13, 2018. P2P lending platform operators must wait until the final version of the guidelines is published in order to begin providing loans from their nostro accounts.