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Friday, 1 November 2013

A PSD Passport For P2P Lending?

I was interested to read the overview of European national laws that might apply to various types of peer-to-peer finance ('crowdfunding'), published this week by the European Crowdfunding Network (ECN). It's fair to say that the UK is somewhat more advanced in its decision to specifically regulate, but it's proving fairly easy for other member states to catch up - principally via payment services regulation.

While self-regulation of the peer-to-peer lending in the UK borrowed heavily from the UK's implementation of the Payment Services Directive, no one suggested that a peer-to-peer lending platform was actually a payment service (in my view, it's out of scope, or otherwise exempt in several respects). Whereas, the peer-to-peer foreign exhange platforms, such as Kantox (in the UK) and Currency Fair (in Ireland) did take advantage of the PSD as a regulatory basis for their activities.

The EU passport rights that authorised payment institutions enjoy are obviously important for a foreign exchange platform, but less so for lending - due to the challenges in establishing a cross-border market for consumer credit.

Until now, that is.

Unfortunately, the FCA has been rather heavy-handed in its approach to the regulation of peer-to-peer lending, particularly in terms of financial promotions, client money rules and the red tape deterrent requirement for anyone 'lending [to consumers] in the course of a business' (whatever that means) to hold their own consumer credit authorisation, in addition to the platform. In other words, the FCA ignored pan-European calls for a PSD-like approach and has instead opted to import the activity into its investment regime. The French, on the other hand, are consulting on a PSD-based approach, although they have proposed some ridiculously low limits and appear to restrict the volume to the €3m per month to stay below the threshold for fully authorised payment institution status (where a passport would be available), which need to be lifted if it is genuinely going to enable P2P lending, especially to SMEs. 

The ECN overview reveals that other member states appear to be all over the place on the question of whether platforms fall within the scope of the PSD. Some commentators suggest the payment element of P2P lending is in scope, in which case that aspect should be outsourced, or that the platform operator become registered as a small payment institution or fully authorised as a payment institution (or become appointment as a PSD agent). Others suggest that P2P lending may be in scope but exempt under the commercial agents exemption.

Interestingly, however, the European Commission has proposed a new Payment Services Directive (PSD2), which it would like to finalise by Spring 2014. PSD2 is still somewhat flawed, sure, but even in its current form it would seem more proportionate than what the UK is proposing in relation to P2P lending. Including P2P lending within its scope would also provide the Commission with an opportunity to clarify that, so long as the platform is authorised, lenders (payers) should not also need to be authorised under the Consumer Credit Directive - to enable businesses to lend to consumers and other businesses.

Any port in a storm...


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