Crowdlending: Bespoke regulation is catching on

 

Crowdlending has grown significantly since 2015, and while many areas remain unregulated, policymakers and regulators in several countries are in the process of catching up with developments. We expect that the EU will lead in this process in order to benefit from the safe scaling of alternative financing to SMEs and consumers.

In a joint report from The World Bank Group and the University of Cambridge Centre for Alternative Finance on “Regulating Alternative Finance”, one of the key findings is that:

“Policymakers globally are keen to explore the promise of alternative finance. A clear majority are optimistic about its potential to improve SMEs’ and consumers’ access to finance (79% and 65% respectively) and stimulate competition in financial services (68%). Such expectations chime with regulators’ emerging priorities, as many now have statutory objectives to support financial inclusion, economic policies or competition.”

Quoting a report from the World Bank’s International Finance Corporation, the authors of the above estimate that there is currently a finance gap for SMEs of USD 5 trillion worldwide. Likewise, it is estimated that 1.2 billion new consumers gained access to financial services in the years between 2011 and 2017, thus also increasing the potential demand for alternative lending/financing.

Policymakers and regulators are therefore keen to establish rules to make the sector “safe to scale” as well as “fit for the mass market, including both individual investors and SMEs”.

The report reckons that rules will be introduced in most countries by mid-2021.

This is, of course, something that is already taking place in the EU, where a number of countries are implementing rules on pay-day loans to cap the maximum interest rates charged.

One of the key elements in maturing the crowdlending sector is to introduce Anti-Money Laundering (AML) and Know-Your-Customer (KYC) requirements for all market participants.

AML/KYC implications for Quantrom P2P Lending

Already now, QP2PL is experiencing the drive towards a more regulated environment for crowdlending.

As QP2PL invests on behalf of its Note holders, we receive requirements from platforms regarding our own internal processes as well as ownership structure.

Though not yet a legal requirement, there is a clear tendency among the most developed platforms to, already now, be compliant with anticipated future legislation.

This is a very positive development, since it improves the standing of the sector among investors and regulators while simultaneously deselecting the crowdlending platforms that do not have a serious concept and business model to promote.

Quantrom welcomes this development; it emphasises that our approach from the start, to request information from potential investors before they actually invest, has been and still is the right way forward.

Implications for our investors

We do understand that it can be cumbersome to provide passports, utility bills and, for companies, documentation concerning ultimate beneficiary owners. However, this is a necessary requirement for co-operation with the leading platforms.

When Quantrom P2P Lending DAC receive a subscription, the required documents are examined by our transfer agent to verify that we have the correct documentation.

Thereafter, all investors are passed through World-Check, an online service that verifies if a potential investor is on any of the European Union’s sanctions lists regarding e.g. tax evasion, links to terrorist financing or anti-money laundering, and also assesses whether or not the individual concerned is a Politically Exposed Person (PEP).

It is important for Quantrom to be a trusted partner for both our investors and the platforms with which we deal, and that we do our utmost to follow and implement all requirements in order to be able to participate and expand in the growth of alternative finance.

Gustav Jensen Tony Jønsson

Managing Director and Partner Partner

You can invest in alternative lending with Quantrom P2P Lending DAC by subscribing to our profit participation note on our website: Quantrom.com or Quantrom.dk (Danish version) where more information for investors is also available.

About the Author

Gustav Jensen

Gustav is the managing director of Quantrom Limited and is living in near Brussels.

Economist from University of Copenhagen mainly working in finance and banking.