Marketplace lending or Peer-to-Peer lending is an arrangement through which investors invest money that is then lent to borrowers (consumers or businesses).

Marketplace lending arrangements commonly involve the use of an online platform (such as a website) facilitated by a financial services provider that matches investors with borrowers looking for a loan.

Investors either select the loans they wish to invest in or they are matched with loans that meet specified criteria, such as a prescribed or desired interest rate and loan term. In some arrangements, investors may also be exposed to a loan or a pool of loans. Multiple investors may also fund a single loan.

How Does Marketplace Lending Work?

How is Marketplace Lending Regulated?

The regulation of marketplace lending depends on how you structure your business and the types of investors (wholesale or retail) and borrowers (consumers or businesses) you will engage with.

Marketplace lending products can be structured in many ways including:

• Managed Investment Schemes;
• The Issuing of Derivatives;
• The Operation of a Financial Market; or
• The Issue of Securities.

Under the Corporations Act 2001 (Cth) and National Consumer Credit Protection Act 2009 and Code, marketplace lending providers will generally need to hold an:

1. Australian Financial Services (AFS) Licence with the authorisations relevant to their business structure; and
2. Australian Credit Licence (ACL) if the loans made through the platform are consumer loans (e.g. loans to individuals for domestic, personal or household purposes).

In some circumstances, you may also need to hold a financial market licence.

Sophie Grace understands that it is important to fully comprehend what our clients intend to do and as such, we will work with you to:

• Determine the structure of business;
• Determine what type of AFS licence you require;
• Determine whether you require an ACL;
• Determine whether you are required to hold a financial market licence;
• Prepare the necessary application documents for your business and lodgement with ASIC; and
• Liaise with ASIC in relation to your application.

ASIC Relief from the Law

In particular circumstances, a marketplace lending provider may be able to demonstrate that it would be unreasonably burdensome to comply with a requirement under the Corporations Act 2001 (Cth) or National Consumer Credit Protection Act and Code. ASIC has discretionary powers to give relief from the requirements of the Corporations Act 2001 (Cth) and National Consumer Credit Protection Act and Code.

Sophie Grace can assist you an application for relief, please contact us for further information.

Does the AML/CTF Regime Apply?

The AML/CTF regime applies to marketplace lending product providers as they are financial service providers and credit providers that are considered reporting entities under the AML/CTF Act and Rules. This means that entities engaged in marketplace lending will be required to identify their clients and verify their identity. The information required to be collected from clients is detailed in the AML/CTF Rules.  In addition, marketplace lenders are required to report all suspicious matters to AUSTRAC, along with an annual compliance report which provides AUSTRAC with a self-assessment of the entity’s AML/CTF compliance throughout the year.

Depending on the structure of the business, the transaction reporting obligations may vary. It is crucial for entities engaged in marketplace lending to understand their AML/CTF obligations, establish appropriate AML/CTF compliance program, which usually includes an AML/CTF Policy and Risk Matrix, carry out staff training and conduct regular compliance reviews of its implementation of the AML/CTF compliance program. 

Other Things You Need to Consider

There are various aspects to providing marketplace lending services including:

• Preparation of the appropriate financial services disclosure documents – where products are provided to retail clients, marketplace lending products providers will need to prepare a client agreement, a Financial Services Guide (‘FSG’) and a Product Disclosure Statement;
• Preparation of credit disclosure documents – where products are provided to consumers for domestic or household purposes, marketplace lending products providers will need to prepare a credit guide and written assessment of suitability of the loan for the consumer;
• Compliance with the general AFS Licence obligations and also the compliance and responsible lending obligations where a credit licence is held;
• Ensure marketing material is compliant with ASIC’s guide for advertising marketplace lending products.

For assistance with all aspects of operating your business, please contact us. You can also visit ASIC’s website for more information.