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Proposed peer-to-peer business sale problematic for FMA licensing

The proposed $1 million sale of an unnamed, yet-to-be-licensed peer-to-peer lending and equity crowd funding platform may hit the skids as the licences are not transferable, the Financial Markets Authority says.

An online advertisement for an Auckland-based business claiming the company is a "fully functional web portal with advanced technology that provides for not only pure P2P (peer-to-peer) lending, but also other areas such as pledge based crowd funding" and has a licence application "well underway" with the regulator may become problematic as a change in ownership needs clearance by the FMA.

"If an applicant decides to sell or change ownership during the licensing process then we would require information on the new owners, to ensure they are able to meet the minimum standards required to obtain a licence," a spokesperson for the FMA said in an emailed statement. "The licensing process includes good character checks on the directors and senior managers, and we check they have the competence, skills and experience required for these positions and to deliver the service."

Peer-to-peer lending and equity crowd funding licences were introduced under the new Financial Markets Conduct Act, which came into effect on April 1, providing a regime to match lenders with borrowers, with a $2 million cap on the amount allowed to be borrowed or raised. The FMA received five applications, of which only one, Lendit, applied for both new capital raising licences.

Christchurch-registered Lendit was established by sole director John Walley in 2008 and counts entrepreneur Selwyn Pellett as a 12 percent stakeholder, according to documents lodged with the Companies Office.

Walley didn't respond directly to BusinessDesk's question as to whether Lendit was for sale.

"We continue to look at all options at this stage of business development," Walley said in an emailed statement. "We continue to work through the licencing process on P2P and crowd funding with the FMA, it is proving a bit time consuming and less than straightforward. We are ready to go once the licence work is done."

Walley said he was aware that any ownership change would need FMA approval, which was "to be expected under any sensible oversight regime".

"The requirements for operator A should be the same for operator B - or the oversight would be meaningless," he said. "That said, A and B might achieve what the FMA wants in different ways."

Walley last month described the licensing process as a "red tape fest" that was "excruciatingly complicated" and raised the possibility of giving up.

"We don't want to give up, I don't easily give up on things. I'm not known for walking away from controversy or difficulty," Walley told BusinessDesk in June. "It may well be that it all proves too hard for us, and then I wonder who will feel embarrassed?

"I've questioned on any number of occasions why does this have to be so complex, what is the risk that we're guarding against here?"

The licensing is part of the regulator's expanded brief to bolster New Zealand's capital markets but the new platforms do carry risks for lenders. Much of the licensing process has been ensuring platforms in both equity crowd funding and peer-to-peer lending inform investors of the risks and the regulator will continue to monitor businesses' compliance with their licences.

The FMA is still reviewing three other equity crowd funding licence applications after approving Auckland-based Harmoney for a peer-to-peer licence earlier this week. Those still waiting to hear from the regulator on their applications include Wellington-based PledgeMe, the crowd funder looking to expand into equity offerings, Armillary Private Capital, which has partnered with the UK-based Crowdcube, and Auckland-based Snowball Effect.

(BusinessDesk)

Comments and questions
3

$1m yeah right --- the market is not big enough and risks too high to be paying this type of money for a business that has not even started.

Why is the FMA wasting its time here? The NZX has just successfully lobbied for and obtained a 'no care, no responsibility, no accountability - it's all for profits' new NZAX market.

Show the market what you are actually made of, FMA.

Bully boy tactics with the small guys and neutered pussycat with the likes of NZX and big investment banking firms.

Before the FMA spends too long looking at the 'good character' test for this company, I suggest the look at TRS and the proposed Mega merger.

Seriously, how is TRS still listed!