Inside Money

Business writer David Chaplin blogs on personal finance

Inside Money: Crowding-out and peer pressure

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Photo/Thinkstock
Photo/Thinkstock

As reported in the NZ Herald this week the new age of finance has arrived in the shape of the Financial Markets Conduct Act (FMC), which, amongst other items, sets down rules for the fashionable technology-enabled activities of 'crowd-funding' and 'peer-to-peer lending'.

Full details of the new regs pertaining to crowd and peer-to-peer (P2P) are laid out here - although there's probably a lawyer app available that will summarise the main points, eliminating the dreary task of reading the rules in full.

Most sensible people will skip the above phase anyway and proceed directly to the business end.

But before any prospective crowd-funders and peer-to-peer lenders open their websites to the money-flow there are a few forms to fill out.

The Financial Markets Authority (FMA), which will regulate the whole shebang, has published a handy guide on how to apply for a licence to operate.

As well as the crowd-funding and P2P permits, the regulator will issue four other licences covering: investment managers; discretionary investment management schemes (or DIMS - as made famous by David Ross); derivative providers, and; independent trustees.

In fact, before applicants even get to the licence form there are other forms to fill out, specifically: a government-authorised RealMe identity, and; a Financial Services Provider registration.

According to the FMA guide, the licensing forms themselves should be completed in but a blink of the bureaucratic eye.

"You have 90 days from the time you start your application to submit it," the FMA document says. "If you don't submit by then, your unfinished application is removed from the system."

However, there will be no paperwork - everything is online. Whatever efficiencies the online form-filling may bring, at the end there will be some pesky humans slowing down the process.

How long will approval take?

"There's no easy answer to that as it depends on how well prepared your application is, how long it takes to assess, if we need to come back to you for information - and how many applications we're trying to assess at the same time," the FMA says.

We might have to wait a bit, then, before the crowd-funders and peer-to-peer revolution takes off. But, as John Kay explains in a recent Financial Times article, we should probably be relieved the regulator is taking an interest now.

Inevitably, Kay says, regulators will assume greater oversight of the new-age financiers.

"Some of the new P2P lending and equity crowd-funding services will survive, operating in a more closely regulated environment and developing their own skills in vetting projects and assessing their suitability for their investors," Kay writes.

"Of course, such institutions once existed. They were called banks."

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