Monday 24 October 2016

EU plan to cut red tape turns the spotlight on peer-to peer loans

Gavin McLoughlin and Tim Wallace

Published 04/10/2015 | 02:30

EU plans to cut back red tape and help firms access finance more easily have been welcomed by Jobs Minister Richard Bruton
EU plans to cut back red tape and help firms access finance more easily have been welcomed by Jobs Minister Richard Bruton

EU plans to cut back red tape and help firms access finance more easily have been welcomed by Jobs Minister Richard Bruton and the head of one of Ireland's top peer-to-peer lenders.

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The Capital Markets Union Action is designed to reduce business reliance on banks, and to match borrowers and savers more efficiently across the EU. The new proposals acknowledge that European rules have built up rapidly in recent years and are now stifling investment and growth.

The plan commits to examining the introduction of an EU-wide regulatory framework for the sector, but said it didn't want to move too early as this might hinder rather than help.

Peer-to-peer lenders here have previously said they want regulation introduced to boost consumer confidence.

"Ireland is now an exception in Western European economies in that it does not have a regulatory regime for this new asset class and funding stream for SMEs.

"The Commission is clearly cognisant that either regulating peer to peer lending too early,at a European level, or introducing an overly onerous regime may slow down the rapid growth of peer to peer lending across Europe," Grid Finance chief executive Derek Butler told the Sunday Independent.

"The proposed changes to risk and capital ratios to encourage European insurance funds to invest in infrastructure should be a great boost to the European economy.

"Smaller, but highly effective initiatives, around SME listing prospectuses and the provision of greater reasons for bank declines will assist SMEs in Ireland and Europe to access capital," he said.

"This now puts the ball firmly back in the court of Ireland's domestic regulators to support the peer to peer lending space with an effective regulatory regime that will allow peer-to-peer lending to flourish as it has done in the UK with the support of regulators there.

"Grid Finance looks forward to assisting the Central Bank of Ireland in its understanding of the peer-to-peer lending space and the adequacy of the UK regime as a template for Ireland."

Red tape is stopping small firms from accessing the finance they need to grow, and stopping investors from reaching the firms they want to back, the EU's top financial services official declared earlier this week.

European regulations will be chopped back in a bid to get investment flowing under a wide-ranging series of proposals outlined by European Commissioner Lord Hill.

Under the new scheme, it would be easier for venture capital funds to put money into start-ups across Europe, in a move to foster fast-growing businesses.

The €100,000 minimum limit on investors' contribution to venture capital funds could also be reduced, opening up the market to smaller savers or those who want to invest smaller sums of money.

Big funds would be able to spread their money around more easily, under plans to change or scrap the investment passport scheme. Currently the passport scheme allows a firm approved in one country to invest in others in the EU - but only if the fund is smaller than €500m. Lord Hill's new plan could see that limit increased or scrapped.

Small firms could also find it easier to raise finance, Lord Hill said, by slimming down the prospectuses they need to publish to woo investors.

"Prospectuses can be real doorstops, running to hundreds of pages and costing more than €100,000," he said, promising to come up with new guidelines to "modernise" them by the end of the year. "They need to provide clear information for investors and be affordable for SMEs to produce," he added.

The Commission is also asking finance firms and customers for examples of regulations that are messy, counter-productive or excessively expensive, in an admission that much of the red tape coming from Brussels in the wake of the financial crisis was passed hurriedly and could amount to a substantial burden on businesses.

"Over the past five or six years, we had to legislate at speed and introduced a whole battery of measures. That overall architecture has made the system safer, and it has made the system more resilient. That is not in question at all.

"But now, as we work to create an environment that supports investment, we need to check that the cumulative impact of these rules hasn't had any unintended consequences. And that is something, incidentally, that the European Parliament has been calling for," Lord Hill said.

Another idea would allow pensioners to spend their savings on products from anywhere in the EU - for example, by buying an annuity from an insurer in Germany.

"The first targets are infrastructure, bank lending, SMEs, venture capital, and assessing the rules that we have passed. To support long-term infrastructure investment we are tabling legislation to modify Solvency II. To support bank lending we are proposing legislation to revitalise safe, transparent and standardised securitisations. To support SME access to capital markets, we will be proposing a revision on the Prospectus Directive before the end of year," Lord Hill said.

Business groups and investors also welcomed the proposals.

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