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HMRC internal manual

Savings and Investment Manual

Peer to peer lending: What is peer to peer lending?

The peer-to-peer lending sector (the P2P sector) enables individuals and businesses to lend to each other through the intermediary of an internet platform. It provides new opportunities for investors and new sources of finance for borrowers.

P2P platforms work by providing a connection and management service that puts lenders (the investors) in contact with borrowers; the platforms themselves are not party to the loans being made.

P2P lending generally operates on a ‘many to many’ lending model where the platform acts as an intermediary to arrange and manage the loans. The platforms put lenders with money in touch with borrowers. The idea is that both the lender and borrower benefit from better rates than they could get from a bank.

A borrower will borrow small amounts from many lenders to make up the full the loan that they need, and lenders will place money with the platform that is then lent out to many different borrowers in many small sub loans.

People or businesses that borrow money through P2P platforms will make repayments on their loans through the platform. These repayments will consist of return of the capital that was borrowed, and interest that is due on the loan, with additional payment of any fees charged by the platform. The platform then passes both the interest and the return of capital onto the lender.

UK Regulation of peer to peer lending

In the UK, operating a P2P lending platform is an activity regulated by the Financial Conduct Authority (FCA) as “operating an electronic system in relation to lending” under Chapter 6B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544). If the platform arranges or facilitates loans where the lender is an individual or a “relevant person” then the platform must obtain authorisation from the FCA to carry on this activity.