Regulations, crowdfunding and WARS :)
By: Singular Factory
Tags: Wupplier, Apps, English Posts, Fintech

In the Spanish market, where Wupplier.com will be based, the regulation is fairly new

As financial institutions gradually lose their role as general ledgers, lending market places are gaining weight in the market, thus forcing regulators to rapidly come up with specific laws on the field. Traditional financial institutions have historically been heavily regulated. Furthermore, as a consequence of the recent 2008 global financial breakdown, financial regulation has increased, with more capital requirements (i.e. Basel III) limiting the market players’ ability to lend, specially to SME’s and mid-low income individuals.

In the Spanish market, where Wupplier.com will be based, the regulation is fairly new, and relatively few licenses for lending marketplaces have been granted to date. In order to initiate operations as a marketplace, the venture needs to be registered in the CNMV (Spanish equivalent to SEC). The requisites to obtain such license are the following; it is necessary to have a minimum common equity of €60k or a social liability insurance or warranty that covers up to 300,000€ in damages and 400,000€ in other potential prejudices, corporate statutes, an official document attesting that they are of good character and repute and have not been convicted of any offence, provide a business plan for the next year, a list of the main shareholders and a copy of the confidentiality agreement amongst others. All of these requirements, will permit the venture to continue operating until a license is granted.

The biggest burden to obtaining the license is the considerable amount of time it takes — from 3 to 6 months. Additionally, the legal costs that new ventures need to face also represent an entry barrier for new players, as specialised legal advisors need to be hired.

It is important to note that the current license from the regulator does not provide the right to manage the creditors / debtors money, as a consequence these ventures are forced to operate through payment platforms, ultimately increasing the cost of operations. To further obtain the payment platform license it is required to register and operate under the legislation of the Spanish Central Bank (Spanish equivalent to the Federal Reserve), which is harder and more expensive to obtain.

From Wupplier.com we are currently focused on the legislative burden we are facing to become a marketplace, and we are limited at the moment to act as such.

the disruptive technology in the lending space has the ability to diminish the dependence on the traditional financial system

At the same time, we are exploring the possibility to substitute the payment platform for a traditional escrow account provided by a traditional financial institution. By being able to substitute the payment platform, we might be able to start acting as a market place without the proper regulation, as we would not hold neither the creditor nor the debtor money at any moment. Although we might be able to bypass the current regulation by taking this action, this system is costlier and harder to scale, and it would not be profitable to operate in the long-term.

What regulators need to understand is the importance of a light regulation, as the disruptive technology in the lending space has the ability to diminish the dependence on the traditional financial system, and ultimately re-distribute risk among the market players and limit systemic risk.