​The regulatory environment around P2P lending can be quite perplexing and can serve as a deterrent to many trying to enter the industry and launch a successful lending platform. Through this piece, we hope to clear some of the legal mist and provide clarity on the regulations that need to be adhered to.

It’s paramount to remember that P2P lending is interpreted as a sale of securities, and a broker-dealer license and the registration of the person-to-person investment contract is required for the process to be legal. The license and registration can be obtained at a securities regulatory agency such as the U.S. Securities and Exchange Commission (SEC) or the appropriate regulator in the appropriate jurisdiction. Under the Securities Act of 1933, any offering of securities in the United States must be registered and issued with a specially regulated prospectus, unless an exemption applies (See JOBS Act Title III). Public offerings (e.g., IPOs), including securities distributed to the investing public like P2P notes, must be registered. In 2016, New York State sent “warning letters” to 28 peer-to-peer lenders requiring them to obtain a license to operate unless they “immediately” complied with responses to demands to disclose their lending practices and products available in the state.

Unsure about the regulatory practices you may have to comply with in order to set up a platform for lending/investing? Look no further. Outlined here are the key federal statutes to which banks and non-bank credit providers may alike but subject to: