Moody’s Investors Service has argued that ASIC’s review of fintech small business lenders illustrates that the regulator is increasing its scrutiny of this fast-growing and opaque sector, saying that the review would benefit the sector in the long run.
The findings come in Moody’s appropriately named report, Regulatory review of fintech small business lenders is positive for sector despite short-term challenges, authored by John Paul Truijens, a Moody’s vice president and senior analyst.
It highlights the fact that fintech lender Prospa indefinitely delayed its planned Australian Securities Exchange listing earlier this month, following queries from ASIC, reportedly over the terms of its loans.
Moody’s says that the withdrawal of Prospa’s initial public offering is an example of the short-term negative impact of the uncertainty created by the regulatory scrutiny, because the withdrawal could potentially constrain Prospa’s opportunities to grow and lead to a build-up of negative sentiment around the sector.
However, it went on to argue that the regulatory focus on loan contract terms will be positive for the fintech small business lending industry over the long term, because it will result in more transparent and less complex loan contracts, which could potentially build borrower confidence and trust in the sector.
Moody’s says that the increasing regulatory scrutiny would therefore be credit-positive for such lenders and their securitised portfolios.
Mr Truijens said: “In particular, the greater scrutiny will create a stronger regulatory environment which, over time, will result in improved transparency and governance in the sector.
“However, in the short term, such scrutiny introduces uncertainty as to the operations of small business fintech lenders because it challenges their loan products and business models.”
The Moody’s report also suggested that the new fintech code of conduct, which is being developed for the sector, will also have long-run positive repercussions.
In particular, it suggested that greater transparency around the cost of loans and the improvement in governance resulting from an industry code of conduct would enhance the sustainability of the sector.
[Related: SME finance shouldn’t fall under NCCP: ASIC]
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