According to Bovill, the FCA has received 114 applications from new peer-to-peer lenders seeking full authorisation since the start of April 2014, when the watchdog took over the regulation of the consumer credit industry from the Office of Fair Trading (OFT). Thirty of those applications have now been withdrawn in total.

In addition, 178 pre-existing peer-to-peer lenders have obtained interim permission from the FCA, allowing them to continue to operate as the responsibility for regulation was transferred.

Bovill says that since the FCA took over, it has looked to raise standards and ensure higher levels of consumer protection. Firms now have to segregate client assets, meet new reserve capital requirements and have plans in place to ensure outstanding loans can be transferred if the platform collapses.

Gillian Roche-Saunders, head of venture finance at Bovill, comments: “The high number of withdrawals suggests that the FCA is setting the bar high when it comes to full authorisation for P2P lenders - the process appears to be much tougher and more costly than many firms first anticipated.”

In October, the FCA set up a policy hub to provide guidance to firms on new products and technology developments and an 'incubator' to fast-track startup businesses for regulatory authorisation. It is also looking to create a regulatory sandbox where firms can benchmark their products and services using raw consumer data while they await authorisation.

Despite these efforts, the more rigorous authorisation process has come as a "shock to the system" for smaller and less profitable lenders, says Roche-Saunders.

“Many firms are now hiring compliance officers or sourcing external advice to help them navigate the authorisation process," she says. "The industry is still very new, however, which means finding the right level of expertise can be a challenge.”