Home / Regulation / Bank of Italy force Zopa to suspend operations

Bank of Italy force Zopa to suspend operations

Interesting announcement from Zopa Italy:

“On 10 July 2009 Zopa Italy was notified of the cancellation of its license to operate as a financial intermediary (106) by the Ministry of Economics and Finance, by indication of the Bank of Italy. As a consequence Zopa Italy has stopped issuing new loans and accepting registration of new lenders. The company is evaluating all initiatives, even at judicial level, in order to protect its position and its community. Zopa Italy will keep you informed on all activities put in place to safeguard an innovative, ethical and social initiative that bring benefits to all participants.”

Zopa UK wonders what this is all about:

In the UK we are very confused by this notification as Zopa Italy sought regulatory approval from the Bank of Italy and received the appropriate license to operate before launch. We understand that there was an inspection by the Bank of Italy more recently, which highlighted some issues that Zopa Italy believed it had addressed/could address, only for the notification to arrive without further discussion.

That seems very strange.

As does Italian blog Finansol.it, which picks up comments from various forums including (rough translations):

“How can Zopa achieve anything when the Bank of Italy’s shareholders are the other banks? Unicredit Intesa San Paolo holds over half of the shares?”

“It’s
too dangerous to show that it’s possible to lend money without banks …
imagine what it would mean if they had started to assert themselves and
expanded from not just mums lending to their children but to small
businesses that want to expand or the start-up that wants to launch a
new product …”

“The decision is ridiculous considering how well-conceived Zopa is.”

In an open letter explaining what has happened Zopa Italy's CEO, Maurizio Sella, states:

“I want to clarify what was the route that Zopa made before being allowed to operate.

“The first reports with the Bank of Italy date back to the late spring of 2006, when we applied for the legal documents to launch in Italy. After a meeting and several exchanges of letters we gained the approval from the Italian Exchange for our registration Financial Regulation Article 106, in September 2007.

“Zopa therefore started operating in January 2008.

“Following an inspection by the Bank of Italy in recent months, there have been objections raised to which we replied. While supporting the correctness of our legal status and proposing solutions with facts, it was evidently not enough.

“Zopa is an innovative and very ethical firm. Suffice to say that 2008 has been the year of most major crisis in the history of finance. In this moment of crisis, many people have a major need to find micro-credit and loans and the Zopa model achieved this, which some felt favoured the Zopa model.

“It should be noted that to date the shareholders have funded the company with more than €5 million with the aim of making it a reliable and serious business for all parties involved.”

There have been over 260 comments on this, and then the first response from the Bank of Italy states that (rough translation):

The company acquired the ownership and availability of funds which make it a full lender, violating the requirement of separation of the availability of third party funds from those of the society. This means the improper collection of savings, with the risk to third parties whose funds are no longer exchanged immediately between creditor and debtor – which is as it should be in the social lending – but remaining on account for the availability of Zopa. The operational changes proposed by Zopa to solve the problem – concluded the Bank of Italy – were not sufficient to ensure the removal of these irregularities, and demonstrate a structural difficulty in ensuring compliance with the disciplines of banking and the financial protection of third parties and the market.

In other words, they are claiming that Zopa is retaining customer funds on their own account.

To me, it rings bells with what has been happening in the States with Prosper, Lending Club and more. The Federal authorities laid strict rules down for these organisations and forced many to close temporarily.

After much wrangling, the Securities and Exchange Commission finally gave its blessing to Prosper last Friday, allowing them to register loans as securities and to reopen after having to shut down for almost a year.

So there may be some hope on the horizon even with these temporary blips.

The real issue is that these blips kill viable start-ups like Zopa before they have a chance to shine.


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About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Isn’t it the same problem that forced PayPal to acquire a banking license in some US states (and e-money license in EU)? If you keep your customers money between the transactions on some kind of “accounts”, it is treated as gathering deposits. It requires banking license in some jurisdictions…

  • Chris Skinner

    Depends on the regulator’s view Michal
    When Zopa began in the UK, the view was that they did not need a banking license or even coverage by the FSA, as they did not actually hold any monies. They purely connected as a technical platform those who want to lend with those who want to borrow.
    It was only when Zopa UK began offering insurances that they came under the FSA’s remit, as this meant they were selling a financial product.
    The issue comes down to each jurisdictions view of banking and banking licenses. For example, now that the EU defines “Payment Institutions” under new regulations, this means that anyone can set up EU payment systems without a banking license.
    And here’s where it get contentious.
    A banking license is the last barrier to open competition with banks. A license is hard to get, restricted and restrictive.
    So, any country can protect their banks by saying you need a banking license to operate. And a license involves lots of documentation, approvals, key composition of management with regulatory approvals, etc.
    Just look at the Walker Report issued yesterday or the difficulties that Virgin, Tesco and Metro have had in getting UK bank licenses.
    So, in summary, for Italy to say that Zopa need a banking license after approving their business establishment three years ago, smacks of protectionism.
    Chris

  • After the SEC in the US with Prosper, we’re back to the case of regulators – who did not demonstrate a clear vision of a major financial crisis coming – all too eager applying their clout on a nascent market. As discussed in another thread – http://tinyurl.com/nct3kz – what we probably miss is the definition of a sandbox that would satisfy the shy regulators and let innovators re-invent parts of our financial system.
    A small glimmer of hope for France is to see some politicians starting to argue for easing laws applicable to micro-lending – http://tinyurl.com/nrvypu (in French).

  • Good post, Chris, thank you.
    while I can’t comment on the Zopa Italy situation (it’s a separate business) I do know that Zopa’s own US business was not closed as a result of any regulatory activity. You’ll recall that Zopa operated a very different model in the US. It enabled a person with a Certificate of Deposit from one participating credit union to channel their interest payments towards loan repayments owed by another person to another participating credit union. That made for a broader, yet tighter community than Smartypig. This structure was approved by the national credit union regulator. The reason for the US withdrawal was that the participating credit unions couldn’t make available adequate liquidity in the midst of the credit crunch: http://blog.zopa.com/archives/2008/10/09/zopa-us/
    Of course, it is true that Zopa’s UK model could not be operated in the US as a result of regulatory provisions that are allegedly there to protect consumers, even though the UK model goes much further in terms of transparency and other forms of protection. And that situation becomes more laughable the longer the credit crunch continues to demonstrate the strength of Zopa’s UK model.
    http://blog.zopa.com/archives/2008/11/28/the-tricky-world-of-us-regulation/

  • Chris Skinner

    Thanks for the clarification on the US markets Simon
    I must admit, I’d lumped Zopa in with the other guys on the basis of regulatory barriers and forgot about that nuance.
    Chris

  • Chris Skinner

    Thanks for the clarification on the US markets Simon
    I must admit, I’d lumped Zopa in with the other guys on the basis of regulatory barriers and forgot about that nuance.
    Chris