IOU Central Inc., the first peer-to-peer lender to operate in Canada, is fast learning that If you want to cut a new trail, you have to be prepared to deal with a few obstacles.

Montreal-based IOU Central’s Web site is an internet-based market that enables people to borrow money directly from and lend money directly to other people.

According to the Autorité des marchés financiers, these activities violate the Quebec Securities Act.

At the request of the AMF, the Bureau de décision et de révision en valeurs mobilières (BDRVM) has ordered IOU Central to cease trading and acting as a securities advisor.

At the moment, the lender has stopped new activities while a regulatory issue is resolved. “We can’t do anything new, but all existing accounts will be serviced,” explains Phil Marleau, IOU Central’s founder and CEO.

The AMF is reviewing the nature of the business to establish whether or not IOU Central is bound by securities law.

“The bottom line is we’re cooperating — we’re trying to work through this and get back on line,” assures Marleau. “It’s a new model — the first in
Canada — so we are working with the regulators, cooperating so that we reach an outcome that is satisfactory for everyone.”

IOU Central did extensive research on the regulatory environment in the process of designing their platform and concluded that they need not seek registration.

But according to Marleau, there is not much downside. Registration ”will be good for the credibility of the industry,” he says.

There are models in other jurisdictions — Zopa in the United Kingdom and Prosper, which is registered several U.S. states — but each jurisdiction has its idiosyncrasies. The Ontario Securities Commission required dealership registration from CommunityLend Inc., a Toronto peer to peer lending platform that is due to come online later this year.