The U.K.’s fast-growing peer-to-peer lending sector is facing its first wave of consolidation, with smaller and less profitable players struggling to meet higher costs associated with a looming regulatory deadline.

P2P lending has been one of the fastest growing fintech sectors, with dozens of platforms trying to compete with banks on personal and small business lending – especially in sectors where banks have pulled back following the crisis. Some of the bigger platforms are receiving wholesale funding from hedge funds and other big investors who are attracted by the yields on offer.

However, in a move to bring order to the industry, new platforms must get authorized by the Financial Conduct Authority, the U.K. financial regulator, and existing players who have been in business for more than 18 months must apply for full authorization before Oct. 31. The rules require them to hold capital in reserve and write “living wills” to wind down their loan book if they go out of business.

The rules have been “quite a shock to the system”, according to Rhydian Lewis, chief executive of P2P firm Rate­Setter. The application process has cost RateSetter between £300,000 ($462,000) and £400,000 and he estimates that compliance spend will be £500,000 annually in the future.

Mr. Lewis said: “There is a strong possibility that some platforms will either not get through or decide not to continue. When you have a fixed cost of half a million pounds that wasn’t there a year ago, it changes the economics of your business.” RateSetter raised £20 million from investors including Neil Woodford’s Woodford Investment Management in March.

Christian Faes, chief executive and co-founder at rival LendInvest, said: “If you have been bumbling along until now and haven’t been making any money, the FCA authorization process might be the last straw.” LendInvest, raised £22 million from Chinese tech company Beijing Kunlun in June.

Around £1.3 billion in loans were originated through P2P platforms in the U.K. in 2014, up 170% from £480 million in 2013, according to a report by non-profit Nesta and Cambridge University.

More than 100 firms have applied for full authorization since April 2014, according to financial services consultancy Bovill. Louise Beaumont, head of public affairs at alternative finance fund GLI Finance, which has backed over 19 platforms globally, said: “As the industry matures to become a key part of the mainstream financial services sector, it’s important that the herd is thinned and that those that remain are professionally run and well-funded with robust compliance functions.”

Nick Harding, co-founder and chief executive of another firm, Lending Works, said those lenders who don’t make the cut with regulators “shouldn’t be trading anyway.”

Jonathan Segall, a partner in fintech and alternative finance at law firm Fox Williams, said: “We may see some of the larger platforms or even other financial institutions taking over the loan books of platforms that don’t make it through the authorization process. Alternatively, the FCA could require a non-authorized platform to wind down the loan book in an orderly fashion.”