The consultation period for submissions to the FCA regarding the P2P lending industry officially closed on October 27. We now have to wait while the regulator weighs up all the various opinions and options and delivers the final version of its new book of rules sometime later this year.
What we know so far is that certain aspects of the P2P lending industry’s rapid development are giving cause for concern: bad behaviour from some individual platforms, consumers’ lack of understanding of the risks involved, lack of transparency in certain areas (like pricing) and the fact that the industry has not yet been through a full economic cycle – although Zopa, which started life in 2005, might take issue with that statement. No matter. Depending on your point of view, the concerns are mostly valid and should be addressed for the good of all. Maturity follows evolution and the rules must look forward as well as back in an effort to anticipate the future.
However, there are certain issues that don’t make sense. For example, lumping P2P lending together with equity crowdfunding, saying they pose the same level of risk to consumers/investors, is clearly nonsense.
Equally, dragging out the process for granting authorisation to platforms so that they could not bring Innovative Finance ISAs to the market until the end of last year at the earliest did not make much sense either – unless you happen to be a High Street bank.
Indeed, suspicion that the powerful banking lobbying has been working away furiously behind the scenes is strengthened by the FCA’s edict that P2P lending should be restricted to a chosen few: the rich, those who have taken professional advice and those to whom their P2P investment represents exposure of a maximum of 10% of a total portfolio. As for advice, where do consumers get that – the vast majority of the IFA community don’t want to know? It seems the end result is that the public should be protected from themselves. What happened to the grand vision of democratising investments for the masses, not just the rich?
The fact is, despite last month’s Treasury Committee report calling for the regulation of business lending, the banks are not so much worried about alternative financing taking away the opportunities for lending to SMEs, but for taking away the soft cushion of passive deposits – where people get next to nothing for having their money on deposit which the banks then use to lend to borrowers at a massive premium.
IFISAs offering a tax free return of up to 10% are a real lure, as evidenced by the fact that most platforms have no shortage of lenders/investors, only borrowers. In their short life, IFISAs have been a huge success and it is small wonder when you consider that most banks have not even passed on August’s rise in interest rates to depositors. Borrowers, of course, felt the difference straight away. And that’s fair, is it?