Some sections of the media (possibly confusing P2P lending and crowdfunding) are lobbying yet again for a sharp crackdown on the P2P sector in the knowledge that the regulator, the FCA, is close to publishing its new set of rules. Last December’s interim feedback statement highlighted the specific activities that were causing the FCA the greatest concern, some of which – for example, the practice of wholesale lending over platforms – have already virtually disappeared. In other words, the more sensible operators have cleaned up their act before being forced to do so by legislation.
We also know that the majority of the bigger players, who had been conspicuously overlooked for FCA authorisation, have now received official blessing – a clear sign, surely, that those who voluntarily bow to the will of the regulator will receive their just reward. All of this acts as a timely reminder that, in the long run, it is better to observe the spirit of the law rather than try to play games by observing the precise letter in order to dodge the obvious intention.
Only a few weeks ago, Sam Woods, Deputy Governor Prudential Regulation, rattled out a warning in a speech made about ‘supervision’ being essential because “history tells us that the commercial incentives of firms will create pressures to find ways to minimise the impact of regulations.”
History also tells us that too many rules can have the opposite effect. The Enron scandal in America in 2001, for example, ended in spectacular collapse and also, as a side effect, brought down Arthur Andersen, one of the world’s top accountancy firms – all through cynical interpretation of the law.
One of the founding principles of P2P is that it is a process of democratisation – it allows the little guy to be involved on the same terms as the big guy. Therefore, I would argue that we don’t need a complex legislative structure in order to protect the few and that everyone should be given equal access to an opportunity to earn a decent return in exchange for a reasonable level of risk.
It is the latter, of course, that ruffles the most feathers because it means that the less experienced amateurs are perhaps not so well equipped to assess risk. But so long as everyone has access to the same depth of information, and at the same time, the playing field is level and then it becomes a matter of choice. Should people be prevented from making that choice for themselves in case they get it wrong? For all their market intelligence and research capability, the professionals frequently get it wrong in droves.
So, what’s the answer? My argument would be in favour of improving the standardisation of disclosure, rather than drafting a whole set of imperfect rules that clever lawyers will find a way to dance around anyway. Why not level the odds and treat people like adults?