The FCA’s tailored regulation of P2P Lenders is for the benefit of everybody

Angus Dent
Posted by Angus Dent on 17-May-2016 15:37:35

A theme that has begun to emerge in alternative finance article headlines at the moment is that there is a perceived love-in between the FCA and peer-to-peer lending, with George Osborne an enthusiastic Cupid-like figure matching the two. The regulatory body has come in for criticism from the old guard that believe the old scourge of the banks has gone soft on the new “tech” whizz kids on the block. This isn't helped by the frequently-cited, well-intentioned-but-slightly-undermining quote by economic secretary to the treasury Harriet Baldwin that government and fintech share a “beautiful friendship”.

George Osborne


Yet there are incongruities between news article headlines and article content. Take John Thornhill’s article, published in the Financial Times last week, which began with the suggestion that “a watchdog with the ‘right touch’ sounds ominously like one with a ‘light touch’ “, before proceeding to make some very reasonable points on why the FCA applies slightly different regulatory procedures to start-ups and small cap businesses than it does to centuries-old banking institutions. Throwing the same rule book would crush every start-up under a mountain of excessive regulation and process, and would negate much of the innovation sorely needed to replace the antiquated banking practices. The FCA’s “approach” should be commended as forward-thinking- let’s remember that it really is just an approach at the moment as the majority of the platforms are still in the midst of the lengthy and detailed regulatory process that certainly doesn’t feel light touch.

The revelations coming from the States regarding Lending Club have done nothing to dampen criticisms of the FCA/peer-to-peer perceived cosiness either. Yet it is the willingness for the FCA to work directly with peer-to-peer lending platforms that has, and will, prevent the blatantly reprehensible behaviour that wasn’t detected initially in the States; there, the industry has been regulated under a blend of existing consumer and banking regulation that has proven to be unsuitable. Working to tailor the regulation to the peer-to-peer sector will prevent swathes of old-fashioned banking malpractice carrying over to modern finance. Renaud Laplanche, by acting in his own self-interest, assumed a guise firmly rooted in the past, not endemic to the burgeoning P2P sector that prides itself on transparency and openness.

Every platform will now be keen to highlight the differences between themselves and Lending Club, although there will have been many who, this time last year, would have been perfectly happy to seek comparison with one of the biggest players in the global sector. However, if all must be tarred with the ubiquitous “Fintech” brush then there is one obvious point to make from a UK peer-to-peer lending view. We are very much the “fin” side of the portmanteau as true providers of alternative finance - the “tech” only applies to the platforms used to facilitate loans. Unlike Lending Club- which initially positioned itself as a social networking service and developed an algorithm called LendingMatch to identifying common relationship factors such as geographic location, educational and professional background, and connectedness within a given social network to match lenders with borrowers- UK platforms are not primarily algorithm-driven and rely on due diligence processes at least as thorough as those of the banks to vet borrowers. But the Lending Club debate shouldn’t necessitate these explanations- this is (possible) criminal activity from a senior management team undoubtedly out to furnish their own pockets. The FCA will continue their stringent, tailored regulation of the industry to prevent this happening over here, regardless of the baseless accusations that they’re cutting corners to appease the government.


Topics: FCA, fintech, FT, Lending Club, Money, p2p, regulation, altfi, Investments#, Laplanche, Lenders

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