We know how important it is, in a new market like peer-to-peer lending, that consumers feel confident they are giving their money to honest and trustworthy players. That’s why the Peer-to-Peer Finance Association (P2PFA) has put so much effort into ensuring that the UK benefits from a sound regulatory regime for P2P lending.
There has been a fair bit of rumour, comment and speculation about P2P lending and its future over the last few weeks. Because we are relatively new, not all consumers and commentators understand quite how our sector works. To this end, we think it’s important to explain the opportunities that P2P lending provides to lenders and borrowers, and why it’s a trustworthy way to invest.
The recent failure of TrustBuddy, a Swedish platform, was the result of two things: misconduct by the platform and a lack of effective regulation. It has been alleged that investors were led to believe that they could get high returns without commensurate risk, and that lender funds were being used inappropriately by those running the business.
This should not happen in the UK. Not only are all platforms required to be fair and balanced in their promotion of risk and return to investors, but the formal FCA authorisation process currently in train will screen out unsustainable businesses and poor market practice. The UK regulator requires all platforms to safeguard customer monies and also mandates that strong anti-fraud measures are in place.
In the worst case, were a platform to fail, FCA rules mean that all outstanding loans would continue to be administered in a seamless way by a competent, independent party. P2P platforms are also covered by the Financial Ombudsman Service and consumers have rights to fair redress across the UK market.
In addition to FCA rules, the P2PFA has required all its members – which cover 90 per cent of the market – to meet a number of operating standards. For example, members must advertise net, not gross, rates of return (after losses from bad debt and fees) so consumers can make informed choices and understand their returns depend on loans being paid back. Platforms must also publish their bad debt losses in a comparable way.
In future, P2PFA members will also publish their full loan book on their website. This level of transparency is unprecedented, and can only be a good thing for the healthy development of the sector.
Overall, UK consumers stand to benefit a great deal from the responsible growth from peer-to-peer lending. It offers them a new choice to invest in something that is neither a low-return deposit in a bank, nor stocks and shares that are exposed to market fluctuations and equity risk. They can also benefit from great customer service and low, transparent fees and charges.
We are pleased to be a beacon of good practice on transparency and trustworthiness in the financial services sector, and look forward to offering customers even better deals in the ISA wrapper next year.