P2P Lenders Call on FCA to Stiffen Regulation Covering the Sector

In order to protect customers from being deceived, the head of the Peer to Peer Finance Association (P2PFA) advised the FCA (Financial Conduct Authority) on increasing the regulation covering the growing sector to prevent such cases from happening.

By acting as the middle man, peer to peer lending firms make the transaction between lenders and borrowers possible without the help of a major financial institution or bank. This also means that the higher the returns (typically 5% annual interest), the higher the risk on your investments compared to a conventional savings account. With these kinds of returns, the sector has massively increased in popularity while bank’s interest rates are particularly low and currently below inflation.

Up to now, with Funding Circle alone, having funded some £1.5 billion worth of loans, the P2P sector is roughly worth around £2.7 billion and growing exponentially!

With the fast phase growth of the P2P sector, lenders couldn’t help but to be concerned on whether their customers know what they are getting themselves into when lending or borrowing through a P2P scheme, to avoid any problems along the way.

Robert Pettigrew, the director of the P2PFA said: “Investors should know that the assurance they get from peer-to-peer lending products is not equivalent to the assurances represented by a bank deposit.”

Consumers must always check their investment because the security of investments on a P2P loan is not the same as what banks and other financial institutions provide. This is to avoid what they call “significant potential consumer detriment going forward”.

In addition to leaving customers feeling hard done by, this could also backfire and harm the industry, depending on the nature and level of rectification that the concerned authorities deem appropriate.

A warning has been issued by the head of the Treasury select committee, Andrew Tyrie, to the FCA, advising them to work on some form of governance in relation to P2P lending on similar grounds, insisting on putting in jeopardy the poorly informed investors of assuming on a false sense of security about the balance of risks versus returns.

And with the growing popularity of the P2P industry among less experienced investors, the FCA is already paying close attention to the industry and they even ask the help of researchers at Cambridge University to consult on potential regulation. The Cambridge Centre for Alternative Finance (CAF) will study P2P lending along with equity crowdfunding. A similar but separate form of investment.

The P2PFA was determined to stress the difference between peer to peer lending loans and equity crowdfunding, which involves investments being made by a group of people on a small company or project in order to gain financial return along the way. It is uncertainty and false equalities like those often made between the two alternative funding mechanisms that the body wants to clear up.