Peer-to-Peer Regulation is Boost for Innovation in Lending

The Treasury last week announced that peer-to-peer (P2P) lending will fall under the Financial Conduct Authority’s jurisdiction and will be subject to regulations expected to come into force in April 2014.

This is without doubt great news for this emerging sector of the market and for innovation in the financial services industry in general.

Currently P2P and peer-to-business providers, such as, are unregulated operators in a predominantly regulated UK financial services market. Whilst on the one hand this would seem to be a positive, it actually makes life incredibly difficult for us, particularly when competing against regulated investment products.

In my role running the introducer channel for I speak to a lot of advisers. We actively encourage introduced business both in terms of supply of funds from investors and demand for loan applications from companies and currently pay introducer fees on both channels.

In terms of generating demand for loans, the majority of the advisers I speak to are members of the National Association of Commercial Finance Brokers (NACFB) and are not FSA regulated. This group are, however, highly professional loan advisers and are delighted to look at P2P as an option for their commercial clients.

On the supply side, many of the advisers I talk to are regulated investment advisers. It’s a very different conversation.

With the RDR nearly upon us, they are more wary than ever of any involvement with non-regulated products, even on an execution-only basis. It’s not that they don’t feel P2P is a viable or attractive option for their clients, just that they are incredibly cautious having seen how other previously popular products have suffered such a backlash in the market, for example self-certification and interest-only mortgages.

The result of all of this is that we find ourselves in a position whereby there is a clear market need for new forms of funding, and there are investors with funds who want to lend. The only thing stopping the sector from really booming is the lack of regulation to put us on a level playing field with other investment options.

So for us, it’s a case of roll on April 2014. The Treasury said last week: “The government is keen to promote innovation in financial services and wants to support new entrants to the market, like peer-to-peer lenders.”

I’m sure we’ll all drink that this festive season.

Originally produced for Best 13.12.12

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