Recently the chairman of the UK Parliament Treasury Committee wrote to the head of the FCA and Andrew Bailey, Deputy Governor of the Bank of England for Prudential Regulation, expressing concerns over peer to peer lending.
Signed by the Conservative MP Andrew Tyrie, they have shown concerns around how the FCA is paying attention to the risks of peer to peer lending.
Now I can completely understand where the concern from the committee is coming from. We are talking about a fairly new market with rapid growth. This can be threatening for its competitors but also consumers if the proper precautions are not in place. It’s in everyone’s best interest to make sure the market grows safely and risks are minimised however, there is only so much you can do when it comes to investing. These investments are high risk; there is no doubt about that. Users are made aware of these multiple times before even being allowed access to look at available investments.
The committee has said that “letting peer-to-peer investments form part of an ISA allowance, for instance – represents a form of official support for investments that may be an inherently higher risk”. Well quite frankly, yes it does show support, and so it should. We are talking about companies offering extremely competitive rates when it comes to investing, saving and borrowing. For once we are seeing the banks being challenged and it has all been done in a professional and compliant way. Every single peer to peer company is regulated by the FCA and has to undergo various tasks to keep themselves in check every week. Take it from someone like myself, who has to typically spend roughly 1-2 hours a day of thorough checking over advertisements and releases from staff to make sure risk warnings are visible, no biased opinions are being displayed and we are being fair and informative. If one were to visit a peer to peer platform/crowdfunding site, I can guarantee a whole range of risk warnings balancing out the rewards advertised.
I do agree with the Committee to a certain extent. With so many new companies joining the industry, it’s important to make sure that companies are not simply lending out money quickly and encouraging investments into businesses simply to get their reputation and stats up, as this can cause problems. Due diligence is key and has to be the most important process. There is no benefit to crowdfunding 20 businesses a year when 15 are likely to default due to rushed and poorly executed precautions. The FCA, of course, need to make sure that crowdfunding platforms and peer to peer lenders are not simply trying to take on as much business as they can for their financial benefits. I’m not saying this is the case if anything I would disagree. Working at Business Agent, we roughly see 10-15 businesses come through us a day looking to raise capital. I can tell you now 10-15 will not get funded as simply as they would have help. Alternative finance isn’t a magical place where everyone gets funded and it’s simple and easy, this is not the nature of it at all. After all, it wasn’t alternative finance that doubled the economy’s debt in just 7 years, created too much money and caused an economic crash. That was the banks.
Companies like Zopa and Ratesetter have extremely low default rates and have happy and keen investors receiving great returns. Crowdstacker host IFISA’s with returns of roughly 6-7pc all secured against property. Yet we only ever seem to receive bad press for the industry. It seems that a lot of people are feeling the pressure of what this market has done and what it can do. The public has a lot more options with their money now and a whole new market providing financial services and it’s only going to continue to grow. Whilst I strongly agree with regulatory bodies staying on the ball, I do disagree with the constant need for interfering, damaging comments from reputable individuals who have biased views. I think it’s great the UK is backing Fintech and IFISA’s and I look forward to its future.