The peer-to-peer lending (P2P) industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed primarily to achieve the following key objectives.
Provide additional protection for consumers
Promote effective competition within the P2P lending industry
Allow the growth of the industry to continue in a controlled way
Ensure platforms provide clear and not misleading information and have appropriate procedures for handling client money
Ensure firms deal appropriately with customers in financial difficulties and complaints
Ensure platforms maintain a stable financial position and have contingency arrangements in place in the event of a platform failure
What does this mean for P2P lending customers?
The FCA regulation is a very positive step forward for consumers. There is a strong emphasis on the transparency and availability of information on platform providers’ websites, particularly relating to the risks and rewards involved in P2P lending. This should make it easier for both lenders and borrowers to make informed financial decisions.
Borrowers will also be given a mandatory 14-day ‘right to withdraw’ during which they can cancel their loan agreement without penalty. This should encourage more borrowers to consider choosing P2P for their loans as opposed to traditional financial institutions such as banks.
The FCA has also included a number of minimum standards to which all P2P platform providers must operate. These include minimum capital requirements for the company operating the platform, relative to the size of its loan book. This should give consumers more confidence that the platforms through which they lend and borrow today will still be around tomorrow. Firms will also be required to make contingency arrangements to ensure that loan books would be managed to maturity in the unlikely event of a platform failure.
All of this means that our customers should have greater confidence in lending and borrowing through our site.
What does this mean for the P2P lending industry?
We strongly believe that the FCA regulation is fantastic for the industry as a whole. The increased consumer awareness of this sector and additional credibility and consumer protection should give lenders more confidence in how their money is being managed and borrowers more confidence in choosing P2P platforms as their loan provider.
Investment advisers will also welcome the sector being regulated as they can now advise and recommend to their clients what is a highly attractive product alongside other investment opportunities.
This regulatory environment should also ensure that the exponential growth experienced by the industry over recent years can continue in a controlled manner whilst maintaining the high standards and customer focus with which the industry is associated.
Above all, we hope that the FCA regulation will cement peer-to-peer lending as a mainstream financial service.