Concerns a major scandal in US peer-to-peer lending will impact the UK market have been downplayed by the sector’s trade body, after the chief executive of one of the biggest P2P players in the world was fired for misleading an investor.
Yesterday (10 April) the US-based P2P lending platform the Lending Club released a statement revealing its founder Renaud Laplanche had resigned after it was discovered he sold $22m (£15.2m) in near-prime loans to an investor against their “express instructions” during March and April this year.
Hans Morris, Lending Club’s executive chairman, said the financial impact of the $22m in loan sales was “minor”, but the violation of the company’s business practices and the lack of full disclosure during the review was “unacceptable”.
The UK Peer-to-Peer Finance Association - which represents eight P2P firms in the UK including main players like Zopa, RateSetter and ThinCats - was quick to alleviate concerns such improper conduct was widespread.
Policy director Robert Pettigrew told FTAdviser UK platforms are “relatively well insulated” from similar risks due to their operating principles and a high levels of transparency in the sector.
“This seems to be an internal matter for Lending Club and not necessarily a systemic concern.” Robert PettigrewHe added the UK was the first country to impose financial regulation specifically designed for peer-to-peer lending business models. By comparison, he said, the US relies on a number of regulations which pre-dated the emergence of the sector.
P2P investments are poised to enter the mainstream in the UK, after the government launched the Innovative Finance Isa in April, allowing P2P investments to be held within Isas.
However, advisers are often sceptical about P2P, with concerns centring on the credit underwriting systems, and the initial lack of cover from the Financial Services Compensation Scheme, though the FCA and FSCS have now confirmed investors who received unsuitable advice to put money into P2P schemes will be able to claim compensation.
In 2014, the Financial Conduct Authority was made responsible for 30,000 consumer credit firms, meaning P2P platforms had to apply for new licences under the UK regulator.
Mr Pettigrew said P2PFA platforms publish their full loan books and provide clear information on all fees and charges to both investors and borrowers, adding the level of transparency was in fact “unrivalled” elsewhere in the financial services market.
“This seems to be an internal matter for Lending Club and not necessarily a systemic concern,” he said, adding the level of standards makes the possibility of this problem arising among the P2PFA platforms “very unlikely”.
A spokesman for RateSetter said Lending Club is more heavily funded by institutional money, adding: “We believe that the future for our industry is to engage large numbers of individual investors, rather than focusing on fewer institutional investors as in the US.”
Simon Torry, chartered financial planner at SRC Wealth Management, said he is concerned P2P has “the potential to be the next misselling scandal”.
He said: “Recent news about the Lending Club does nothing to enhance the sector and will no doubt increase nervousness among advisers.
“How quickly P2P establishes itself as a mainstream product is yet to be seen but this news along with other scare stories will not help.”
Tony Catt, compliance officer of Anthony Catt Limited, said the P2P lending industry is trying to build trust and said this news will “do nothing” to help the sector establish itself.
“The issue may remain about oversight and controls which would cause considerable concern for advisers.”
However, Mr Catt said it could be seen as a sign of strength that Mr Laplanche was quickly removed from office for malpractice.
katherine.denham@ft.com
