InvestmentsJun 2 2016

Tyrie urges closer scrutiny of crowdfunding loans

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Tyrie urges closer scrutiny of crowdfunding loans

The chairman of the Treasury select committee has urged the Financial Conduct Authority to set out how it will deal with risks surrounding the rapidly expanding peer-to-peer lending sector.

Andrew Tyrie said in a letter to the FCA’s acting chief executive Tracey McDermott that he expected the regulator to examine a “couple of issues” related to crowdfunding, and questioned whether greater scrutiny is needed to protect consumers.

He asked where the responsibility lies for ensuring information provided to investors is accurate and whether crowdfunding platforms have sufficient incentives to assess the “creditworthiness” of borrowers.

In February, former FSA chairman Lord Adair Turner criticised the credit underwriting of the P2P sector, stating it made “the worst bankers look like absolute lending geniuses”.

Mr Tyrie also asked Ms McDermott to outline how the financial watchdog assessed investor views on crowdfunding’s level of risk.

“Poorly informed investors may be left with a false sense of security about the balance of risks versus returns,” he said.

Many financial advisers have been quick to question the risks and controls in place for crowdfunding, and have shown little interest in the sector, despite the launch of the P2P Isa, or Innovative Finance Isa, in April.

It’s estimated peer-to-peer loans totalled £4.4bn in the final quarter of 2015, up from close to zero five years ago, noted Mr Tyrie.

With this in mind, he also asked the FCA to set out the impact crowdfunding has had on competition across financial services, adding the financial sector’s increasing exposure to unsecured loans through crowdfunding platforms “warrants closer scrutiny”.

Mr Tyrie stated: “The sector’s ability to see through an orderly decline should be considered sooner rather than later.”

“The committee is concerned to ensure that the FCA is paying due attention to the risks – and the opportunities – afforded by the growth of peer-to-peer lending and related markets.”

However, he pointed out greater regulation might not necessarily be the answer.

“It is crucial that the regulator is doing what it can to find the right balance between these risks and opportunities.”

katherine.denham@ft.com