As far as regulation is concerned, peer-to-peer lenders could not have hoped for a better start.
Back in 2010, when the market started to make waves, the peer-to-peer sector wasn’t on the regulator’s radar. To their credit, the P2P pioneers actually wanted to be regulated: they felt that this supported their credibility while protecting the sector against the potential damage a rogue platform could cause.
The industry went some way toward self-regulation in 2011 by forming the P2P Finance Association, which includes the major P2P platforms and holds them to certain minimum standards, and still the FCA held off regulating the sector.
One potential reason is that because P2P lending was hailed as an important means of increasing the credit available to SMEs (and it still is), the FCA delayed regulation of the burgeoning industry in order to allow it the opportunity to flourish before imposing regulation.
Whether that is true or not, the FCA did act in April 2014, introducing a range of new regulation within the P2P sector. The good news for the industry is that it’s been relatively uneventful. There have been a few warning shots fired, but certainly no scalps, which for a new industry where many companies didn’t have dedicated compliance officers, is pretty impressive.
Ask around in the P2P industry and you’d find no shortage of people that are upbeat about the future. They’re now regulated by the FCA and are continuing to grow at an impressive rate– so why shouldn’t they be?
Well, for starters, P2P lenders only have interim authorisation to date. The industry is subject to full regulation, but firms will only be able to apply for full authorisation from August 2015.Until then, we still don’t really know what effect full regulation may have, either in terms of customer protection or any impact on growth (positive or negative).
Secondly, the industry isn’t yet mature. Lending volumes are growing at a pace, and the total lent via P2P platforms will soon top £4bn, but being brutal, most people still don’t know what peer-to-peer lending is. Those that do tend to be advocates.
Inevitably, some customers may have a poor experience, and that’s when complaints start. If one platform does a bad job of handling customers or complaints, or does not focus on customer outcomes, we could see a much tougher approach from the FCA to the industry.
Most importantly, regulators tend not to wade into a new industry on day one with all guns blazing and shut companies down. The FCA has signalled that its regulation will be enforced robustly, but it may well take time to monitor and understand the nuances of the industry before taking action – which could be months or even years down the line.