Former chairman of the Financial Services Authority Lord Adair Turner has u-turned on his stance that peer-to-peer lending will give rise to a mis-selling scandal.
In February this year, Lord Turner said that losses on P2P lending will “make the worst bankers look like absolute lending geniuses.”
However today (12 October) in an article in FTAdviser's parent paper the Financial Times, Lord Adair said: "I don't think the use of technology by peer-to-peer lenders or challenger banks will do anything fundamentally new..but they might be able to do credit underwriting as well as established banks and also aspire to offer better customer services."
Lord Adair also urged lenders to "keep it simple, keep it transparent" and said the £2.7bn industry will continue to grow if lenders avoided "giving the illusion of liquidity" to consumers.
A major study into the economics of peer-to-peer lending has also been published today (12 October) by consulting firm Oxera in conjunction with the P2P Association, which suggested peer-to-peer lending has created additional competition and choice in the market for loans and investment.
Additionally, it stated peer-to-peer lending provided a new option for retail investors, opening up access to risk-and-return from an asset class of consumer and business loans with net returns of between four and eight per cent.
Oxera's research showed the current regulatory framework is proportionate and targeted, though opportunities to strengthen the regime exists in some areas.
It added peer-to-peer lending does not create systemic risk, and platforms are well-placed to weather a downturn in the credit cycle, and that borrower defaults would need to increase at least threefold to reduce average interest rates to investors below zero.
Alongside this, the study also found that most retail investors have a good understanding of the risks of peer-to-peer lending, including capital and liquidity risk, as well as the importance of diversification.
The chair of the Peer-to-Peer Finance Association, Christine Farnish said: "This landmark study into the economics of P2P lending provides important insight into the state of the market in the United Kingdom, and also addresses concerns which some have expressed about the understanding of investors, the business models of platforms and the regulatory framework.
"The report provides clear evidence on the robustness and resilience of the sector. We hope it provides a useful input to policy-makers and regulators.
"The report emphasises the crucial importance of ensuring that retail investors are well-informed – particularly as the number of those participating expands – as well as making sure that platforms themselves undertake sound credit-risk management and adhere to high standards of business conduct.
"Whilst P2PFA member platforms are required to commit to unrivalled levels of transparency and robust operating principles, it is clear that the regulatory regime has scope for further development so as to ensure that exemplary levels of confidence can be maintained for this increasingly significant part of the alternative finance landscape."
