Investments  

Rocky year brings fresh start for P2P market

Rocky year brings fresh start for P2P market

The peer-to-peer lending market "finally came of age" in 2019 despite several high profile failures.

Ruth Handcock, chief executive of Octopus, told FTAdviser the sector showed great potential and likely had a good future despite experiencing a rocky time this year.

The P2P market has seen a number of high profile failures over the past 12 months, with the collapse of Lendy in May and Funding Secure in October. 

Both platforms facilitated crowdfunded loans which were used to fund the purchase and development of property, with Funding Secure also arranging pawn-broking style loans secured on valuable items. 

In the wake of its collapse questions were raised as to how retail clients could be better protected, with many calling for an outright ban of non-advised P2P investments.

Ms Handcock said: “The very public collapse of platforms like Lendy and Funding Secure certainly didn’t help with reputation, but the long-term result should be a far more robust sector. 

“In new industries it’s only natural that some firms, often those that are poorly run, fall by the wayside and P2P is no different.”

This had positives according to Ms Handcock as she thought the platform failures brought more attention to the importance of the underlying asset class and the providers of P2P, which could help improve understanding of what P2P actually is and how it works.

She added: “Previously there was an assumption that providers were broadly the same. In reality, the term peer-to-peer just describes the lending mechanism, and investors are now keenly aware that they need to ‘look under the bonnet’ and understand where their money is really going.”

The biggest change in the sector was the City watchdog’s tightening of the rules, according to Ms Handcock.

The Financial Conduct Authority introduced rules last month which prevent people from investing more than 10 per cent of their assets in P2P investments without financial advice.

This has been welcomed by the industry but some have urged the watchdog to expand this restriction to the entirety of non-advised sales.

Ms Handcock said: “In strengthening the rules the FCA is helping to build a more mature industry. All providers will now have to be transparent about their loan book and historic performance, as well as putting in place controls around risk management and valuations."

She also thought the rules would prompt a greater proportion of P2P investment to come through advisers.

She added: “The advisers we work with are increasingly interested in the quality of underlying loans, the assets they’re secured against, the processes providers use to screen borrowers and how we provide diversification.

“It’s taken some time, but we’re seeing first-hand that many financial advisers increasingly understand the risks and rewards of P2P as well as its ability to solve real client problems.”