“Since the summer there’s been the shock on the US lending platforms,” says Gonçalo de Vasconcelos, co-founder and chief executive of Crowdfunding platform, SyndicateRoom.
This is in reference to the plight of LendingClub, founded in 2007 – a company known for pioneering the concept of P2P lending. In May, its chief executive, Renauld Laplanche, stepped down after an internal review uncovered sales of $22m (£18m) to a single private investor in violation of the firm’s business practices. The development caused LendingClub’s share price to halve in the space of two weeks, and, at the time of writing, shares remain around 25 per cent lower from their pre-scandal price.
The saga shook investor confidence in the sector as a whole, but Mr de Vasconcelos says this was only a short-term blip, adding that growth rates are now “absolutely back on track”.
He goes further by suggesting that these types of challenges are in fact essential for the evolution of alternative finance, highlighting how the UK’s largest P2P lending platform, Zopa, managed to survive and grow following the global financial crisis in 2008.
“Surely there will be more tests and challenges, and I’m a great believer in that’s how you get better and better,” Mr de Vasconcelos adds.
When regulation gets tough
Regulation continues to dominate the headlines in many forms of personal finance, and alternative finance is no exception: the sector is coming under more scrutiny than ever before. In July, the FCA announced it would be probing the crowdfunding sector for second time in two years amid calls to toughen up existing regulation.
Whenever new propositions begin to flourish, the risk-versus-reward consideration is placed under the microscope. This is largely due to retail investors, who are seen to lack the financial savvy of those within the industry, not being fully aware of the potential pitfalls.
Regulators were only given responsibility for the alternative finance sector in 2014, so the review has hardly come as shock to providers. The industry has acknowledged the need for stricter rules governing aspects such as how loans are advertised to consumers.
“It’s about quality regulation and applying the right rules for the businesses and the market at that time,” says Mr Hancock.
‘The FCA is doing a great job in terms of being able to work on the ground, so it’s more of a collaborative approach rather than policing it.”
Mr de Vasconcelos is also supportive of the regulator on its approach, saying it helps to provide a “sense of trust and confidence in the system”.
However, he adds that a greater focus on transparency instead of consumer protection would be more beneficial in terms of addressing enduring concerns.
