UK Peer-to-Peer lending (or P2P lending) began in 2005.
The idea's straightforward enough: a commercial organisation hosts an online P2P lending platform. Borrowers use the platform to pitch for loans, and lenders use it to choose which loans to make or invest in.
P2P lending has grown significantly in the last 5 years. The banks have been less willing and less able to lend, and P2P lending has expanded to fill some of the gap. This has led to calls for regulation, and some of those calls are from the P2P sector itself: if the industry is regulated, it will feel safer, and people will be more likely to use it to borrow and invest. It's no surprise then, that the Peer-to-Peer Finance Policy Summit held in London on 7 December 2012 was tagged: "The Role of UK and EU Regulation in the Growth of Alternative Finance for Consumers and Small Businesses", and attracted speakers and delegates from the government, the FSA, the European Commission and the Federation of Small Businesses.
During the conference, the organisers published an open letter from the P2P finance industry to UK and EU policy makers repeating their call for regulation: "it is unrealistic to assume new business models will thrive without regulatory change to make it easier to launch peer-to-peer finance platforms and reassure potential savers, investors, borrowers and entrepreneurs that these marketplaces are a responsible and legitimate means of fundraising" (the letter is available here).
And the UK government finally seems to be listening - it's been widely reported that:
- the FCA will regulate P2P lending from April 2014, when it assumes responsibility for "other types of consumer credit" (a rather worrying assertion - but let's keep an open mind for now);
- the Financial Services Bill will be amended to make this possible (note "possible" - perhaps suggesting the FCA will have the power to regulate, but not an obligation to do so); and
- the Treasury will publish a consultation paper which describes its proposals for FCA regulation of P2P platforms in January 2013.
These are promising developments, but similar commitments about the regulation of payday lenders weren't entirely borne out in practice (see my recent blog here). P2P lenders, borrowers and hosts should therefore wait for the detail before preparing for regulation. They may also need to be careful what they wish for - if the FCA is required to regulate, there are good reasons to suppose that it will be intrusive and that, if it is, it may stymie a fledging industry, rather than nourish it and help it grow.
In the meantime, and perhaps as a gesture of good faith, on 12 December 2012, Vince Cable (Secretary of State for Business, Innovation and Skills) told the ABI's Investment Conference in London that the Government "is looking to invest more than £50m" in small businesses through P2P lending platforms, debt funds and asset finance suppliers. This funding will be made available over the next two years on a leveraged basis, so that for every £1 the government invests, the private sector will invest at least another £1. Mr Cable also announced the first successful bidders for a share of this funding: Funding Circle and Zopa (which are P2P lending platforms), Boost&Co (a private equity backed bespoke loan provider) and Credit Asset Management (a finance provider to the professional services sector). When and how this commitment will be honoured is not yet clear - it depends on commercial negotiations and parliamentary scrutiny - but the details should be available "in the next few weeks".
These are the best of times and the worst of times for the government to tackle such an important set of issues. I'll blog again as the details begin to emerge.