FCA regulation of the P2P lending sector kicks off tomorrow, and as you'd expect this major step change has attracted a fair bit of comment from the leading platforms, not all of it quite as positive as we'd expect ! For the most part, P2P lenders have been echoing the cautiously optimistic line of Rhydian Lewis, CEO of RateSetter who's welcomed regulation as part of the mainstreaming of P2P. According to Lewis "Regulation is a welcome, solid foundation, but P2P players must now focus on the protection that they offer customers. Without this, the sector will never be wholeheartedly welcomed by UK savers. "
That emphasis on continued vigilance around risk underlined by Christian Faes from specialist secured property lender LendInvest. He argues that the new regime "falls short" and that the FCA must ‘go further’ by forcing platforms to disclose their due diligence processes. According to Faes, co founder of LendInvest - the platform recently secured the world's largest peer to peer loan - “If the industry wants to be taken seriously, there needs to be requirements for platforms to conduct adequate due diligence on a borrower. As it stands, there is a gaping hole in the regulation and we fear it will not protect the public from loan defaults in the peer-to-peer sector.
Faes told AltFinanceNews that " we do everything that a bank does in underwriting a mortgage loan, and in many instances we do more. As we have been lending since 2008, we have very well developed and very rigorous processes and procedures. Lending money out is easy, the hard part is formulating due diligence and loan underwriting procedures to ensure that the loans will be repaid". LendInvest reckons that the FCA should now require peer-to-peer platforms to either conduct substantial loan due diligence or provide investors with complete disclosure on what their due diligence processes involve.
LendInvest already boasts a series of protection against risk, not least that all loans on its platform are backed by a registered legal charge against property in the UK. LendInvests due diligence process also incorporates extensive checks for fraud (using a fraud detection system called SIRA), as well as obtaining independent valuations on every property they lend to, plus extensive checks on the background of the borrower (from credit searches, court registry searches, through to searching the UN, EU and HM Treasury financial sanctions lists). LendInvest also engages external legal counsel for every loan that they provide and has its own bespoke insurance policy negotiated directly with a Lloyds of London Syndicate.
Faes also echoes concerns raised by another new player in the sector - Wellesley and Co - that platforms don't have enough 'skin in the game' to protect their investors i.e they don't risk their own capital. According to Faes, "with the way LendInvest works, we put skin in the game with every loan that we have on the platform".