Weekend's news on tougher rules for peer-to-peer lenders is about eight months old.
The Times reported yesterday that the FCA is planning to “crack down” on peer-to-peer lenders. The article hinged on the word of an unnamed source who is said to be close to the regulator. It suggests that loan performance and due diligence requirements are two areas in which P2P platforms will soon be made to publish more detailed information.
The FCA began its planned post-implementation review of the crowdfunding sector in the summer of last year with the publication of a call for input. It then issued an update on the progress of its review in December 2016. This update advised that the regulator may enforce “more prescriptive requirements on the content and timing of disclosures by both loan-based and investment-based” platforms.
As such, The Times writing yesterday that the FCA is “ready to demand that platforms such as Funding Circle and RateSetter provide more detailed information on the past performance of loans” is a bit like reporting that Donald Trump has been elected as President of the United States; it’s not wrong, but it’s significantly behind the times.
Since we’re on the subject, it may also be worth reviewing the extent to which peer-to-peer lenders already publish this sort of information. Many of the platforms publish their full loanbooks online – in fact members of the Peer-to-Peer Finance Association are required to do so.
Others, such as the above-mentioned Funding Circle and RateSetter, go a step further. They send cash-flow data for each and every one of their loans to AltFi’s sister company AltFi Data. That data is then run through an analytics engine which produces a comparable output for each lender, allowing lending performance to be compared on a like-for-like basis.
One problem with AltFi Data’s approach is that it’s a little bit elitist. The analytics tools sit behind a pay-wall, and the pricing is probably too steep for the average retail investor. But some have argued that the very fact that a range of industry observers (many of which are institutional investors) are scrutinising the largest platforms in this way ought to give a level of reassurance to retail investors. That might not fly with everyone, but for The Times to fail to make any mention whatsoever of the prevailing state of transparency in P2P seems a little… well, blinkered.
AltFi Data CEO Rupert Taylor also points out that, while only subscribers to AltFi Data can drill deep into numbers, the company already publishes a headline trailing return figure (net of losses and fees) for all to see.
Funding Circle, the largest peer-to-peer lender in the UK by cumulative lending volume, offered comment in response to The Times article.
“Funding Circle has always published performance data on every single loan made in the UK, of which there are more than 35,000, on our statistics page,” said James Meekings, who is co-founder and UK managing director of the platform.
“The Peer-to-Peer Finance Association, which makes up the majority of the market, also requires a higher standard of disclosure from its members than the current regulatory framework. We would welcome, and in fact expect, the FCA to require all lending platforms to publish the same level of data as P2PFA members as part of their review.”
The Times article further suggests that peer-to-peer lenders “may also have to be clearer about how much due diligence is carried out on companies looking to borrow money on their sites”.
The FCA’s December update (which can be viewed here) made some mention of due diligence standards, but these were mostly focused on investment-based crowdfunding platforms (like Crowdcube and Seedrs), rather than on peer-to-peer lenders (loans-based crowdfunders). We’ve also known for some time that the regulator is considering extending mortgage-lending standards to relevant P2P platforms. However, the point on requiring peer-to-peer lenders to be clearer about their due diligence processes could well be new.
But the crucial word is could. The FCA has not issued any recent updates on the review, and told The Financial Times that it would not comment “on speculation about what any new rules may include”. The Regulator confirmed in April that it would delay publication of the conclusions of its review due to the surprise snap election. It remains unclear when we can expect to see them.
