This article has been updated to reflect clarifications from the Peer-to-Peer Finance Association.
From next April, members will be required to publish platform resilience testing.
The best-known industry trade body in peer-to-peer lending, the Peer-to-Peer Finance Association, has updated its operating principles, which have existed since 2011. Headlining the update are enhancements to bad debt and likely returns disclosures, and a requirement that members undertake and publish assessments of platform resilience in stress scenarios.
From April 2018, P2PFA members will be required to provide “full and comparable disclosure of bad debt and likely returns for investors”. Members of the association are already required to publish their full loanbooks online. The trade body has also enhanced its disclosure requirements on liquidity risk and risk to capital.
The P2PFA's existing standards include a ban on platforms borrowing or raising funds through their own platform and an effective ban on maturity transformation, brought about through a requirement for lenders to match the term of a direct lending contract with the term of the loan that is agreed.
Members must also observe “a requirement that retail lenders are not discriminated against in favour of wholesale lenders” and “transparency for investors so that they can see where their money is being lent”. This second change relates directly to the monitoring debacle that led RateSetter to withdraw from the P2PFA earlier this year, following revelations concerning the mismanagement of a former wholesale lending partner. Wholesale lending within P2P lending has now been banned by the regulator.
Commenting on the updates, P2PFA chair Christine Farnish said: “Our revised good practice standards, which will be followed by all P2PFA member platforms, are built around the principles of transparency, integrity, honesty and competence. Consumers can be confident that they will be able to make informed choices about lending or borrowing on P2PFA member platforms and that they will be treated fairly.”
Farnish added that the group’s standards are designed to supplement the statutory regulations of the FCA, but that she believes it “would be helpful for the wider sector were some or all of these standards to be incorporated into the formal regulatory regime in due course”.
The P2PFA was founded by Funding Circle,Zopa and RateSetter in 2011 primarily as a vehicle to lobby for the then-nascent peer-to-peer lending industry to be formally regulated. Its members are: Funding Circle,Zopa,Folk2Folk,Landbay,Lending Works, MarketInvoice and ThinCats.