In what has been a turbulent year for the peer-to-peer lending market, yet another platform has gone into administration, putting £80 million worth of investment at risk from over 3,500 investors. The collapse of FundingSecure is just another piece of the P2P jigsaw, that unless regulatory reformations are introduced, will paint a picture of further collapses and more investment losses.
Dr Roger Gewolb, Executive Chairman and Founder of FairMoney.com, the loans price comparison website, has yet again called for an end to these repeated calamities, in order to protect consumers, both depositors and borrowers.
“Time and time again, I have called for regulation of P2P to be handed from the FCA to the Bank of England. Yet, nothing has been done. If small banks were crashing every month, it would be spread across the front pages and seen as a national disaster. These quasi-banks must be seen in the same light.
I’m not concerned about the hedge funds, insurance companies, institutional investors or banks that invest into P2P platforms. They’re professionals and they can look after themselves. What we’re seeing though are individual investors who are thinking that they can get a better return via these interest rates promised with P2P investment. These consumers simply don’t fully understand or appreciate the risks assumed when becoming involved with the industry and frankly, the health warnings from platforms are insufficient and the FCA is concerned. Investor/depositors need to appreciate that they are risking £10,000 for perhaps an extra £1000 of interest per year.
What appears to be drawing investors in are the continual announcements from some platforms that they are making record loans and margins. I believe that what is actually happening is that, as more and more traditional banks lend more and more, these P2P platforms are being driven up the risk curve, having to take on higher levels of risk with borrowers and charging them higher interest rates. People from outside the industry think that they’re doing better, but really, they’re probably just taking greater risks.
There is no way to know because, under the FCA, these platforms are allowed to police themselves. Thus, there is no independent assessment of loan portfolio and risk quality, as there would be very strictly with any licensed bank, by the Bank of England. And, even then, things can go wrong, such as happened with Metro Bank, for example. It’s the Wild West out there, but, time and again we are seeing these risks failing and collapses becoming more inevitable. Why isn’t anyone saying anything? It’s an absolute scandal! The Bank of England must now look after these platforms and if not there must be deposit protection.
I very much want the P2P lending market to work, but there needs to be a culture change. Otherwise, once too many failures happen, investor/depositors may simply head for the hills and this industry will disappear along with the availability of these loans to people who cannot get them easily from traditional banks. This can no longer be portrayed and reported as an investment story; this affects all consumers.”