Menu
Save, make, understand money

News

MP calls for clarity on risks and opportunities in peer-to-peer lending

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
02/06/2016

The chairman of the Treasury Committee has written to the Financial Conduct Authority and the Bank of England to seek clarity surrounding the regulation of the peer-to-peer lending market.

Speaking about the correspondence, Andrew Tyrie said the committee is “concerned to ensure the FCA is paying due attention to the risks and the opportunities” in peer-to-peer lending and related markets.

In the letter sent to FCA acting chief executive Tracey McDermott, Tyrie asked where the responsibility lies for ensuring accurate information is conveyed to potential investors through crowdfunding platforms.

He also asked if crowdfunding platforms are sufficiently incentivised to assess creditworthiness of borrowers and how the FCA assesses consumers’ understanding of associated risks of the sector

In a separate letter to Andrew Bailey, deputy governor of the Bank of England, Tyrie asked how the Prudential Regulation Authority (PRA) assessed the crowdfunding sector’s resilience to potential economic shocks.

He also asked Bailey for information on the impact of the financial sector’s increased exposure to unsecured loans through crowdfunding platforms and what these might be in the future if the current growth rate in the market persists.

Tyrie said peer-to-peer loans were estimated to have totalled £4.4bn in the final quarter of 2015 – up from close to zero five years ago.

“Poorly informed investors may be left with a false sense of security about the balance of risks versus returns,” he said. “But greater regulation is not necessarily the answer.”

“If this market can substantially increase competition it may offer benefits to the consumer. It is crucial that the regulator is doing what it can to find the right balance between these risks and opportunities.”

The letter comes after Lord Adair Turner, the former chair of the Financial Services Authority slammed the industry, warning that losses will make bankers look like “lending geniuses”.