We were in the news For the right reasons…

You may have seen us across the news last week. As the FCA came out with its expected rule changes for the peer-to-peer industry, we were quick to comment with our reaction to the announced changes.

In short, at Blend Network, we believe the measures promise to be a positive step forward for P2P platforms. We believe these measures will have a significant positive impact on the P2P industry, particularly on the way that loan risks and platform business models are assessed. We also welcome the investment limit for restricted customers to 10% of their net assets in non-readily realisable securities ensuring that they are not over exposed to risks associated with this type of investment. Despite not being currently required to do so, although this will be a requirement from 9th December, many platforms including our own, use appropriateness tests to ascertain whether individuals are suitable to invest. This test ensures investors have an appropriate level of knowledge and understanding regarding the risks and nature of P2P. Consequently, these additional regulatory requirements should not drastically alter how lenders operate.

There have been several economic factors that have led to the growth of the UK P2P industry, as a result it has grown into the second largest P2P industry by volume after the US. This means there are now greater numbers of consumers participating which has led to the FCA casting a watchful eye on the growing UK P2P industry with a view to protecting consumers. Last year, £3bn [1] of loans were advanced to small businesses and property developers among others and £15bn [2] has been advanced overall since the inception of Peer2Peer lending in 2005.

However, it is important that future restrictions do become too restrictive; while protecting investors is vital, we must remember why the P2P sector first emerged – to enable smaller businesses to raise much needed capital at a time when traditional lenders were restricting lending. At the same time P2P set out to democratise investing by creating an asset class for investors with modest sums looking for alternative returns in what has been a benign environment with low interest rates and volatile equity markets.

We believe it is not just strong regulation but also strong oversight that is required to prevent customer detriment from occurring in the first place. As US Commerce Secretary Wilbur Ross put it: “There is no evidence that regulation makes things better. The most highly regulated industry in America is commercial banking and that did not stop those institutions from making terrible decisions [3]”. In our opinion, regulation does not solve things, good supervision does.

We believe that these regulations are a step in the right direction for a sector that is evolving and maturing.

Stay tuned and keep an eye on www.blendnetwork.com for more deals coming very soon.

[1] https://www.p2pfa.org.uk/uk-peer-to-peer-lending-data-reflects-continued-maturity-of-the-sector-during-2018/
[2] https://www.telegraph.co.uk/investing/news/165m-lendy-collapses-experts-warn-dozen-peer-to-peer-firms-will/
[3] http://fortune.com/2016/11/16/trump-commerce-contender-wilbur-ross-once-told-fortune-government-is-investors-biggest-concern/

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