Financial Conduct Authority Asked To Look Into Peer-To- Peer Lending
Andrew Tyrie, chairman of the treasury committee in Britain's parliament has written to Tracey McDermott, acting chief executive of the Financial Conduct Authority (FCA), which is the UK securities regulator expressing concern at the rising risks in the crowdfunding and peer-to- peer lending markets. Tyrie has asked the FCA to look at developing an approach to handle these issues.
Earlier this month the U.S. Dept of Justice launched an inquiry into a U.S.-based peer-to- peer lending company Lending Club Corp after a probe found that the company had adopted irregular practices while selling loans.
Peer-to- peer lending offers financing to small companies and serve are an alternative to bank loans and are carried out by crowdfunding platforms. The British government has permitted peer-to- peer lending investments to be considered tax-free as part of ISA.
In a statement, Andrew Tyrie said,
The committee is concerned to ensure that the FCA is paying due attention to the risks – and the opportunities – afforded by the growth of peer-to-peer lending and related markets. Whether and, if so, to what extent investors would benefit from stronger consumer protection now needs careful thought.
According to Tyrie, the market is growing rapidly and reached a market value of almost 4.4 billion pounds at the end of 2015. He has asked the FCA to explain its assessment of how customers perceive the risk associated with such investments. He also highlighted that the treasury committee is concerned that the tax-breaks given to such investments could be interpreted as official support for them.
Peer-to- peer lending platforms have asserted that they are already being regulated by the FCA. The sector is part of the financial technology industry (FinTech) which has introduced entirely new financial solutions based on innovative technologies. The British government is seeking to make sure that the country keeps up with other financial centers like Asia and the United States as these regions have witnessed a number of advancements in fintech.
Tyrie’s letter comes in the wake of the failure of the largest crowdfunding initiative involving Rebus Group, a claims management group. The company had raised £816,790 last year using Crowdcube, a crowdfunding platform selling a stake of 6.63 percent to 109 investors. Rebus went into administration in February this year which might lead to investors losing anywhere between £5,000 and £135,000. The investments are not covered by the Financial Services Compensation Scheme as a result of which the investors will receive no protection from the government.
The failure has resulted in key finance officials in Britain raising the question of whether consumers understand the implications of making such investments as well as the need for better regulation.
