December 7, 2012 12:17 pm

Government boost for peer-to-peer lending

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The government is to give greater legitimacy to the new online finance models created by peer-to-peer lenders by regulating the fledgling industry.

The move, which follows similar actions taken in the US, has been made possible by an amendment to the financial services bill currently passing through parliament.

The UK has become a breeding ground for peer-to-peer lending models as the banking crisis has forced companies and individuals to find alternatives to conventional bank finance, although it remains a niche activity.

The three largest providers, Zopa, Funding Circle and RateSetter, which account for 99 per cent of the industr, y together lent £355m this year, triple the amount lent in 2010, according to the Peer-to-Peer Finance Association.

The Treasury plans to launch a consultation exercise in the new year to decide exactly what form the regulation will take. Responsibility will be given to the new regulatory body, the Financial Conduct Authority (FCA).

The Peer-to-Peer Finance Association described the move as a “watershed moment“ for the sector.

“We have always strongly believed that introducing proportionate regulation was necessary to enable the sector to continue to flourish,” it said. “We are committed to working closely with the government and the Financial Conduct Authority over the coming months to build the right framework for our future.”

Rhodian Lewis, chief executive of RateSetter. Com, a consumer peer-to-peer lending service linking borrowers with savers, said: “This vindicates our decision to work together as an industry, pursuing a voluntary code of self-regulation and marks the next chapter for this exciting sector.

“We are absolutely delighted by the government’s endorsement and look forward to continuing to work with policy makers to develop a proportionate framework.”

A Treasury spokesman said the aim of the consultation was to get the details right and that regulation of peer-to-peer platforms would be transferred to the FCA as part of the wider consumer credit transfer in April 2014.

At the moment the sector is covered by the Office of Fair Trading because the platforms require a licence for their debt administration activities.

However, they do not require a licence to be a lender because the platforms match up lenders and borrowers rather than lending their own money.

“The government is keen to promote innovation in financial services and wants to support new entrants to the market,” a Treasury spokesman said.

Samir Desai, chief executive and co-founder of Funding Circle, said peer-to-peer lending had now established itself as the credible alternative to banks.

“At a time when bank lending continues to remain flat, Funding Circle is helping thousands of British people to lending money directly to growing businesses fizzing with ideas, energy and ambition,” he added.

Simon Deane-Johns, consultant solicitor at Keystone Law and co-founder of Zopa, said: “It will be important to ensure the regulatory detail supports the growth of peer-to-peer lending as an alternative to bank finance, and that tax incentives which favour banks are realigned to level the playing field.”

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