Independent review and analysis

Peer-to-peer lending processes – calls for change!

It is often the case in emerging markets where new products are being developed, that regulation follows behind market innovations. For example, driverless cars exist and work, but no one has yet articulated the ‘rules of the road’ that will apply when such vehicles compete for space on our crowded transport system.

Another extreme example – press articles recently explored the ‘micro-chipping’ of employees; the technology exists, but where are the checks and balances to manage the micro-chipping of people? Again, the regulation is already behind the technology. The financial service industry is not immune from this situation.

The peer-to-peer lending ecosystem is one such market that is currently suffering from ‘regulatory lag’. Products and services have moved on since the FCA took over responsibility from the OFT in 2014 and while the FCA consultation process is a step in the right direction, regulation continues to struggle to keep up with the pace of innovation. While regulation catches up, various groups have become frustrated with the ‘regulatory lag’. In the wake of recent controversies, the major clearing banks are calling for a level playing field in terms of ‘capital requirements, funding risk and pricing’ while consumer groups are calling for greater transparency for consumers.

If the P2P industry wants to move from being perceived as niche provider into a mainstream source of funding it needs to grab the regulatory nettle and drive up compliance and standards. Paradoxically, in our experience, it is often the professional firms within a sector that become most frustrated with the lack of pace within the regulatory process and step in to develop their own codes and regulatory frameworks. There is a history of firms, usually through trade associations, raising standards and applying robust oversight while waiting for a more formal approach from regulators.

Rockstead has been involved with several different financial service sectors, helping firms and trade associations embrace regulation and raise standards – our input ranges from independent oversight of code of practice compliance to the implementation of robust SMCR procedures. Call us for a chat on how we can help.

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