Peer to peer lending to be regulated

Starting in April 2014, the newly formed Financial Conduct Authority (FCA) will be implementing and overseeing all regulatory functions for both retail and wholesale financial services firms in the United Kingdom.  Today it was announced this would also include the small but booming Peer-to-Peer (P2P) lending market. In response to calls for regulation from within the P2P industry itself, the FCA will be beginning consultation talks and submitting proposals starting early in 2013.  The industry call was formalized through an open letter submitted by the P2P Finance Association during the P2P Finance Policy Summit held last December in London.  Both parties aim to bring stability and credibility to this relatively new direct lending system that eliminates the middle man or banks and therefore provides better return rates for lenders and gives lower cost, wider and easier access to borrowers. Part of the mandate of the FCA would be to ensure regulated firms conduct themselves in the right manner and to offer appropriate protection to consumers.  The promotion of competition among financial services firms is also another, providing consumers with better value propositions and services.  The industry wants to be acknowledged as a legitimate alternative to mainstream banking while also providing a safe consumer environment by providing protection to both borrowers and lenders.  A regulated industry would in return create a safer business environment and therefore encourage more investors and borrowers.   By the end of 2012, UK peer-to-peer lenders have already collectively lent over £350m. It has been feared in the past that a single, high profile anomaly or scandal may ruin the industry as a whole.   The P2P Finance Association has always strongly believed that introducing proportionate regulation would be necessary to enable the sector to continue to flourish.  A few of the areas being looked into are with regards to establishing standards for firms' credit checking procedures and minimum capital requirements.  Another issue worth looking into would be including P2P firms under the Financial Services Compensation Scheme, which guarantees up to £85,000 of a depositor's cash if an institution goes bankrupt.  Unlike banks, P2P firms are not protected under this scheme. Overall the industry has hailed the news as a "watershed moment" and that regulation would definitely give a significant boost to consumer confidence.  A doubling of the number of P2P lenders has also been predicted for this year so this move is to be welcomed. This will not only serve to raise the profile and credibility of this sector of finance but it will also  protect those partaking in it; that can only be a good thing.