Government Called to Regulate Social Lending

Jack Humphrey, Regulatory journalist
September 20, 2010 /

The Government has been asked to regulate the increasing social lending industry by bringing the lender under the ambit of the Financial Services Authority (FSA). New rules are sought for peer-to-peer loans.

The peer-to-peer lending sector utilizes websites to bring together both the savers and the borrowers for which they charge fees. This business is, at present, regulated by the Office of Fair Trading (OFT).

This request has been made by the first online business linking lenders and borrowers, Zopa, established five years ago. Currently there are several players in the market including Yes-Secure and Quakle which also do the business of connecting lenders and borrowers and the Funding Circle, which channelize savings to small businesses. Zopa insists that the growth of this sector would very much depend upon the regulatory checks so that the new entrants feel secure and are secure.

Chief executive of Zopa, Giles Andrews want minimum capital standards, FSA approved directors and safeguards on risk controls. He said that they have more than 1 percent of personal unsecured lending and is moving ahead to lend around £100m by the end of 2010 and their bad debts are currently around 0.7%.

Giles Andrews warned that there is currently no regulatory provision to stop a business house from accelerating its business by lending to riskier account holders, operating a risk business and alluring customers by providing misleading information about their products and services but the damages to this sector would be quite big affecting Zopa too.

John Moulton and the Funding Circle had discussions with FSA and it was concluded that extra rules would be good for this upcoming industry. On the other hand, some social lending executives said that the market is very small for FSA regulation being effective and that the new rules might suppress competition.


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