CHINA’s outstanding peer-to-peer loans reached a record high at the end of September, drawing the attention of would-be P2P clients across the world. But a similar situation “should never happen” in the UK, one adviser has told Peer-to-Peer Finance News.
“The Chinese market was unregulated,” said Jay Tikam, managing director of fintech advisory firm Vedanvi. “Lots of funds came into the market and did irresponsible stuff.
“It should never happen here because the UK market is very regulated. The minute something goes wrong someone is going to go to the regulator and that is going to stop things before it gets to the stage that China is at.”
According to Moody’s, the Chinese P2P lending sector grew four-fold in 2015 prompting draft regulations to be introduced by the China Banking Regulatory Commission (CBRC) in December 2015. By September 2016, the value of the sector’s outstanding loans had reached Y956bn ($143bn), and the CBRC was warning retail consumers that almost half of the country’s several thousand online lending platforms were “problematic”. This may have been a reference to the infamous Ezubao scandal, the largest financial fraud in China’s history. In February, 20 Ezubao executives were arrested after a Ponzi-style scheme in which investors lost Y50bn ($7.6bn), and similar scams have since been unveiled across the country.
In response to the P2P crisis, the CBRC has issued a slew of new rules for the troubled sector. Online lenders are now no longer allowed to accept deposits or to guarantee the capital or interest on any loans which they facilitate. The regulator has also capped borrowing at Y1m for individuals and Y5m for businesses.
In the UK, similar regulations have been in place since the birth of the sector just over ten years ago. Furthermore, the UK’s P2P sector is much smaller, with fewer than 100 platforms in total, compared with more than 4,000 platforms currently operating in China.
Tikam pointed out that the scale of the Chinese market paints a very different picture, as the actual proportion of overdue loans is relatively small but in terms of numbers it seems very high.
However, this is unlikely to offer much comfort to the tens of thousands of retail investors who have already lost money in the Chinese P2P sector.