Christine Farnish (pictured), the chair of the P2PFA, talks exclusively to Peer2Peer Finance News about upcoming rule changes, the FCA, and why RateSetter really left…
There are changes ahead for the Peer-to-Peer Finance Association (P2PFA). The self-regulated trade body has been shaping industry standards for six years, but as alternative lending enters the mainstream, even the P2PFA has to be willing to evolve.
Earlier this year, the P2PFA lost two of its members – RateSetter and LendInvest – for different reasons, and gained eight new ‘associate’ members, made up from service providers and influencers from across the financial industry. And in an exclusive interview with Peer2Peer Finance News, P2PFA chair Christine Farnish revealed that the association will be making at least one more big announcement before 2017 is done.
“During our last board meeting, we were stock-taking really about the P2PFA and its future development, in particular in light of the changes in the market, what’s going on in regulation and where we feel the challenges are now for this new sector,” said Farnish. “The big thing to say is that there aren’t any fundamental changes to why we think we need to continue to exist, what we do, what’s important and what our priorities are.”
However, the next board meeting – set to be held in November – is expected to focus on an update to the P2PFA rules, membership criteria, and the association’s role in the wider regulatory community.
The association has worked closely with the Financial Conduct Authority (FCA) for many years, and Farnish has spoken openly about her desire to solidify this relationship, perhaps by bringing the P2PFA into the fold as a P2P-specific regulator working on behalf of the FCA.
“There are clearly areas that need to be developed and strengthened and it’s important for everyone that the FCA gets that right,” she said. “We have a crucial role to play with the FCA, helping them with the sector and guiding them to a really appropriate and risk aware regime.
“That’s our number one priority. It always has been.”
Read more: P2PFN‘s July interview with Farnish
The P2PFA certainly can’t be accused of resting on its laurels. Since it was founded in 2011, it has spearheaded a movement towards total transparency, by publishing the loan book data and default rate of all its members, and collating cumulative lending data from across the sector. All members, and prospective members, must abide by strict membership criteria, including a pledge to “demonstrate high standards of transparency and provide clear, balanced and fair information to all customers.” It is this rule that RateSetter is believed to have breached earlier this year, after the platform was late to announce its purchase of a struggling company that was indebted to one of its former wholesale lending partners. RateSetter has since left the P2PFA.
“On the RateSetter issue – we had lengthy conversations about what had been happening to some of their borrowers over the last 12-18 months,” said Farnish. “It’s all about transparency to investors and being honest and clear and the integrity of the business mode.”
However, she hasn’t ruled out a return for RateSetter in the future. “Who knows what the future holds,” she added. “Nobody holds a crystal ball. RateSetter is open to membership again at some point in the future but we need to be very comfortable with compliance with the operating principles. I’m sure if you spoke to them they would accept that they did make a mistake.
“It was an unfortunate set of events that happened that they hadn’t envisaged. The mistake had been rectified however it was quite a serious issue. We need to give all this a bit of time and see how it develops. There are no absolutes in any of this and everyone’s still on speaking terms and let’s see how matters develop.”
The departure of RateSetter and LendInvest (which no longer defines itself as a P2P lender) has brought the P2PFA’s market share down to around 50 per cent of the UK’s P2P sector. Current members include Funding Circle, Zopa, MarketInvoice, Landbay, ThinCats, Lending Works and newest member Folk2Folk but no new members have joined since February of this year. However, Farnish rejected rumours that the association is “a closed shop”.
“That’s not true,” she said. “Anyone is absolutely welcome to be a member and we’d welcome them with open arms. We know that there is strength in numbers and a well-represented body is better represented if they have bigger share of the market.”
With this in mind, the association appears to be making some efforts to widen its membership remit and expand its influence within the sector. The addition of eight new associate members in July marks an important development for the P2PFA, and Farnish said that she hopes that these associates will be able to “extend the level of resources that we have as an organisation”.
“We aren’t a big body,” she adds. “We’re an industry body that works in a co-operative way.”
It may not be a big body, but it is hard to deny the significance of the P2PFA’s role in UK’s rapidly growing P2P sector. Regulation is a top-line issue for P2P platforms, and the FCA has doled out its approvals sparingly. Farnish – herself a former regulator – predicts that the FCA will soon come down harder on disclosure, particularly around bad debt and default rates, and she expects new industry standards to be put in place soon. “It’s a gap in the FCA and that’s an area where we specialise,” she says. “The FCA is very open to co-regulating in some areas with industry bodies. We feel that there would be benefits all round.”
For now, the P2PFA is focused on reviewing its own rules and Farnish confirmed that a revised version of these rules will be published before the end of the year.
At the end of November, Farnish expects to announce a few “major changes” to the way in which the P2PFA operates. However, she is adamant that the association’s remit will always remain the same – to promote transparency and good practice across the P2P sector.
“The industry is steadily evolving and it’s good that it’s steady,” she says. “No one is charging forward with eye-watering deals that can’t be fulfilled.
“Regulation is an ongoing challenge and opportunity as well. If everyone thinks that the regulatory regime is done and dusted now that platforms are authorised – I think that would be misguided.”