Although peer-to-peer platforms recognise parts of the sector are high-risk, they believe it’s unfair and unhelpful for the City regulator to label P2P as a high-risk investment.
Earlier this week the Financial Conduct Authority (FCA) aired concern about high-risk investments. It said that if high returns are being promised or even suggested, then this means there are higher risks associated with the investments.
The regulator said examples of high-risk investments can include P2P lending and Innovative Finance ISAs which contain P2P loans.
This followed the FCA spending money on Google adverts to send consumers who search ‘ISA’ on the search engine to an FCA webpage that warned consumers about high-risk and high-return investments and listed P2P alongside other investments such as land banking which is unregulated.
David Bradley-Ward, chief executive of Ablrate, said that P2P is high-risk but there are lots of different models, with many transparent in warning investors of the risks. He added that the FCA should not be lumping P2P with unregulated schemes.
“If the FCA is regulating us and telling us what to do, then there’s an odd situation where we’re doing everything we’re supposed to be doing according to the FCA regulations and then they’re telling everyone it’s high-risk,” Bradley-Ward said.
“Where is the trajectory going, is it to go and educate and make the space better or warn consumers that’s it’s high-risk and not to invest in P2P platforms?
“It’s not that I disagree the area is high-risk. P2P is high-risk but there are lots of different models and it should not be conflated with unregulated schemes in the minds of lenders.
“Ultimately, I don’t have a problem with the FCA warning customers about it being high-risk, it’s perfectly acceptable and we do all the time.
“We have had risk warnings for years and have done everything we can to ensure people understand the risk.
“We’ve done all of this because we want to work in regulations and then we’re being compared to land banking firms, which aren’t and that seems unfair.”
He added that the FCA should offer separate guidance on land banking and P2P.
Carl Davies, chief operating officer of The House Crowd, said that the FCA was right to say that P2P can be viewed as high-risk, but emphasised there are different asset classes in P2P and labelling P2P loans as high-risk investments per se is just a blunt statement.
“Yes, they’re right but don’t throw the baby out with the bathwater,” he said.
“The underlying asset classes of investments and the resulting security are vitally important.
“And in P2P there are some really, really good business models, loans and opportunities to make some good returns and equally in P2P there have been and maybe still are, some terrible business models based on terrible asset classes run by people who shouldn’t be allowed to be anywhere near those loans and those investors.”
Similarly, Uma Rajah, co-founder and chief executive of CaiptalRise, said that it is unfair of the regulator to put this big blanket description of high-risk investments across lots of different sectors.
“I think the danger here is it’s very easy to just put all asset classes into one big bucket and say they are all high-risk but there are different risk levels,” she said.
“Some platforms have done very poor-quality lending and there’s some horror stories in our sector, however, there are also some incredibly successful platforms like ourselves which have a spotless track record, deliver what’s promised, and have thousands of happy customers.
“There are different sections of each sector and it’s very dangerous to lump all products in one group and some are unregulated compared to regulated.
“For me it comes down to transparency and how you can compare different platforms.”
Meanwhile, RateSetter said that P2P lending is not inherently high-risk.
A RateSetter spokesperson said: “We have always focussed on making investing with RateSetter low risk and liquid and our excellent track record speaks for itself.”