The industry needs to work more closely with the regulator in a year where confidence in the sector has to be rebuilt, Carl Davies (pictured), chief operating officer of The House Crowd, has claimed.
Davies, who joined the peer-to-peer property development lender last month, said the sector needs to work closely with the Financial Conduct Authority (FCA) formulating policy and protecting investors.
The former FundingSecure director said the FCA should give investors a list of what to watch out for in the sector, rather than labelling all P2P lending as a high-risk investment.
“I think the FCA has the duty of care to not tar everyone with the same brush,” Davies said.
“They need to be selective, it’s not P2P per se that’s the issue, it’s elements within that.
“That’s the message and every time they comment negatively on the sector the more difficult it becomes to get people to look at P2P.
“We need to be promoting the good practices in the industry and taking the message further to the people who don’t know what P2P is.
“Confidence is only low for those who know about P2P, the vast majority of people still aren’t aware about the opportunities it offers
“It would be good to persuade these individuals to investigate and understand P2P, learn from the past and within the 10% rule, consider jumping on board and into alternative finance where they can get a decent return.”
Davies said that confidence in the sector dropped after the huge cases of Lendy and FundingSecure entering administration last year, but has predicted the bad times are over and 2020 is set to be an exciting year where confidence is rebuilt.
“I don’t think we’ll see any or many platforms collapse this year, many have moved out of the regulated space and many are changing their approach,” he said.
“There will be legacy loans that have issues with some individual loans causing problems, not platforms collapsing.
“I think we have an exciting year ahead in terms of the economy and have a bit of work to do in terms of bringing confidence back to those investors who have invested in the industry.
“I had a such a torrid time trying to sort out the issues in FundingSecure that were in place when I joined.
“Ultimately the issues were insurmountable, but what I learned is worth its weight in gold.
“Making sure these mistakes aren’t repeated is my challenge. I wouldn’t be doing what I’m doing now unless I thought there was an exciting time ahead.”
As the sector is not protected by the Financial Services Compensation Scheme, Davies suggested that this has stopped investors from potentially being lazy with their due diligence on P2P products. He said that the task is to educate investors on how P2P works.
“People have to understand how defaults work in property and understand how good a company is at choosing the loans they work on, the developers they work with, how it underwrites and monitors the loan and how good it is if a loan defaults,” Davies said.
The House Crowd has been shifting towards an auto-invest model which Davies said protects vulnerable investors.
“Those investors who have mainly taken the self-select route on our platform need to take a basket approach and we need to evangelise and bring more people on board,” he said.