Summary of the Peer-to-Peer Finance Policy SummitThe Peer-to-Peer Finance Policy Summit explored the role of regulation in the growth of non-bankfinance for consumers and small businesses. 1 Over 80 people attended, including the chiefexecutives of more than 15 peer-to-peer finance platforms, as well as trade body representatives,academics, policymakers and regulatory officials.The Treasury added its emphasis to the summit by announcing there will be a consultation inJanuary 2013 on how the new Financial Conduct Authority should regulate peer-to-peer loans andother forms of credit under the Financial Services Bill from April 2014. This confirmed an earliercommitment made by Lord Sassoon during the reading of the Financial Services Bill in the House ofLords.The opening panel, chaired by BBC Economics Editor Stephanie Flanders, focused on “the role forpeer-to-peer finance in our economic recovery”. Stephanie was joined by Baroness Kramer (theLiberal Democrat spokesperson on the Financial Services Bill and banking reform), Graeme Fisher(the Head of Policy from the Federation of Small Businesses), Giles Andrews (Chair of the P2PFinance Association) and Darren Westlake (CEO of Crowdcube, the crowd-investing platform).The remarks of the panel members were recorded and will be available shortly. Simon Deane-Johns,a lawyer who co-organised the summit, then explained how P2P platforms work, as well as commonoperational risks and controls and regulatory barriers. His presentation is here.Participants then formed a series of smaller groups to consider how to remove the regulatorybarriers to the responsible growth of the three main types of regulated peer-to-peer finance. Somegroups took the perspective of peer-to-peer lending, while others looked at crowd-investing inshares or debt securities. Each group considered the different perspectives of the saver/investor,the platform operator, or the person or business trying to raise finance. Over 100 comments weregenerated in the course of these discussions, as briefly summarised under four main themes below.Nesta CEO Geoff Mulgan put the most common suggestions to a closing panel of officials from theEuropean Commission, Business Innovation and Skills, the Treasury and the Financial ServicesAuthority. The panel operated under the Chatham House Rule. However, while no concretecommitments were made beyond the earlier Treasury announcement, it was clear that officialswelcomed the innovation and competition that peer-to-peer finance platforms bring to the retailfinancial services market. There is clearly a willingness to consider the various issues and potentialsolutions that were identified.1 The agenda and list of those who registered to attend are here: http://p2p-summit.eventbrite.com/. “Peer-to-Peer finance” includes ‘peer-to-peer lending’ (the agreement of simple loans directly between participants)and ‘crowd-investing’, (participants agree investments in shares (or ‘equities’) and other instruments, includingdebentures and trade invoices).
An open letter to policymakers was also issued by over a dozen alternative finance platforms on the day of the summit, and two dozen more have since been added to a pan-European version to conclude a series of similar events throughout Europe. The letter issued by the summit participants is here. Summary of Regulatory Barriers and Solutions Regulatory Barrier Relevant Examples of Proposed Solutions1 Lack of awareness: There is a lack of 1. Self-regulatory code(s); knowledge and awareness of 2. Treasury clarification; alternative finance options, including 3. Removal of regulatory overlap/duplication 4. Distinct authorisation for P2P activity, with separate concerns about legitimacy, who is ombudsman; allowed to participate and how 5. Fast-track FSA authorisation platforms work within the law. 6. Stakeholder engagement in participative regulation 7. A dedicated “Innovation unit” at the FSA 8. A single source of information about P2P platforms and the industry2 Exclusive financial language: Financial 1. An exemption from standard financial promotions restrictions regulation involves risk warnings and for savers/investors on all types of P2P platform (e.g. as for High other language that only appeals to Net Worth investors); 2. Self-certification for anyone not saving/investing more than 20% sophisticated savers and investors of their net worth. rather than everyone 3. Separate, lighter regulation of advice and distribution on all types of P2P platform3 Unfair tax incentives: Tax incentives do 1. Include instruments agreed on P2P finance platforms in ISAs. not provide a level playing field for 2. Treasury to clarify what the incentives are, how they work and providers of new and alternative how they impact the markets for both regulated and unregulated retail financial services financial services4 Differences in protection and risk: Not 1. An exemption from standard restrictions for savers/investors on all types of financial instrument are all types of P2P platform; treated the same way, which leads to 2. Self-certification for anyone not saving/investing more than 20% of their net worth. differing levels of transparency, 3. Separate, lighter regulation of advice and distribution via all saver/investor protection and risk to types of P2P platform borrowers/entrepreneurs