Enabling The Growth of P2P Finance - Simon Deane-Johns


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Summarising recent a recent submission to the UK government consultation on non-bank finance for small businesses, and the government's response to that consultation. A summary of the ensuing discussion is here: http://sdj-thefineprint.blogspot.co.uk/2012/03/financial-innovation-federation.html

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  • Enabling The Growth of P2P Finance - Simon Deane-Johns

    1. 1. Enabling The Growth of P2P Finance Simon Deane-Johns 23 March 2012
    2. 2. Discussion Points• Financial Regulatory Failings• Peer-to-Peer (P2P) Finance• Common Features• Shared Operational Risks• Regulatory Options
    3. 3. Financial Regulatory Failings• Confusion over what is lawful• Slight change in facts has big consequences – Expensive in terms of advice, time + regulatory creep• Discourages alternative finance/investment – Not available via ISAs – Can’t deduct bad debt before tax (a bank can) – Limits diversification, bank competition
    4. 4. Peer-to-Peer (P2P) Finance C2B Debentures C2B C2B Lending Equities C2C B2B InvoiceLending discounting C/B2S C2B Invoice Investmen discounting t C/B2S Lending
    5. 5. P2P Credit v Securitisation
    6. 6. Common P2P Features• Online - low cost – lower fees – margin with participants;• No moral hazard - operator not a party, segregates funds;• Low min. – accessible to ordinary investors – diversification;• Finance from many at outset - no need to securitise;• Direct contract between borrower and lender/investor - data centralised to aid pricing, collections, enforcement.
    7. 7. Shared Operational Risks• Fraud, credit/investment risk• Lack of internal controls, corporate governance – Financial mismanagement, operator insolvency; – internal fraud, – lack of system integrity/availability, – lack of business continuity; – failure to manage customer complaints.
    8. 8. Regulatory Options• New regulated activity of “operating a Platform” (secondary legislation): – Rules similar to Operating Principles of the P2PFA; – ‘hybrid’ businesses and small firms (e.g. Payment Services)• Specific exemptions - clarify meaning of “business” - remove overlap - ease rules on promotions, offers to public via Platforms;• Issue permissive guidance where changes can’t easily be made;• ISA-status on instruments available via Platforms;• Remove bad debt tax distortion for instruments available via Platforms.
    9. 9. Breedon Taskforce• Government interventions have failed to date• Financial regulatory/promotional barriers• “Reckless prudence”• ISA/ESA incentives for people to finance SMEs• Proportionate regulation of P2P in due course• Gov. lending on direct platforms via Business Finance Partnership• Invoice standardisation to promote tradeability• Agency for Business Lending to aggregate SME loans via corporate bond markets
    10. 10. Thank You Twitter: @sdjohns Blog: Pragmatist http://sdj-pragmatist.blogspot.com/ Blawg: The Fine Print http:// sdj-thefineprint.blogspot.comLinkedIn:http://uk.linkedin.com/in/simondeanejohns