Last week, LendingCrowd CEO and cofounder Stuart Lunn published a pointed blog post addressing recent changes to the “operating principles” as set forth by the UK Peer to Peer Finance Association (P2PFA). LendingCrowd is currently not a member of the P2PFA.
“Previously, P2PFA members were obliged to publish their full loan book, showing information about all the loans on their platform. However, they will now have the option to “either continue to publish their entire loan book, or provide a detailed breakdown of loans in their overall loan book to enable a consumer to be informed about the nature and number of loans of different descriptions presently originated through the platform according to standards to be approved by the P2PFA Board”.
Lunn added that he was certain there were good reasons for the change but clarified that his company remains “firmly opposed to any reduction in transparency” and will continue to make individual loan data available.
Soon after the P2PFA changed its rules, FundingCircle altered its approach to sharing loan information indicating it would update aggregated information only once a quarter.
CI reached out to P2PFA Executive Director Robert Pettigrew for his opinion on Lunn’s point of view.
Pettigrew said the P2PFA’s Operating Principles represent a commitment by all member platforms to meet good business practice standards, with a strong focus on transparency.
“Platforms are required to publish meaningful data with consistent definitions which enable investors to make informed decisions, including sufficiently-detailed information to understand the characteristics of those to whom their own money has been lent, as well as reporting on bad debt and returns performance according to a consistent methodology,” stated Pettigrew. “All responsible peer-to-peer lending businesses recognise the imperative of ensuring that those investing in loans facilitated through their platforms are fully cognisant of the risks to which they are exposed.”
Pettigrew said that P2PFA revisions were made to give platforms a choice to provide a complete loan loan book or an aggregate breakdown of loans that would enable a consumer to be informed about the nature and number of loans of different descriptions originated through the platform. Echoing a blog post by the P2PFA that was published at the time of the change, Pettigrew said that the largest platforms are of such volume and magnitude that the accessibility of the loan book for a large number of investors is of “questionable value.” Funding Circle, as an example, has originated over £4.5 billion in smaller loans.
When Funding Circle announced their loan book data change the company stated;
“While the loanbook was a useful resource for early-investors lending through Funding Circle, as the platform has grown and become popular with a broader group of investors, the number of people downloading it has fallen significantly. For example, approximately only 0.3% of investors downloaded the loanbook in the last month. It’s important that you are still able to access loan-by-loan information on the businesses you are lending to, which you can download from your Funding Circle account.”
So in effect, if you are an investor, you may still see actual data for each individual loan but very few people were using the detailed data.
Regarding the forthcoming FCA regulatory review, Pettigrew says the post-implementation process may be an opportunity to strengthen disclosure frameworks across the entire peer-to-peer lending sector. Of course, the FCA could ask for each individual loan to be presented on the platforms but they could request other forms of disclosure or operational changes too.
“The P2PFA’s Operating Principles have pioneered a number of good practice measures which could be considered for potential wider application, including a standardised methodology for calculating and reporting on bad debt and loan defaults to ensure that net returns quoted by platforms can be compared and assessed on a consistent basis by investors,” shared Pettigrew. “The revision to Operating Principle 3.5 retains robust requirements on platform transparency whilst ensuring that disclosures are delivered in an accessible and meaningful way.”
Let’s see what the FCA decides once they have completed their P2P lending review.