13 December, 2017

The Purpose of the P2PFA

The Purpose of the P2PFA

Along-with the launch of a new website, the Peer to Peer Finance Association (P2PFA) announced an update to their operating principles last week. This update, which will come into effect in April 2018, includes a ban on platforms raising funds through their own platforms, an enhancement to performance reporting and a requirement for institutional investors to NOT be favoured over retail investors. A full list of changes can be found on the new P2PFA website, here.

In light of two of the largest P2P platforms, RateSetter and LendInvest, leaving the organisation in 2017, the P2PFA has faced criticism over its purpose and strength. Taken from the original P2PFA launch statement, the objectives and necessity of the P2PFA were clear when it was originally established in 2011:

  1. ‘to ensure this innovate and rapidly growing sector maintains high minimum standards of protection for consumers and small businesses’
  2. ‘to ensure that the new rules will include effective regulation for the peer-to-peer finance market’

Although not consistent and varying in standards, P2P platforms have adopted many comparable operating principles. For example, loan book performance statistics amongst both the P2PFA member platforms and non-members are generally available on platform websites. While the reliability of these statistics is questionable, their presence demonstrates that the P2PFA’s first objective has been achieved to some extent. With respect to the P2PFA’s second original objective, the industry is now regulated under a separate framework and P2P investments can be held within an ISA wrapper.

The industry has come a long way since 2011, so, is it job done for the P2PFA?

Back in July we joined the P2PFA as an associate member, so clearly we think there is still a benefit to having a collective organisation working on behalf of the industry.

There are currently seven members of the P2PFA: Folk2Folk, Funding Circle, Lending Works, ThinCats, Landbay, Zopa and Market Invoice. A further nine associate members, including Orca, joined the association back in July of this year. A trade body is only as strong as its members and losing significant members in 2017 is not a good signal of strength. However, to think the P2PFA is now irrelevant is wrong. The P2PFA is still supported by over 50% of the lending volume in the market and the purpose of the P2PFA remains consistent, regardless of the progress the industry has achieved to-date.

While a framework is in place, regulation is still not mature and a review is expected soon which will add challenges to the sector. In addition, continued media criticism will always be present, as will the risk of potentially rogue operators. These challenges are where the P2PFA can add value. A strong industry group is a far easier voice to digest than an individual platform pushing its own agenda.

The more platforms that get involved with the P2PFA, the stronger it becomes. This is a challenge that the P2PFA must face; to be adaptable enough to accommodate a diverse array of business models while remaining strict on common principles.

There will be issues that the industry faces which a strong trade body such as the P2PFA can help with.