Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-25T20:04:01.441Z Has data issue: false hasContentIssue false
  • English
  • Français

Peer-to-Peer Lending: Opportunities and Risks

Published online by Cambridge University Press:  20 January 2017

Rainer Lenz
Rainer Lenz*
Affiliation:
International Finance at the Business Faculty of Bielefeld University of Applied Sciences, Germany
Get access Rights & Permissions [Opens in a new window]

Abstract

Web-based financial intermediation on a peer-to-peer (P2P) basis will eventually prevail as an economically superior form of organisation compared to the traditional banking business model. P2P lending is the most popular type of crowdfunding, whereby an internet platform collects small amounts of funds from individuals in a crowd to finance collectively a larger loan to individuals or businesses. Unlike a commercial bank, the platform does not take risks through its own contractual positions. Whereas banks accumulate risks by taking positions on their balance sheet, platforms decentralise the risks by spreading them to their users. The emergence of financial platform businesses challenges legislators and regulators in several respects: the “easy way” of modifying existing finance and banking laws is inadequate; the internal organisation and knowledge of staff is not well suited to regulating crowdfunding; and capital mediation by crowdfunding platforms requires a different regulatory approach than banking. Finally, there is no doubt that P2P lending platforms will in the long run need a dedicated, single European regulatory framework.

Type
Special Issue on the Risks and Opportunities of the Sharing Economy
Information
European Journal of Risk Regulation , Volume 7 , Issue 4 , December 2016 , pp. 688 - 700
Copyright
Copyright © Cambridge University Press 2016

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1- Carney, M., “Enabling the FinTech transformation: Revolution, Restoration, or Reformation?” speech given 16 June 2016, available at http://www.bankofengland.co.uk/publications/Pages/speeches/default.aspx (accessed 10 July 2016)Google Scholar.

2- Zhang, B. et al, “Pushing boundaries, The 2015 UK Alternative Finance Industry Report”, 2016, Nesta, Cambridge Centre for Alternative Finance, University of Cambridge, available at: http://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/pushing-boundaries/ (accessed 10 July 2016)Google Scholar. Zhang, B. et al, “Sustaining Momentum, The 2nd European Alternative Finance Industry Report”, Cambridge Centre for Alternative Finance, University of Cambridge, available at: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/sustaining-momentum/#.V_KVksdCTD4 Google Scholar (accessed 03 Oct. 2016)

3- GOV. UK, New £40 million investment by British Business Bank to support £450 million of lending to smaller businesses, press release from Department of Business, Innovation & Skills, available at: https://www.gov.uk/government/news/new-40-million-investment-by-british-business-bank-to-support-450-million-of-lending-to-smaller-businesses (accessed 30 Sept. 2016).

4- Atz, U. & Bholat, D., “Peer-to-Peer lending and financial innovation in the United Kingdom”, Staff Working Paper No. 598, Bank of England, available at: http://www.bankofengland.co.uk/research/Documents/workingpapers/2016/swp598.pdf (accessed 10 July 2016). p. 20 Google Scholar.

5- Milne, A. & Parboteeah, P., “The Business Models and Economics of Peer-to-Peer Lending”, European Credit Research Institute, No. 17/May 2016, available at: https://www.ceps.eu/system/files/ECRI%20RR17%20P2P%20Lending.pdf (accessed 25 July 2016), p. 22 Google Scholar.

6- B. Zhang et al, supra note 3, pp. 27-29.

7- Kirby, E. & Worner, S., “Crowd-funding: An Infant Industry Growing Fast”, IOSCO, Staff Working Paper, available at: http://www.iosco.org/research/pdf/swp/Crowd-funding-An-Infant-Industry-Growing-Fast.pdf (accessed 15 July 2016) p. 9 Google Scholar.

8- European Commission, “Crowdfunding in the EU Capital market Union”, Commission Staff Working Document, SWD (2016) 154 final, available at: http://ec.europa.eu/finance/general-policy/docs/crowdfunding/160428-crowdfunding-study_en.pdf (accessed 6 July 2016) p. 28 Google Scholar.

9- Capital requirements regulation and directive – CRR/CRD IV, Directive 2013/36/EU and Regulation (EU) No 575/2013, available at http://ec.europa.eu/finance/bank/regcapital/legislation-in-force/index_en.htm (accessed 06 July 2016).

10- Rifkin, Jeremy, The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism (St Martin’s Griffith, 2015)Google Scholar

11- Even in banking, a broader EBA definition and narrower ECB definition for measuring NPLs exist and published figures differ quite a lot.

12- EU Parliament, “Non-performing loans in the Banking Union: stocktaking and challenges”, Briefing March 2016, available at: http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/574400/IPOL_BRI(2016)574400_EN.pdf (accessed 10 July 2016)Google Scholar.

13- Funding Circle, “Investment Statistics”, available at: https://www.fundingcircle.com/statistics (accessed 16.07.2016).

14- Standard & Poor’s Rating Service, “2014 Annual Global Corporate Default Study And Rating Transitions”, available at: https://www.nact.org/resources/2014_SP_Global_Corporate_Default_Study.pdf (accessed 10 July 2016), p. 10 Google Scholar.

15- Cunningham, S., “How will P2P Lending Perform During a National Recession?”, available at: http://www.lendingmemo.com/p2p-lending-recession-performance/ (accessed 16.07.2016)Google Scholar.

16- Deposit Guarantee Schemes, Review of Directive 94/19/EC, available at: http://ec.europa.eu/finance/bank/guarantee/index_en.htm (accessed at 10.07.2016)

17- Financial Conduct Authority, “Call for input to the post-implementation review of the FCA’s crowdfunding rules”, July 2016, available at https://www.fca.org.uk/news/call-input-post-implementation-review-crowdfunding-rules (accessed 18.07.2016) p. 12 Google Scholar.

18- In other financial areas, such disclosure standards defined by regulators are common, i.e. Bank for International Settlement, “Quantitative disclosure standards for central counterparties issued by CPMI and IOSCO”, 2015, available at: http://www.bis.org/cpmi/publ/d125.htm (accessed 17.07.2016).

19- Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers.

20- European Commission, supra note 11, p. 27.

21- UCITS IV Directive: The directive sets out the framework for a Key Investor Information Document (KIID), a stand-alone, pre-contractual, two-page document containing the essential features of the fund and which is to be systematically provided to investors before they decide to invest. Directive 2014/91/EU (amending Directive 2009/65/EC), available at: http://ec.europa.eu/finance/investment/ucits-directive/index_en.htm (accessed 17 July 2016) Packaged Retail and Insurance-based Investment Products (PRIIPs): The aim of the PRIIPs Regulation is to encourage efficient EU markets by helping investors to better understand and compare the key features, risk, rewards and costs of different PRIIPs, through access to a short and consumer-friendly Key Information Document (KID), available at: ec.europa.eu/finance/finservices-retail/investment_products/index_en.htm (accessed at 17 July 2016).

22- In this regard, the British P2P Finance Association is with its Operating Principles for members certainly exemplary. Available at: http://p2pfa.info/rules (accessed 19.07.2016)

23- One should keep in mind the numerous national codes of conduct in the field of corporate governance.

24- Financial Conduct Authority, supra note 21, p. 20.

25- German P2P-platforms are not required to have resolution plans in place to guarantee the continuity of a business in the case of a platform shut-down.

26- i.e., Maier, E., “Mittelstandskredite in Zeiten des digitalen Wandels – Crowdlending in Deutschland, available at: http://www.hhl.de/fileadmin/texte/publikationen/studien/JP_Retail/Maier__E.__2016__-_Mittelstandskredite_in_Zeiten_des_digitalen_Wandels_-_Crowdlending_in_Deutschland.pdf (accessed 10 July 2016)Google Scholar.

27- European Commission, supra note 11, p. 31.

28- European Banking Authority, “Opinion of the European Banking Authority on lending-based crowdfunding”, EBA/Op/2015/03, available at: https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-03+(EBA+Opinion+on+lending+based+Crowdfunding).pdf (accessed 10 July 2016), p. 3 Google Scholar.

29- An exception are those platforms registered as Payment Service Provider. Based on the Payment Service Directive (PSD2) they have to have own funds and safeguards in relation to business continuity and contingency plans. Revised Directive on Payment Services (PSD2), available at: http://ec.europa.eu/finance/payments/framework/index_en.htm (accessed 12 July 2016).

30- European Commission, supra note 11, p. 48.

31- Financial Conduct Authority, supra note 2.42, p. 18. “At present, high-level rules require firms to provide potential investors with information so they are reasonably able to understand the nature of the investment and associated risks and, consequently, to take investment decisions on an informed basis. Information must be fair, clear and not misleading. It must be accurate, balanced, sufficient for the needs of the investor, presented in a way that is likely to be understood, and important information and warnings must be given clear prominence.”