Yesterday the Peer-to-Peer Finance Association (P2PFA), announced an update to its operating principles, which now require all members to publish their loanbooks and to commit to ensuring that retail investors get a fair deal compared with institutional investors.
The full new requirements are:
- investor returns must be shown net of defaults and fees
- a standardised methodology for default disclosures must be used
- loan book transparency
- a commitment not to discriminate between retail and wholesale (institutional) investors
- no raising of ‘own funds’ on P2P platforms
Christine Farnish, Chair of the P2PFA, unveiled the new standards at the P2PFA’s annual summit, which was held in London in conjunction with Lendit Europe, the largest P2P finance gathering outside America.
She said, “With almost £2 billion of new lending in 12 months, it’s important that the P2PFA continues to set standards of good practice in the sector. Consumers can be confident that they are dealing with responsible platforms when they see the P2PFA logo.”
Zopa’s loan book
Zopa is a founding member of the P2PFA, which it helped establish to set industry guidelines for the peer-to-peer industry and to lobby for regulation.
Zopa was the first platform to make its loan book freely available, showing the data set out in the new requirements. Since November 2014 Zopa’s current and historic loan book has been available to download from the Altfi website.
Publishing loan books
Christine Farnish described the new principles as a ‘benchmark of fair dealing and transparency’. They give customers the tools to compare consistent and regularly updated data from the member platforms.
The updated Operating Principles (PDF) set out the data that members are required to present:
“Platforms should publish full data on their loan book. This is a loan by loan view of the portfolio of loans originated through the platform and must include but not be limited to: loan ID, borrower ID (or linked loans), date accepted, loan amount, gross rate, term, security, use of funds (inc lending for money lenders), sector, country, status (e.g. late, bad debt), repayment type (e.g. fully amortising). Loans shown in the loan book should be for loan contracts that the platform’s lenders are directly lending to (as opposed to loans that a borrower (money lender) may make and hold as security). The loan book data must be updated at least monthly and be consistent with the other data requirements.”
A level playing field
The second update to the guidelines calls for a level playing field between institutional and retail lenders.
This is perhaps in response to concerns around ‘cherry-picking’ of loans earlier this year, which is a common practice in the US but not really prevalent in the UK. At Zopa, for example, all lenders, whether retail or institutional customers, receive a randomly allocated basket of loans to fund.
‘A beacon of good practice’
From the very beginning, peer-to-peer has set high standards of transparency, setting the industry apart from the traditional financial services sector.
Commenting on the new standards, Christine Farnish concluded, “These new measures will help build further consumer confidence, demonstrate our commitment to ethical practice and set a beacon of good practice across the market.”
Read more about the changes in this AltFi article “Trade Body Moves to Drive Greater Transparency in Peer-to-Peer Lending”.