Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018

Lord Tunnicliffe Excerpts

Thursday 1st February 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I may have been the first person in this House to use the phrase peer-to-peer lending, to the enormous amusement of Lord Peston, who misunderstood it as “pier to pier”, which, as he said, was impossible. It is now a widely accepted, very successful strategy. I am not sure if this is officially a conflict of interest, but I declare that one of my children is an employee of a peer-to-peer lending platform. Back in the old days—and certainly before my son was involved—my noble friend Lord Sharkey and I helped to construct the framework that sits behind the regulations. We obviously missed a trick in allowing this discrepancy to enter the regulation, and for that, I—also on behalf of my noble friend—apologise. I am very glad that the Government are clearing up this misconception.

[Lord Tunnicliffe (Lab)]

My Lords, I came to the order in a state of almost complete ignorance, having never been involved in peer-to-peer activity in my life and not entirely understanding what it was. I did some research, and it seems that through peer-to-peer lending, the lender can get a better rate of return and the borrower has to pay less. I am reminded of the advice I would give anyone when it comes to financial affairs: “If it is too good to be true, it is too good to be true”. It is too good to be true in the sense that, in a peer-to-peer environment, one can lose one’s total investment and one is not covered by the FSCS guarantee.

I then did a bit more googling, and picked up an article from Which?, which stated:

“Two of the biggest peer-to-peer (P2P) lenders in the UK have been beset by problems over the past month, with RateSetter forced to make up a near £9m loan-deal gone sour and Zopa customers experiencing a severe cut in returns. So, is the market for peer-to-peer lending headed for trouble? RateSetter has announced that it had to intervene to protect investors from losing money in struggling wholesale loans. The company, which lent £664m last year, has now confirmed it has left a peer-to-peer lending trade body for breaching transparency rules”.


I say that because, with no experience, you have to turn to Google, but it does not look as though the peer-to-peer environment is entirely without problems.

I then read the order and the Explanatory Memorandum and it seemed to me in some way deregulatory. The last thing I naturally want when I read about this is for peer-to-peer lending to be deregulated. I then tried to understand the situation more carefully, and I concluded that peer-to-peer lending activity involves three parties: investors, platforms and borrowers. It is important to be absolutely clear what the order does to each of those groups. In my understanding, investors are in no way regulated and therefore the order has no impact on them, except where the investor is a company or firm involved in financial services.

My question to myself, which I have partly answered, is: are the platforms regulated? As has already been said, they are. Perhaps the Minister would enlarge slightly on his brief reference to the regulation of the platforms. The key question is: is the regulation of platforms in any way impacted on by the order?

Finally, under the present regulations, are borrowers regulated? Clearly they are if they are in the financial services business, but if they are ordinary firms, are they in any way regulated? I think that that is what the order seeks to address. The final question that sums up everything is: is the SI in practice solely related to borrowers? Does it leave the protection of customers using the platform in its present regulated state?