Big Losses Are Predicted For P2P Lending

Big Losses Are Predicted For P2P Lending
Underwater Photography by Andy Deitsch. Why?

Crowdfunding And Peer-To-Peer For SIPP And SSAS

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Crowdfunding And Peer-To-Peer For SIPP And SSAS

Lord Adair Turner, the former chairman of the Financial Services Authority, has come under fire from the P2P lending industry for being unfair and ill-informed

Ex-Regulator Criticised By P2P Lending Industry

P2P Lending Attacked By Lord Turner

In an interview with the BBC, the former city regulator warned that without radical policies, the UK economy could be stuck with low interest rates almost indefinitely.  But it’s his comments on P2P lending that have angered key players in one of the fastest growing areas of financial services.  His most controversial comment was this:

The losses which will emerge from P2P lending over the next five to 10 years will make the worst bankers look like lending geniuses.

He intimated the P2P lending industry lends money to small and medium sized enterprises without anyone carrying out good credit underwriting, saying: "This idea that you can automate that on to a platform, it has a role to play, but it will end up producing big losses."

It’s been suggested the appointment of Lord Turner to the board of digital challenger bank OakNorth in 2015 might have something to do with his observations on P2P lending, as it appears to be competing in the same lending space.

P2P lending
One of the first people to respond was Christine Farnish, independent chair of the Peer-To-Peer Finance Association, the industry body representing P2P lending, saying Lord Turner’s comments "fly in the face of the evidence."  She said:

Since the industry began, default on loans are low, measuring between 2 to 3 per cent. We only lend to creditworthy consumers and established small and medium-sized enterprises. Strict credit underwriting rules apply to all our members and this should not be confused with higher-risk forms of crowdfunding or lending to sub-prime customers.

Stuart Law, CEO of Assetz Capital made the following impassioned statement:

Turner makes shallow and disgraceful comments, he is disparaging of a solid UK industry and, indirectly, also of the FCA itself, he should retract his flippant and unresearched comments once he has delved deeper. Ignorance is no excuse for ill-informed comment from a well-reported commentator. His confusion over equity capital to start-ups and debt capital to established businesses is also inexcusable and he should have read up on the subject before going public to this extent.

Angus Dent, Chief Executive of ArchOver had this to say:

The credit risk processes in P2P lending are at least as thorough as they are with the majority of the banks. Indeed, many individuals in the P2P sector used to work for banks in the days when they actually lent money to SMEs.

P2P Lending Is Now An Important Part Of Financial Services

Whilst it’s possible to earn some very attractive interest rates for your SIPP money via P2P lending, it’s not without risk.  It’s a fact of life that loans to both individuals and to businesses can and do go wrong, whether they’re lent by banks or P2P lending platforms.  This may not only impact on your net interest rate.  In the worst case, you may not receive your capital back. 

Just like investing on the stockmarket and most other types of investment, it’s vital you carry out a detailed level of due diligence before you part with your money, so you can fully understand the ‘risk-reward ratio’.  Thankfully, there’s quite a bit of help available to ensure your P2P lending is de-risked as much as possible.

Recognising the importance of P2P lending, the Financial Conduct Authority has insisted P2P lending platforms replace their interim permissions with full authorisation, by providing significantly more information about their processes and protection for lenders and borrowers. It’s also expecting to issue some new permissions for regulated advisers who wish to provide their clients with advice on P2P lending.

Here's The Latest P2P Lending News

P2P lending
Cambridge University’s Centre for Alternative Finance and Nesta have published their annual Alternative Finance Industry Report. The comprehensive 56 page report gives a great snapshot of the Alternative Finance space, revealing key details about the inner workings of the space and the hopes and fears of the participants.  Download a copy of the P2P Lending report.

P2P lending
According to AltFi Data, an independent news and analysis service for the alternative finance industry, by the start of 2016, P2P lending platforms had originated more than £5.5 billion of loans.  It’s well worth subscribing to its P2P Lending newsletter to keep abreast of the latest developments.

P2P lending
Independent risk-ratings agency 4thWay® constantly monitors the P2P lending market, making it easy for you to compare rates, risks, costs and account management options.  Not only does it provide free reviews of P2P lending platforms, it also has a very good P2P Lending newsletter to which you should subscribe.

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That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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Crowdfunding And Peer-To-Peer Risk Warning

When a platform has been assessed and approved by a SIPP or SSAS operator, this does not imply that any loan or investment opportunity is endorsed in any way. A SIPP or SSAS operator's due diligence review is limited to ensuring the processes and procedures of the platform are in line with both FCA and HMRC principles.  It's entirely your responsibility for carrying out your own due diligence on any loan or investment opportunity before agreeing to lend or invest your pension money on a platform. As a SIPP or SSAS operator will continually review platforms from a regulatory perspective, it's possible for a platform to become 'unapproved' if something changes.

With peer-to-peer lending, your capital is at risk if you lend to individuals and businesses.  You may lose some or all of the capital lent if the borrower defaults and is unable to meet its liabilities. Historic loan default rates are not necessarily indicative of future default rates.  In addition, lending is an illiquid investment, which means you may not be able to access the capital you lend for the duration of the loan period, even if the platform offers a secondary market.  Investing in any business involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdfunding is generally targeted at investors who are sufficiently sophisticated to understand the risks and make their own investment decisions, based on their knowledge, experience and financial capacity. Neither crowdfunding nor peer-to-peer lending is covered by the Financial Services Compensation Scheme. The tax treatment of your investment is dependent on your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of crowdfunding investment or peer-to-peer lending, you should consult a suitably qualified independent financial adviser.