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Peer to peer lending – does the reward really outweigh the risk?


Peer to peer lending – does the reward really outweigh the risk?
The FCA’s proposed restrictions on peer-to-peer lending look set to dramatically alter the nascent sector. Our review of several peer-to-peer lending sites suggests that the rates on offer fail to allow for the high risk and attractive income available elsewhere.

The FCA’s consultation paper (a word of warning, it’s 156 pages!) that was published at the end of July has proposed placing the same restrictions on peer-to-peer (‘P2P’) lenders that already applies to the equity crowdfunding sites. This could see investors in P2P loans having to be certified as sophisticated, be advised by an authorised person, or confirm they will not invest more than 10% of their investable assets in P2P.

While losses and defaults across the P2P sector have so far been low, it is still a relatively new area and has not been through a full economic cycle. When economic conditions tighten, losses on loans and investments might increase.

- Derisory rates….relative to the risk

It’s hard to be too critical as the P2P lenders are providing an admirable service, often supporting businesses which are struggling to find support from the traditional lenders, notably the banks.

Our biggest gripe is with the relatively low rates now being…

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