REGULATIONA new dawn for P2P

1

Introduction

25 key points of FCA regulation

3Your questions answered

Contents

4Final thoughts

Introduction

On 1 April 2014, the Financial Conduct Authority (FCA) became the regulators of the P2P lending industry.

This presentation aims to guide you through the changes this move has brought about, and the implications on you as a consumer.

Firstly, we will take you through the 5 key points that are at the heart of the new regulation.

#1 - A P2P platform must keep customer money completely separate from its own money

This is to comply with the FCA’s well-established Client Money Rules.

This highlights the fundamental difference between saving with a bank and saving through P2P; when you deposit your money with a bank it becomes their money (with a promise to pay it back to you) after which they are free to lend it out to borrowers. With P2P, you are lending directly to the borrower – with the platform making sure it all works and is safe!

RateSetter has kept client money segregated from company money since we started trading over three years ago, so we are already fully compliant.

Read more at:http://www.ratesetter.com/blog/1_Top_5_Key_Features_of_P2P_Regulation.htm

#2 - A P2P platform must have a minimum amount of money in the bank to ensure it is solvent

The technical wording here is Minimum Operating Capital.

This is very similar to the way a fund manager is required to operate. P2P platforms will have to hold a minimum amount based on a percentage of the loans outstanding.

RateSetter is capitalised well beyond the limits set and so, again, is already fully compliant.

Read more at:http://www.ratesetter.com/blog/2_Top_5_Key_Features_of_P2P_Regulation.htm

#3 - A P2P platform must conform to a host of reporting requirements

This is a great way for the regulator to keep tabs on what is going on and is a guiding discipline for the industry to make sure its information and data is in good shape!

Being a data-led company, RateSetter already tracks, measures and reports on all aspects of the business.

We are a big believer in transparency and a member of the Open Data Institute (ODI). We worked closely with the ODI in July 2013 to help produce an open data report on the P2P industry in the UK.

Read more at:http://www.ratesetter.com/blog/3_Top_5_Key_Features_of_P2P_Regulation.htm

#4 - P2P platforms will not restrict saver access through the use of suitability tests

Arguably the most fundamental and encouraging element of the new regulation is that the FCA is not restricting saver access to P2P platforms by using such unwieldy things as Appropriateness & Suitability Tests.

RateSetter believes that great rates should be available to all and applaud this regulation. We have always been upfront and honest about the risks of P2P lending and will continue to provide information in a clear, understandable and open manner.

We’ve always done this voluntarily, so are pleased that all platforms will have to follow suit.

Read more at:http://www.ratesetter.com/blog/4_Top_5_Key_Features_of_P2P_Regulation.htm

#5 - P2P platforms must have a contingency plan in place in the event of the business model failing

A plan in case it all goes wrong. This is one of the key facets of regulation; the platforms must have a plan to run down the loan contracts in the event that they go under.

Ensuring every platform has a Fully Funded Run-Off Plan in place should instil confidence in consumers. So if the worst case scenario should happen, a detailed and fully funded plan is rolled out seamlessly to ensure contracts are fulfilled.

RateSetter has set-up an FCA approved plan. We feel strongly this responsibility should not be left in the hands of a third party with no knowledge of the loans.

RateSetter’s Fully Funded Run-Off Plan has calculated the cost of running down the loans and ensures there are more than sufficient funds to do so effectively. The implementation would be fully funded, mainly through income that comes from the loans and will deliver a consistent level of service through-out the run-off.

Read more at:http://www.ratesetter.com/blog/5_Top_5_Key_Features_of_P2P_Regulation.htm

OK – So that is the technical side summarised. But what really matters is how regulation impacts on consumers.

How does it protect customers?

Q1 – Does regulation mean P2P lending is now risk free?

No. P2P lending is not suddenly a risk free proposition. However, it is certainly becoming safer. Risks are reduced but you should challenge each platform to see how they protect your money.

To help you better assess P2P platforms before you deposit funds, take a look at our checklist before investing.

Fortune favours the brave. But at RateSetter savers don’t need to be that brave. Since launch in 2010, 100% of our 12,,000+ savers have received every penny expected. It’s no guarantee but it is a record that gets stronger every day. Our Provision Fund sets the standard in the P2P sector.

We conducted a recent poll asking ‘will you put more money into P2P after regulation?’ and 90% of savers said yes!

Read more at:http://www.ratesetter.com/blog/P2P_Regulation_so_what.htm

Q2 – Is regulation good for consumers?

Borrowers will benefit from the mandatory 14 day cooling-off period and a strict requirement for a detailed view on disclosures – risks must be 100% clear!

Since day 1, RateSetter has put the customer first and focused on their best interests. All good companies act before the regulatory axe falls, and we have stayed ahead of the curve.

RateSetter has also actively promoted the clear and fair ruling. For example, we don’t do teasers and have campaigned against their use. Most recently in January, where we targeted ‘zombie accounts’ caused by teasers by releasing actual zombies into London’s financial district!

Read more at:http://www.ratesetter.com/blog/Is_regulation_good_for_consumers.htm

"Regulation will act as a useful benchmark for the P2P industry, but it is still fundamental that you do your research - don’t be lulled into a false sense

of security.“- Joe Levey, RateSetter Saver

Q3 – Does regulation hinder innovation?

Christopher Woolard, Director of Policy, Risk and Research at the FCA, has said that their rules don’t limit innovation, rather they protect consumers.

At RateSetter, we agree and welcome regulation. We believe it will add trust to the industry and continue to nurture one of the most innovative sectors in the world today. It is now down to the platforms themselves to continue building that trust.

And as one of the most innovative platforms, we are confident we can continue to develop great ideas for customers!

Read more at:http://www.ratesetter.com/blog/Will_regulation_hinder_innovation_.htm

Q4 – Will regulation increase trustworthiness in P2P?

P2P lending is the alternative solution to the traditional financial institutions that brought the economy to such a low and caused uncertainty for many consumers.

In the last three years P2P has done incredibly well amongst those financially savvy consumers who have sensed the opportunity before them to increase their savings.

But the industry must be rooted in consumer trust. So RateSetter is behind the regulation of the industry, as it will stop charlatans from setting up and impacting further on consumer trust and bringing unfair negativity on the P2P industry.

Read more at:http://www.ratesetter.com/blog/Will_regulation_increase_trustworthiness_in_P2P_.htm

Final ThoughtsTo the burning question – Will regulation help P2P become a credible challenger to high street banks?

Undoubtedly yes – regulation provides a solid foundation, but the individual platforms must now do more to protect consumers and earn their trust.

Our thoughts are backed by recent research for a Westminster Briefing, where only 24% of respondents to a study didn’t see P2P as a credible challenger to the banks.

At RateSetter, we have always put the customer at the heart of everything we have done. We also recognise that individual platforms must now take the baton from the FCA and really earn customer trust. We are therefore extremely proud to have unveiled the new development to our Provision Fund which already has a 100% track record.

The Provision Fund was the first of its type in the P2P industry in the UK to help protect savers against the risk of borrower default. It is also the largest and no saver has lost a penny since our 2010 launch. A unique feat amongst the major P2P platforms.

To further strengthen the Fund, we have rolled out a series of advancements. Read more about these advancements:

http://www.ratesetter.com/pages/provision_fund_brochure.html

*Westminster Briefing, The Future of Financial Services, 2014