On Tuesday, May 10, 2016 the United States Treasury Department published a white paper entitled “Opportunities and Challenges in Online Marketplace Lending.”

“There is a clear need for greater transparency in the market for borrowers and investors,” Treasury Counselor Antonio Weiss said Tuesday in a call with reporters. He said Treasury recommends that regulators form a group to examine oversight needs for the industry and figure out “where further regulatory clarity could benefit the market.”

This report and call to action comes on the heels of the resignation of Renaud LaPlanche, the founder and now former Chief Executive Officer and Chairman of Lending Club, the largest global marketplace lender.  An internal review found a failure to disclose a personal interest in an investment fund the company was considering investing in. The review also found that he was among managers who had knowledge of abuses that were tied to the sale of some loans.

It has become clearer that marketplace lenders need to be more transparent about their business practices and some should be subject to additional oversight from U.S. regulators, according to a Treasury Department study released as the industry grapples with market turmoil and a scandal involving one of its leading firms.

The Treasury department said today in the released white paper/ report (attached) that companies in the burgeoning industry need to develop a public database for tracking data on their loans, and firms that lend to small businesses in particular should be subject to more federal consumer protection laws.

Treasury sought public comment on the marketplace lending industry to help government officials better understand the different business models and products being offered in July 2015.  Treasury outlined six recommendations, including calling for online lenders to improve how transparent their products are to borrowers as well as investors and the need for them to employ consistent standards and disclosures.

You can read the full report here.

The study is supported by the Inter-American Development Bank (IDB), Business Development Bank of Canada (BDC), KPMG and a number of leading industry research partners

The Cambridge Centre for Alternative Finance at Cambridge Judge Business School and the Polsky Center for Entrepreneurship and Innovation at Chicago Booth School of Business are jointly launching the 2015 Americas Alternative Finance Benchmarking Survey. This survey will be a comprehensive and empirical assessment of crowdfunding, peer-to-peer lending (marketplace lending) and other forms of alternative finance across North, Central and South America and scheduled to be available in April 2016.

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February 6, 2015

The U.K. Treasury Department has published the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 for approval by both Houses of Parliament. Various changes to the regulatory framework is underway for the the alternative financing industry such as Peer-to-Peer Lending.

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Posted December 10, 2015

Federal Reserve Vice Chair Fischer delivered remarks at the “Financial Stability: Policy Analysis and Data Needs” 2015 Stability Conference sponsored by the Federal Reserve Bank of Cleveland and the Office of Financial Research. Here is discussed financial stability and shadow banking.

Vice Chair Fischer believes that there are “five factors that contribute to financial fragility”: (a) high debt burdens at households and firms; (b) elevated leverage and maturity transformation within the financial sector; (c) complexity and interconnectedness in intermediation chains; (d) low risk premiums on assets, especially assets funded with debt; and (e) complacency on the part of investors, supervisors and decision-makers in the private sector of the financial system.

During Vice Chair Fischer’s presentation he offered an assessment of vulnerabilities in the financial system; and identified gaps in the current understanding of conditions inside and outside of the banking sector that should be addressed by regulators and researchers.

He stated, “An essential element of [the federal regulatory] infrastructure is learning the lessons of history – both the lessons of what happened, and the fact that supervisors and regulators will on occasion be surprised”.

Mr. Fischer made the following assertions regarding what needs to be understood to monitor financial stability:

• A Closer Look at Shadow Banking: The reduction in leverage and maturity transformation associated with better regulations leaves the financial system “much more resilient – even if such regulations have modestly affected market liquidity.”

• What We Know and What We Do Not: Data on a range of activities – including securities lending, bilateral repos, and derivatives trading – that create funding and leverage risks “remain inadequate and hence could prove destabilizing if sufficiently large or widespread.”

• Data Are Not Enough: We Need Theory Too: An “important area in need of development” is economic modeling on interconnectedness, particularly on the interaction of shadow banking, banks and the broader financial system. Further, research that distinguishes between banks and nonbanks, or highlights how their interactions are driven by economic incentives, could guide regulator efforts to collect data and set policies to limit possible instabilities associated with interconnectedness.

Though Vice Chair Fischer made no mention of the alternative investment landscape of P2P Lending, it will be interested to see where Peer -to- Peer Lending Marketplaces will be placed as related to shadow banking as a contributor to financial stability in the coming years.

October 28, 2015, posted by Kim Wales

Christine Farnish, Chair of the Peer-to-Peer Finance Association (P2PFA) announced new operating principles that will enhance risk management and promote transparency for the sector.

Over the last 12 months, data collected by P2P FA showed that almost £2bn worth of new lending in the EU P2P industry  from consumers, small businesses and property lending almost doubling.

The new guidelines require P2P association members to publish debt data to a common standard, make their loan books transparent and ensure that retail investors are competing on the same level playing field as institutional investors.

“Our new operating principles set a benchmark of fair dealing and transparency,” said Christine Farnish, Chair of the P2PFA.  “By the New Year, all our members will publish their full loan books, show bad debt losses in a comparable way, and commit to ensuring that retail investors get a fair deal compared with institutions.

“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.”

You can see a copy of the new guidelines here: