Provision fund

A peer-to-peer compensation scheme could encourage bad behaviour




The introduction of a peer-to-peer compensation scheme has been dismissed by leading industry figures.

The peer-to-peer market is coming under scrutiny from the Financial Conduct Authority (FCA), who recently announced it planned to team up with University of Cambridge alternative finance experts to carry out research on the market.

The Peer-to-Peer Finance Association (P2PFA) was also forced to reassure people about the industries practices following a £15m scandal at US-based platform Lending Club. 

During last week’s LendIt Europe Conference at the InterContinental O2, a question was asked to a panel of peer-to-peer experts about whether the industry should be part of a compensation scheme, such as the Financial Services Compensation Scheme. 

The question came about after it was predicted that the amount of funding from investors to peer-to-peer platforms could double as a result of the Innovative Finance Isa. 

Speaking at the LendIt conference, Jane Dumeresque, chief executive officer at Folk2Folk, was against the idea of a compensation scheme having previously had bad experiences as an asset manager.

“I come from the asset management world and the successful asset managers were slightly forced to pay the penalties of the less successful asset managers and that was painful. 

“Although I believe that the people who are sitting here today and lots of other platforms are really successful businesses, I fear that there are some that are less successful and therefore I’m not sure that is the right motivation.”

Jane also felt that the investors should also have some personal responsibility as to where they choose to invest their money.

“I think that the man in the street should understand [that] if they get [an] 18% return, then they are taking a higher risk than if they get [a] 6% return.

“I think just bailing them out with a compensation scheme is actually just encouraging bad behaviour, so I don’t really support the idea of that coming in.”

Angus Sanders, head of UK strategy at Funding Circle, was in agreement adding: “…We are very clear that it is not a savings product. 

“It is an investment product and I think it should stay that way.”

Stuart Law, chief executive of Assetz Capital, concluded: “We don’t need it because we should be moving ahead.”

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