Cambridge academics offer FCA P2P insight

John Hewitt Jones

October 4, 2016


The FCA has teamed up with academics from the University of Cambridge in a bid to understand how peer-to-peer lending and crowdfunding should be regulated.

A research team from the Centre for Alternative Finance at the Cambridge Judge Business School will provide the FCA with in-depth analyses of the P2P sector.

The work will inform future regulation of the sector, giving the FCA a close picture of peer-to-peer lenders and equity crowdfunders.

P2P platforms branded “banks in disguise”

In July the regulator launched a consultation on the future of the crowdfunding market, and sought to collect a range of evidence. The collaboration with the university represents a move by the regulator to broaden the range of evidence being used in the consultation.

Academics will replicate and expand on quantitative studies undertaken as part of the 2014 Understanding Alternative Finance report, allowing comparative analysis of debt and underwriting decisions across time periods.

Examining default rates and bad debt ratios, the aim of the research is gain a deeper understanding of how robust underlying underwriting models are, and to spot changes in investor demographics.

Speaking to Mortgage Introducer, a director at the Cambridge Centre for Alternative Finance said: “The FCA wants to replicate the 2014 work to understand the way in which the investor base is potentially changing.”

“For example, are there more retail investors in the market so they can better understand the risk and the way risks are portrayed.”

“We’re also looking for default rates and bad debt rates in order to understand how robust businesses’ underlying underwriting models are.”

“The FCA is also very interested in us conducting qualitative interviews with lenders and investors. Particularly from an SME point of view. It’s really interesting to understand the profile of borrowers, and some of the questions have to be answered by a combination of research methods.”

“We are obviously pleased and honoured to work with the FCA. They will be contributing human resources: we’ll be working with their staff including policy analysts and advisors, so we can gain a much better understanding.”

The UK’s Crowdfunding Association (UKCFA) welcomed the cooperation, saying it demonstrates the regulator is determined to base regulatory decisions on accurate evidence.

Bruce Davis at the UKCFA said: “I think what the FCA wants from this is high quality data from an extremely accurate, objective source. My experience would be that the transparency and use of clear data is really positive.”

“The FCA are not looking at performance. They’re waiting to understand the trends and structures in the industry, both in terms of equity and investment in the sector.”

“They want to know what the industry’s concerns are, and to understand the behaviour of investors.

“This process is great because it shows the regulator is seeking critical evidence. The University of Cambridge will analyse the evidence and provide a balanced view.”

“There have been examples where the regulator has taken a view on models relating to real estate P2P, but they haven’t made the evidence they’ve used public.

The FCA closed its consultation on the future of crowdfunding on 8 September.

A Pushing Boundaries report published in February this year showed that £87 million of the total equity-based crowdfunding volume between 2014 and 2015 came from real estate crowdfunding.