Treasury committee chairman Andrew Tyrie has written to the FCA and the Prudential Regulation Authority warning on the risks of peer-to-peer lending and questioning whether current regulation of the market is appropriate.
In a letter to FCA chief executive Tracey McDermott and PRA chief executive Andrew Bailey, Tyrie asked how P2P platforms judged creditworthiness.
He also challenged the regulatory bosses on how P2P users knew they were getting accurate information and how they could assess the risks of this lending.
Tyrie also had reservations about P2P’s resilience to future economic shock.
He says: “The committee is concerned to ensure that the FCA is paying due attention to the risks – and the opportunities – afforded by the growth of P2P lending and related markets.
“Government policy – letting P2P investments form part of an Isa allowance, for instance – represents a form of official support for investments that may be inherently higher risk.”
Tyrie points out P2P loans are estimated to have totalled £4.4bn in the final quarter of 2015 – up from close to zero five years ago.
He adds: “Whether and, if so, to what extent investors would benefit from stronger consumer protection now needs careful thought. Poorly informed investors may be left with a false sense of security about the balance of risks versus returns.
“But greater regulation is not necessarily the answer. If this market can substantially increase competition it may offer benefits to the consumer.
“It is crucial that the regulator is doing what it can to find the right balance between these risks and opportunities.”
Tyrie also says the wider prudential risk of unsecured loans on the rest of the financial sector is also unclear.
He says: “The sector’s ability to see through an orderly decline should be considered sooner rather than later.”