Chapter 7: Optimizing the regulation of internet lending: from popularity to risks
P2P lending, internet lending or person-to-person online lending, involves individuals or “peers” who use online platforms without the involvement of a financial institution as a middle man. The platforms originate the loans by matching lenders and borrowers, who usually are individuals and small business owners. P2P lending enables individuals and small firms to lend to each other over the internet, thereby cutting banks and other financial institutions out of the lending process. According to the International Organization of Securities Commission, the size of the global P2P sector’s loan originations reached US$2.8 billion in 2013. Together with equity crowdfunding, the capital origination reached US$6 billion in 2014. The development of the online lending market also brought out not only new products and commercial needs but also regulatory challenges and uncertainties in the online business environment. P2P lending centred internet finance is popular both globally and domestically, and represents a new wave of internet revolution. The emergence of P2P lending as a popular credit alternative to mainstream lending represents a regulatory challenge to the financial regulators not only in China but also abroad. Some regulatory moves have been made in a number of jurisdictions. For instance, “operating an electronic system in relation to lending” has been added into the activities regulated by the UK’s Financial Services and Markets Act 2000 since 1 April 2014. Accordingly, the P2P lending platforms within section 36H need to comply with prudential and other standards affecting their structure and operation as well as conduct of business rules affecting their deals with lenders and borrowers. In the US, the Securities and Exchange Commission (SEC) has asserted jurisdiction over P2P lending by requesting the platform to be registered as a public company with the SEC and to sell notes through a prospectus with an effective registration statement. In New Zealand, the Financial Markets Conduct Act 2013 was enacted to specifically deal with P2P lending with the aim of facilitating financial market activity by promoting the confident participation of businesses, investors and consumers in financial markets and the development of fair, transparent and efficient capital markets.
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