P2P Lending: Structures, Risk and Regulation

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In this paper we provide a concise overview of the key characteristics of P2P lending platforms. We examine risks involved and consider alternative regulatory approaches to P2P lending. We argue that the P2P model is an example of how modern technology enables the integration of the functions of a market operator and a provider of individual managed accounts (investor directed portfolio services) for end users (as well as provision of other economic functions). This, we argue, removes the basis for a legislative/regulatory distinction between market operators and market participants/financial service providers which underpins current Australian regulation. A new approach to regulation of markets is warranted which reflects this and which would lead to P2P operators being regulated under that more general framework rather than, as is currently the case, managed investment schemes.

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This paper was presented in July 2016 at the 21st Melbourne Money and Finance Conference (MMFC), which explored the theme: Fintech and Financial Innovation.

For more papers presented in the conference, please click here.