In a sign of growing acceptance for a fledgling industry, the Peer-to-Peer Finance Association (P2PFA) representing the United Kingdom’s leading peer-to-peer finance businesses has appointed Christine Farnish as its new chair.
The appointment is the first independent hire by the P2PFA, which was created in 2011 by the United Kingdom’s three largest peer-to-peer lending companies – Zopa, Funding Circle and RateSetter.
“The success of the P2P sector has been built on the foundations of strong consumer trust in the product and technology combined with a degree of disenchantment with conventional services products. It is an open secret that the financial services sector has, for years, lacked innovation that truly meets the needs of its customers. The growth of P2P is a visible step down the road to helping change that,” Farnish said.
Farnish joins the P2PFA at a time she acknowledges is a “watershed moment” for the industry due to the British government’s decision to regulate the peer lending industry. For some, such a move threatens to strike at the heart of the motivation behind the creation of the peer lending industry – the creative engine’s ability to avoid red tape by going directly to their supporters, but Farnish is undeterred.
“The decision … is hugely welcome. We will be working closely with HM Treasury and the FSA over the coming months to ensure that regulation is risk based, proportionate and appropriate, both to ensure adequate protection for users and to ensure that industry can compete and fairly grow,” Farnish said.
Farnish added that the existing P2PFA operating principles, which members must adhere to, provide an excellent foundation for any coming regulation.
It is for that reason that the Farnish appointment can be viewed as a proactive one, as the industry’s main players already abide by the rules so she can spend more time watching to see that new entrants to the field are playing by the rules.
“One of the biggest concerns about the peer-to-peer sector has been that rogue operators who could be tempted to cut corners would enter the market. This would inevitably damage consumer trust and confidence in our nascent sector. This is why Zopa, Funding Circle and RateSetter set up the P2PFA in the first place,” Farnish said.
With the exponential success of the peer lending industry, does Farnish see a time when establishment banks attempt to purchase peer lending sites? Farnish would not show her cards but did say that she strongly believes in competition and choice.
“Effective competition is not just good for business and good for the economy: it is good for consumers too,” she explained. “I shall be watching for signs of anti-competitive behaviour from banks or anyone else.”
Farnish, once dubbed “The £650 Billion Woman” by the Observer while heading the National Association of Pension Funds, brings a lengthy history of consumer advocacy to this new role. Her national profile, along with an involvement in consumer-related causes, began to grow in the late 1990s during her stint as an executive at The Office of Telecommunications (OFTEL), the United Kingdom’s industry regulator. Along with ensuring fair competition, OFTEL scrutinized scholastic internet access plans and, later in 1997, tabled a report summarizing extensive community consultations on the topic.
In 1998 Farnish became the Director of Consumer Relations at the Financial Services Authority (FSA), Britian’s financial regulator. Among her duties were to set up the Office of Ombudsman, manage consumer research, advise citizen panels and lead a project to improve the quality of comparable information available to consumers. During her tenure with the FSA Farnish spoke about her priorities in the role. “…current market conditions put the spotlight on three areas that need particular attention. They are: a lack of balance between the benefits and drawbacks of a product; claims that can lead to unrealistic expectations; and key information that gets buried in the small print.”
Farnish’s stock began to soar when she became Chief Executive of the National Association of Pension Funds in 2002. Responsible for 16 million individuals across 1,300 plans, one could be forgiven for expecting the expression of a leftist bent but it was here that Farnish showed herself to be more centrist and pragmatic.
In response to industry concerns over costs associated with the creation and maintenance of the Pension Protection Fund (PPF), an entity designed to protect pensioners from corporate insolvency or insufficient funds, Farnish told the Observer‘s Heather Stewart in the summer of 2004 that “the question is, how do we make the PPF durable and sustainable for the long term; our feeling is, make sure it really is a safety net: make sure it doesn’t over-promise.”
Farnish went further and advocated for women taking career breaks by stating public pensions should not be solely dependent on contributions history.
Continuing to balance consumer need with economic realities, Farnish called on the British government to allow companies to renege on past pension commitments. Forcing all companies to honor their pension commitments would cause “severe economic disruption.” She went further and told the public not to expect workplace pensions to magically cover Britons retirement needs, that there is a cost to these programs.
“We have a problem here. People need to save more… Occupational schemes are not free. They have to be funded and administered,” Farnish said.
Looking back, Farnish said she was operating in a climate where the British government was, through regulation, trying to completely eliminate risk from all workplace pensions.
“We simply pointed out that the natural consequence of this approach was that good DB provision would die as too much risk would be passed on to employers. That is what we have now seen happen. As in so many complex areas of regulation, a balance needs to be struck and populist measures often have unforeseen adverse consequences,” she said.
To some, Farnish joined the Dark Side when she left the NAPF to become Public Policy Director for Barclays. Within a year she was publicly defending Barclays against widespread accusations of exorbitant bank charges. While not absolving the banking industry from criticism, Farnish felt some accusations were off base.
“At Barclays banks were being accused of every evil under the sun and much criticism was, I left, unfair. They had become an easy target,” Farnish said.
While working for Barclays, Farnish joined various committees with Consumer Focus, “the statutory consumer champion” for much of the U.K. Among the organizations accomplishments with Farnish at the helm were the repayment of £50 million to British power consumers who were found to be overcharged and battling against financial services entities who were needlessly selling products to consumers who did not need them in order to claim ongoing commissions.
Note: The P2PFA’s code requires members to have a series of measures in place to protect the integrity of the industry and instill consumer confidence. These include appropriate management structures and minimal capital requirements. Guidelines to protect the consumer include appropriate credit assessment and anti-fraud measures including membership in CIFAS, a UK fraud prevention non-profit with 260 members, transparent platform usage rules, fair complaints handling, secure IT and “clear, fair and not misleading” marketing and customer communications.