Ex-FSA Boss Turner Turns From Critic to Fan of Online Lending

  • Warned in February that peer-to-peer lending may cause losses
  • Now says online lending likely to become "stable and useful"

Adair Turner likes peer-to-peer lending after all.

In February, Turner, the former top banking regulator in the U.K., caused a furor in London’s fintech circles when he told the BBC that the industry’s losses over the next decade “will make the worst bankers look like lending geniuses.” But in a speech today at the LendIt Europe conference in London, Turner said he’s become convinced that many online lenders are matching borrowers and lenders with sound credit-scoring practices.

"They might be able, if managed well, to do established forms of credit analysis as well or better than the incumbent banks, and they can certainly aspire to do better customer service," Turner said. "Direct lending is likely to become a stable and useful part of the credit supply system."

Turner, who headed the Financial Services Authority from 2008 to 2013, also highlighted how peer-to-peer lenders don’t have to amass equity and capital to safeguard their balance sheets. As a result, he said the industry, which has originated 1.4 billion pounds ($1.7 billion) in loans in the first half of this year, might prove to be a new source of economic support when banks cut back on lending during downturns.

"Direct lending could add a spare tire to the credit supply system, making credit crunches less likely," he said.

Turner’s turnabout was welcome news for an industry that’s weathered a rough year on both sides of the Atlantic. In May, LendingClub Corp., the biggest U.S. peer-to-peer lender, was rocked by a corporate governance scandal that led to the ouster of Chief Executive Officer Renaud Laplanche. Its shares have tumbled 45 percent this year. In the U.K., online lenders face fresh regulatory scrutiny from the Financial Conduct Authority as they gird for fallout from the nation’s vote to quit the European Union.

Turner did caution his audience of peer-to-peer entrepreneurs and investors not to make the same mistakes Wall Street did in during the mortgage-backed securities boom of the 2000s. This year, British platforms Zopa Ltd. and Funding Circle Ltd. have followed in the footsteps of their American counterparts and started securitizing loans to attract more capital from institutional investors.

"Keep it simple and keep it transparent," Turner said. "What will worry prudential regulators is if under the influence of competitive pressure the simple, transparent models of today morph into more complex and opaque systems."