No clear direction for regulation of the 'disruptors'

While peer-to-peer lenders and other "disruptors" argue for light touch regulation to give their businesses a chance to grow, the emerging consensus among commentators is that these innovative business practices carry risks for customers and investors that make regulatory oversight necessary.

Speaking at this week's Australian Securities and Investments Commission annual forum, Oliver Wyman partner Jacob Hook said some of the forms of detriment arising from businesses using digital platforms were privacy violations and breaches of data security.

Hook asked whether a business that was a substitute for traditional banking should be treated all that differently from traditional banking.

"These are traditional financial services functions happening in new ways and falling outside regulation," he said.

He said policy makers also had to look at the way disaggregation of risk pools would have adverse effects for some consumer groups, and whether this called for a regulatory response.

Hook said there were some new challenges to address as well. "Does the customer own their data? Can they take it to another bank?"

"At the same time regulators should be looking at whether they should be doing anything proactively to encourage disruption - for example contribute network benefits such as digital identity systems," he said.

The chief executive of the peer-to-peer lender SocietyOne, Matt Symons, said the new business models may be performing similar functions to traditional banking but the prudential risks could be very different.

Symons said: "Should we have to hold regulatory capital? We argue that P2P lending is fundamentally different because there is no asset-liability mismatch, as there is in traditional banking where intermediaries borrow short and lend long."

"In our model, investors sign up for the term of the loan. It is a perfect duration match."

ASIC commissioner Greg Tanzer said the regulatory response may vary according to whether a new service was driven by consumer demand or by arbitrage opportunities facilitated by technology.

The issue was also discussed at the Centre for International Finance and Regulation's Financial System Inquiry workshop earlier this month. Marina Nehme, a senior lecturer in the Faculty of Law at the University of New South Wales, said fraud, poor record-keeping and inadequate disclosure were emerging issues in areas such as crowdfunding and P2P lending.

Nehme said: "With crowdfunding we see examples of presales where a business gets money for a project that either does not get completed or takes much longer than expected. Where do people who have put money in stand?

"We have seen intermediaries going broke around the world. They have not kept their books well. Some regulation is needed to protect investors.

"And there are problems of lack of disclosure in the P2P market."

A term that was aired frequently at the ASIC conference was a "graduated response" by regulators by regulators to innovative financial services businesses. But what that actually means is yet to be made clear.