The Bank of England
governor has warned that a new breed of internet-only lenders are
beginning to pose risks to the financial system and without tighter
regulation they could trigger the next financial crash.
Mark Carney
said high street banks were being displaced by online lenders that were
untested in a recession, when bankruptcies might make their loans
worthless.
Cyber-attacks could also strip customers of digital money, leaving
them to face huge losses without the traditional protection offered by
regulators, he said.
The warning follows a speech last year by Adair Turner, the former chief financial regulator, who said losses on loans made over the internet could make the worst bankers look like “lending geniuses”.
Speaking at a conference in Germany, Carney said digital money held out the prospect of allowing millions of people excluded from the mainstream banking system to access loans securely.
Threadneedle Street has several initiatives under way to allow
peer-to-peer online lenders access to central bank funds and facilitate
transactions.
But he expected the authorities “to pursue a more intense focus” on
financial regulations, lending rules “and a more disciplined management
of operational and cyber risks” as the price of the industry’s growing
influence.
In the UK, about 14% of new lending last year to small and
medium-sized businesses was by so-called fintech lenders, which
typically offer loans with funds provided directly by investors.
He likened the growth in recent months to the explosion in
securitised loans used by banks such as Northern Rock before the 2008
financial crash.
“It is not clear the extent to which P2P lending can grow without
business models evolving in ways that introduce conventional risks. Were
these changes to occur, regulators would be expected to address such
emerging vulnerabilities,” he said.
The UK is expected to become a global leader in online lending,
putting pressure on the Bank to adopt regulations that protect customers
without stifling a still young industry.
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