Investigating the application of banking regulation to online peer-to-peer lending platforms in South Africa to counter systemic risk

Abstract

The behaviour and activities of online peer-to-peer lending platforms have evolved in different ways across jurisdictions, not fitting neatly within existing financial regulatory frameworks. Together with the growth momentum of the industry and the cases where losses were suffered, this culminated in a call to regulate peer-to-peer lending platforms adequately. The research presents an analysis of online peer-to-peer lending platforms through the lens of banking theory, questioning whether peer-to-peer platforms are behaving like banks and whether they pose systemic risk. These research questions feed into the ultimate research problem: whether online peer-to-peer lending platforms should be regulated like banks with respect to liquidity and capital requirements. Liquidity and capital requirements were designed to stem systemic risk in financial systems and have been praised as effective tools. Qualitative exploratory research was undertaken with 18 experts in the field. Key findings included that the presence of systemic risk is contingent on the operating structure and legal implications of the peer-to-peer platform. In certain cases, systemic risk could be present and as such liquidity and capital requirements should apply. The scope of the research was restricted to the South African financial system due to the unique nuances of its regulatory framework.