Alternative funder investigation highlights the need for regulation

The buzz around such innovative funding has been boosted by a disproportionate amount of media coverage, mostly of a positive nature. However, with so many start-ups there will inevitably be casualties and the October closure of publicly quoted lender TrustBuddy AB is bound to cast a shadow on the industry, more so as the Swedish firm admitted its troubles were due to “serious misconduct” within the company.

The Stockholm-based lending platform filed for bankruptcy following the discovery of a SEK44 million (€4.7 million) discrepancy which TrustBuddy admitted had arisen through using lenders’ capital to finance bad debts in violation of their instructions, or without their permission.

However, it is reported that Dutch subsidiary Geldvoorelkaar, which focuses on lending to SMEs, has been operating on a stand-alone basis and has not been subject to misconduct.

It looks like one consequence of this will be tighter oversight of the sector. The Swedish FSA is expected to review the activities of the other P2P lenders in Sweden – such as Lendify, Lendlink, Savelend, Sparlån and the more SME-oriented FundedByMe and Toborrow – and the ripples may spread to neighbouring markets.