So, according to the ES a P2P company is in trouble

Personally I don't, but I would caution anybody considering speculating about it to be very careful.

EDIT:  Here's the link to the story.

A great opportunity for the bigger players to shoot themselves in their feet by making it something other than completely painless for all customers involved. Hopefully it'll be realised that nobody in the business gains from making it a noisy failure because all players, even the biggest, are still perceived as very risky by a general public that needs to be persuaded to use P2P. That at least seems to be the view reported by the Evening Standard.

However, no publicity is also bad. There is benefit for all in showing that there was a problem and those in the business took care of it without fuss or mess. Not in having the regulator involved, though. That's a sign of failure, not success. Publicity and "we took care of business without the need for outside help" is the way to go to maximise the gain for the business as a whole.

This is an opportunity to show the failure as a sign of a stable and growing industry that looks after consumers. Lets see whether the players involved can pull it off.

On the basis that 'google is your friend', i can see a few mentions of Rhydian Lewis in the said journalists articles. But I suspect that isn' a connection you were thinking people might make   

I would think the big players would be out of their minds to let a small player go phut without ensuring both investors and borrowers were safe.

Still I understand that your marketing position before it goes phut would be more self serving. 

Moral hazard. The age old question of banking, lending and investing.

We all know that P2P isn't currently covered by the FSCS. I think there are a few contributory factors here:-

1. P2P is not vanilla banking. Our lending cannot be considered deposits (and no P2P company will be paying into the deposit insurance scheme).
2. A desire by the regulators to maintain a light touch towards the regulatory environment so as not to overburden an emergent industry.
3. P2P, at present, can't be considered to be systemically important in the context of the overall financial system - no payments infrastructure, no credit card infrastructure, no primary dealer status on govvy bonds etc, so the industry doesn't benefit from an implicit government subsidy in that regard.
4. In most cases lenders are lending to specific borrowers (even if it is packaged up in a basket of loans by a platform), in contrast to vanilla banking where you lend to the insitution concerned.

I think we're all happy with the idea that we may lose capital on some of our investments - me lending to a fireworks company situated next to a factory producing matches? That's on me. That's why I have some money in relatively safe investments (eg UK Gilts), and some money in relatively riskier investments (eg penny shares).

I'm not sure we are so happy with the idea that we may lose money because a platform goes under (see my post about platform risk).

Let's put to one side outright fraud or silly operational risk losses for a second and just consider a straightforward commercial failure - not enough borrowers and lenders found the product offering attractive enough to make a platform commercially viable. Should investors lose out in such a situation? No, I don't think so. They might have to accept their funds being unavailable for a period of time, and they might have to accept that they couldn't manage their positions, but they shouldn't lose their investments simply and solely because of a platform failure.

Moral hazard plays a part in borrower thinking too. I suspect borrowers may be slow to repay debt owed via a failed platform....

So should a large P2P platform step in to rescue a failed platform? No, not unless it was commercially attractive for their business. Should the P2P industry as a whole look to ensure an orderly wind down of a failed platform, as fast as possible, such that investors have confidence that their lending can be protected? Even if it "just" means taking over the loan book? Yes, I think so.

If that doesn't happen lenders are going to be much more reluctant to help the industry grow.

But what if, and this is an IF, lenders went with the riskier platforms gaining higher returns knowing/expecting that if the proverbial hit the fan they'd be saved by a stronger platform. And that stronger platform in the meantime has lost that business directly because the lender was more confident they could chase higher returns with impunity. Just a theory.

Did they expect a higher return because they accepted that the loans were higher risk, or that the platform was higher risk? (If a failed platform had some sort of provision fund then this becomes more blurred.)

Also what is your cost of acquiring a lender - it might be good value for a platform to get some lenders, depending on how similar the platforms are. And of course it will depend on what has gone wrong with the failed platform.

I agree that you don't want to create moral hazard. This was the reason that they didn't rescue Lehman Brothers. I bet that many of them regret that decision now.