A former City regulator’s comments on the peer-to-peer (P2P) lending industry are at odds with the evidence, industry representative body the Peer-to-Peer Finance Association (P2PFA) has said.

The P2P lending industry could be the source of big losses, erstwhile Financial Services Authority (FSA) - predecessor to the Financial Conduct Authority’s (FCA) - chairman Lord Adair Turner told the BBC.

However, since the industry started defaults on loans have been low at between two and three per cent, according   to P2PFA Independent Chair Christine Farnish.

"The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the worst bankers look like lending geniuses," Lord Turner said.

The self-declared technocrat was taking aim at the automated digital credit rating technology used by many P2P lenders, which he believes is not thorough enough to accurately assess the creditworthiness of individuals and businesses who borrow from them.

“You cannot lend money to small and medium enterprises in particular without somebody going and doing good credit underwriting,” he explained.

“This idea that you can just automate that on to a platform, I think it has a role to play, but I think it will end up producing big losses.”

But Farnish said the P2P lending industry only lends to creditworthy individuals  and established small and medium-sized businesses, and that stringent credit underwriting apply to all P2PFA members. 

She added that P2P lending should not be confused with crowdfunding or sub-prime lending, which carries a higher risk

Lord Turner’s remarks also ignores the role of the FCA in regulating this sector of the alternative finance industry, with the body internationally regarded to have set the standard for P2P lending regulation.

He also disregarded the practices of innovative P2P lending platforms such as Unbolted, which effectively eliminate risk for investors and borrowers with secured asset loans.

These involve the borrower placing a high-value asset under the platform’s control as collateral, which is sold at auction should the borrower be unable to repay the loan.