In a recent interview with Lending Socially, Prosper Marketplace CEO Chris Larsen revealed that he,
favors a holistic regulator that “has the best interests of both borrowers and lenders in mind.” [...] “We also believe the enormous legal cost involved in registering with the SEC is an extraordinarily high barrier to entry. Sure Prosper benefits from this barrier given that we survived the experience of registration, but many companies didn’t; and we believe more players would further validate and help grow the industry.”
What would this holistic regulator look like if it is not the SEC? Larsen cites the California Department of Corporations as an example worth replicating for it regulates and oversees both lending and borrowing. The department also deals with licensing investment institutions which can be an extensive and expensive process. The question is whether a federal version of this department could create a license process which would be less burdensome than current SEC registration process.
While a regulatory body that takes all aspects of an industry and its activities into account would surely produce more thorough and well-rounded rules and restrictions, it is uncertain whether those rules would improve or hinder the performance and consumer benefits of the industry. It is also uncertain whether the existence such a regulatory agency is possible. Even the most well-intentioned policymaker cannot know all the aspects of an industry and the thoughts, risks, and benefits of an activity. A more thorough and holistic regulator may produce rules and restrictions that are less burdensome than the current practices of the SEC. Unfortunately, such a regulator may still fall short of encouraging and supporting the peer-to-peer lending industry.
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