Implicitly the laws seem to assume that there’s an ins-intrinsic difference between public securities [bearer notes circulated by men in the City wearing bowler hats], and private financial contracts [Midlands businessmen signing a business loan in a pub over a basket of chips]. But technology has made blurring that line so much easier.

In my opinion, the crack in the system for p2p lenders is making their transactions ones between knowledgeable parties, so that they’re treated as private credit deals. Of course, my main professional skills are in web development and hostings, so I’d put very little store in my own opinions

More generally, the rules that were bent to give us the current crisis were about bank capital. Rationally banks ought to be allowed to carry on innovating all they like, provided they keep safe assets around to back their deposits. It’s a pity it’s going to be used as stick to beat banks over every perceived fault.

In any event, the evolution will be interesting.

while the wallnut of social lending is subject to the sledgehammer of securities regulation in the US (and Canada, as you point out), in the EU it is generally treated simply as consumer credit. That is a far more proportionate regulatory approach that has fostered real innovation – very simple, direct, low cost loans to borrowers at great returns to lenders – rather than requiring the facilitator to engage in an expensive registration and, worse, the charade of borrowing money from the lenders only to lend it to borrowers.

Of course, that’s not to say that all consumer credit is the same as payday loans. There is a place for short term, low value loans at reasonable rates. But borrowers must not be allowed to “roll-over” those loans to create large balances over longer terms than the rates are geared for – that’s a slippery slope.

Speaking of regulation the same debates are going on right now in the payday loan world. Ohio and Arizona have votes coming up in November that will potentially rid the states of payday loans. While I don’t really agree with traditional payday lenders, I think the government can make things even worse.

Online retail markets seem best served by facilitative regulation that evolves bottom up, rather than prescriptive, top-down regulation. The latter tends to stifle innovation and competition by favouring incumbents with sunk compliance costs and lobbying programmes, and it is difficult to influence and change once in place. The former is more flexible and takes many alternative forms, like co-regulation, self-regulation and may involve a wait-and-see approach to markets that are rapidly evolving.

But this is a comparatively gentle debate amongst common lawyers. As I’ve blogged before (http://sdj-pragmatist.blogspot.com/2008/09/civil-law-view-of-states-role-slows.html), the civil law view is that the role of law is to tell people what they’re entitled to do. So regulation is seen as a catalyst for markets. That definitely hasn’t worked in relation to cross-border retail markets in the EU.