The Financial Conduct Authority (FCA) is introducing new rules for the peer-to-peer (P2P) sector.
These new rules are designed to help better protect investors and allow firms and fundraisers to operate in a long-term, sustainable manner, the regulator said.
The FCA has refined its proposals to ensure the new rules protect consumers and support the P2P market. In particular, additional guidance has been provided to make it clear that platforms will not be prevented from including information about specific investments in their marketing materials.
As originally proposed, the FCA is placing a limit on investments in P2P agreements for retail customers new to the sector of 10% of investable assets. The regulator said this is an important means of ensuring that they do not over-expose themselves to risk. The investment restriction will not apply to new retail customers who have received regulated financial advice.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities. For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection.”
In addition to these restrictions, the new rules cover:
- More explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes they advertise, with a particular focus on credit risk assessment, risk management and fair valuation practices.
- Strengthening rules on plans for the wind-down of P2P platforms if they fail.
- Introducing a requirement that platforms assess investors’ knowledge and experience of P2P investments where no advice has been given to them.
- Setting out the minimum information that P2P platforms need to provide to investors.
- Applying the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other Handbook requirements to P2P platforms that offer home finance products, where at least one of the investors is not an authorised home finance provider.
- P2P platforms need to implement these changes by 9 December 2019, except for the application of MCOB, which applies with immediate effect.
Yann Murciano, chief executive at BLEND Network, said: “At Blend Network, we believe the measures promise to be a positive step forward for P2P platforms. We already use appropriateness tests, which the FCA is proposing. We believe these measures will have a significant positive impact on the P2P industry, particularly on the way that loan risks and platform business models are assessed.
“It is because the FCA has kept a watchful eye on the growing UK P2P industry educating and protecting consumers that is the second largest by volume in the world after the US. Last year, £3bn of loans were advanced to small businesses and property developers among others and £15bn has been advanced overall since the inception of Peer2Peer lending in 2005.
“After all it is not regulation but strong oversight that anticipates dangers is the key to preventing financial scandals happening in the first place.
“As US Commerce Secretary Wilbur Ross put it: ‘There is no evidence that regulation makes things better. The most highly regulated industry in America is commercial banking and that did not stop those institutions from making terrible decisions.’ Regulation does not solve things, good supervision does.”