FCA: ‘We are not shutting the public out of P2P’
THE FINANCIAL Conduct Authority (FCA) has denied it is restricting the type of investor who can use a peer-to-peer platform after proposing new rules on marketing.
The City watchdog has unveiled a consultation on introducing new marketing and disclosure rules in the P2P sector as part of its feedback to its post-implementation review.
Under proposed marketing restrictions, platforms would be restricted to marketing to those who are certified or self-certify as sophisticated investors, those who are certified as high-net-worth investors, those who confirm before a promotion is made that, in relation to the investment promoted, they will receive regulated investment advice or investment management services from an authorised person, or those who certify that they will not invest more than 10 per cent of their net portfolio in P2P agreements.
Christopher Woolard (pictured), executive director of strategy and competition at the FCA, denied this meant that investors would be shut out of the sector.
“If you strip back the documents to the essence we are looking to deal with transparency and investor protection,” Woolard told Peer2Peer Finance News.
“Added transparency should help sophisticated investors, for those less experienced, the underlying complexity of some of the products mean we would impose the same kinds of restrictions we do on other complex products.
“If you are a first-time investor in this space you shouldn’t be putting in 10 per cent or more of investable assets.
“It is not that only a small subset can now invest in the P2P market, it is if you are an unsophisticated investor, if you lack experience we believe there is a degree of caution needed.”
Woolard added that in most cases long-term existing P2P investors are likely to be considered sophisticated for these circumstances.”
The consultation stops short of making any specific rules on how self-certification should be made, but Woolard said there would be guidance.
He insisted this wasn’t about catching firms out but letting them fit the checks with their business model.
“We have used these kinds of restrictions elsewhere such as on the investment side of the crowdfunding market,” he said.
“We want to give platforms the scope to adapt in a way that fits with existing business models.”
In another measure to boost transparency, the FCA has also outlined disclosure requirements.
All platforms will have to provide a description of their role and describe how loan risk is assessed as well as how late payments and defaults are dealt with.
P2P firms must also explain what will happen in the result of the platform failing.
There are also proposals for further rules on investment information so lenders can assess risk and compare products across platforms.
Platforms letting investors select individual loans will need to provide disclosures showing what each borrower owes and when it is due, any risk categorisation, whether there is any security, fees to be paid, a description of the likely return default rates, and taxation.
Firms that automatically allocate funds to loans will need to declare the minimum and maximum interest rate payable, maturity dates, likely returns and default rates, any fees and risk categories.
Woolard told Peer2Peer Finance News that the regulator was keen to hear feedback on how these disclosures would look and how regularly they should be released.
Another focus for the FCA was contingency funds.
The regulator had hinted at action on these in its interim statement in December 2016, but rather than a ban it has said there should be more information on how each one works, when the funds are used and whether the contingency fund is enforceable or not.
Where a contingency fund is enforceable, the FCA has suggested that firms may consider offering a regulated insurance scheme instead.
Read more: Consumer credit regulation “largest” challenge FCA has faced