Innovate Finance hits back at proposals for tougher P2P rules
Innovate Finance has blasted the City watchdog’s proposed new peer-to-peer lending regulations, and called for changes to prevent further platform departures and damage to the industry.
The fintech trade body has outlined its responses and concerns to the Financial Conduct Authority’s (FCA) consultation on strengthening financial promotions for high-risk investments, including P2P lending, which was published in January and closed to feedback on 23 March.
The regulator said it was planning to ban the promotion of investor incentives, such as new joiner or refer-a-friend bonuses, will improve the risk warnings on ads and outlined plans to strengthen appropriateness tests, for example by removing the ease of retakes. The FCA plans to confirm its final rules this summer.
Innovate Finance said that the FCA’s proposed categorisation of restricted mass market investments lumps together very different assets with very different risk profiles and characteristics and there is an absence of clear criteria for the classification of these high-risk investments.
The trade body said that the existing financial promotions regime has already “severely damaged” the viability and competitiveness of retail P2P lending with platform departures, and further rules will adversely impact businesses which seek P2P funding.
Innovate Finance has called for a lower-risk category to be created for P2P and equity crowdfunding and for these firms to be allowed to communicate direct offer financial promotions to everyone without being limited only to high-net-worth, sophisticated and restricted investors.
The trade body said the current financial promotion rules are unfit for a digital world and the regulator’s viewpoint on this has not changed despite industry input at roundtables.
Read more: 36H Group lobbies the FCA to lower its risk warnings for P2P
“It is clear from CP 22/2 and through Innovate Finance’s participation at FCA industry roundtables that the regulator has not yet satisfactorily articulated the boundaries between direct offer financial promotions and firms’ marketing of an app, website or platform — including P2P and equity crowdfunding platform and crypto exchanges — as a tool for transactions,” Innovate Finance said in a blog on its website.
“We would urge the regulator to provide further guidance and clarification on this matter.”
Read more: P2P bosses optimistic after FCA roundtables
Innovate Finance welcomed the FCA’s decision to shelve a potential marketing ban for P2P property lending platforms, by not extending the application of speculative illiquid securities rules to cover these loans.
However, the trade body said it is concerned to hear that the FCA intends to “revisit this issue later in the year” and hopes the regulator listens to industry and does not implement these rules.
Innovate Finance also noted that the FCA plans to require firms to comply with the new rules three months from publishing them and said feedback from its members has showed it is not long enough to implement the changes.
The trade body said that it does not consider the regulator’s cost benefit analysis to be a “satisfactory assessment of the full costs and potential impacts” and is concerned the new rules will lead to more platform departures.
“No assessment seems to have been made in terms of the practical implications of the proposals, and there is no assessment of the impact on start-ups, scale-ups and wider UK competitiveness (domestic and global markets),” Innovate Finance said.