FCA outlines new rules for peer-to-peer lending
The Financial Conduct Authority is tightening up the rules surrounding peer-to-peer lending as it looks to better protect investors.
The regulator said the rules, which were drawn up following a consultation, would still allow firms and fundraisers to behave in an innovative and sustainable manner.
As initially proposed during the consultation, there will now be a limit on investments for retail customers new to the sector of 10% of investable assets, to ensure they are not overexposed.
Other measures include strengthening the rules governing the wind-down of failed platforms; introducing a requirement that platforms assess investor knowledge and experience; and setting out the minimum information platforms must provide investors.
The FCA has also clarified what governance arrangements and controls P2P platforms must have in place to support advertised outcomes, with a particular focus on risk management and fair valuation.
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."
Yann Murciano, chief executive at BLEND Network, a P2P property lending specialist, called the measures "a positive step forward", adding: "We already use appropriateness tests which the FCA is proposing. We believe these measures will have significant positive impact on the P2P industry, particularly in the way that loan risks and platform business models are assessed."
P2P platforms allows individuals to lend money to businesses or other individuals, cutting out the need for banks. Investors receive interest and their capital back when the loan is repaid. The sector has soared in popularity in recent years, as returns can often better those offered by high street banks. According to Murciano, around £15bn has been lent since P2P's inception in 2005.
But the sector is not without significant risk, as investors face losing all their capital should the companies or individuals their money is being lent to default.