The Financial Conduct Authority has published proposals aimed at providing a greater degree of protection for investors who lend to individuals and businesses through Peer to Peer (P2P) platforms.
To date the FCA has taken a ‘softly, softly’ approach to the regulation of marketplace lending, taking the view there was a need to encourage innovation in the financial services market. In 2014 – when marketplace lending fell under its jurisdiction – the FCA devised a relatively light touch regime. Now, however, the regulator has signalled that more stringent regulation is in the pipeline.
Announcing a period of consultation on new proposals, FCA Director of Strategy Christopher Woolard, stressed that while “loan-based crowdfunding” was playing an important role in the UK’s financial services ecosystem, regulation had to evolve and keep pace with developments in the marketplace.
“When we introduced new rules for crowdfunding, we said we’d review the market as it developed. We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals but it’s essential that regulation stays up to date as markets develop. The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections.”
Clear and Transparent
In practice, the FCA has tabled proposals aimed at ensuring that investors receive clear and accurate information about their investments and the risks involved. This will require greater transparency on the part of P2P platforms in terms of how those risks are assessed and presented to consumers. In addition, the regulator is keen to ensure that when a platform publishes a target for returns, the projection should be achievable. A new code will set out the minimum information and standards required, and there will also be restrictions on marketing collateral.
The published FCA proposals have now been sent out for consultation and feedback is awaited from the industry.