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New rules for peer-to-peer lending announced by FCA

01 August 2018. Published by Ashley Daniells, Associate

The popularity of peer-to-peer (P2P) lending has increased exponentially in recent years, with nearly £10 billion being transferred through such platforms in the past ten years. In an attempt to fix "increasingly complex business structures", the FCA has announced new plans for new rules for peer-to-peer (P2P) lending.

The FCA has announced new plans which will see a crackdown on P2P lending and the loan-based crowdfunding industry in general following concerns that consumers are at risk of investing in things they do not understand.

 

P2P lending was last reviewed by the FCA in December 2016, announcing at the time, its plans to address the gap in protections for customers. Since then it has monitored the situation and noted the variety of loan-based crowdfunding business models, of which some are becoming increasingly complex. Whilst the FCA regulates loan-based crowdfunding (also known as P2P lending) and investment-based crowdfunding (which falls outside of the FCA's present review), the FCA does not regulate donation-based or reward-based crowdfunding (hence, both of these fall outside of the FCA's review).

 

As part of its ongoing monitoring, the FCA has also noted poor practice among some firms in the crowdfunding industry. The proposals detailed below aim to improve standards in the sector whilst still leaving scope for further innovation.

 

The consultation is aimed at establishing views on the following proposals: 


  • Proposals to ensure investors receive clear and accurate information about a potential investment and understand the risks involved

  • Ensure investors are adequately remunerated for the risk they are taking

  • Transparent and robust systems for assessing the risk, value and price of loans, and fair/transparent charges to investors

  • Promote good governance and orderly business practices

  • Proposals to extend existing marketing restrictions for investment-based crowdfunding platforms to loan-based platforms 

Executive director of strategy and competition for the FCA, Christopher Woolard has stated that: “The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections. 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.”

 

Equally, the FCA was keen to ensure that not all P2P lenders were criticised, noting that some "P2P platforms already have more robust systems and controls in place".

 

The new proposals will also see tighter provisions when alternative funding is used for home loans. The FCA will seek to enforce its Mortgage and Home Finance: Conduct of Business rules on P2P platforms if they begin to deal in the residential lending market.

 

The FCA is asking for responses to the consultation by 27 October 2018 before it publishes rules in a Policy Statement later this year.