P2P lending: UK rule changes

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) has issued its recommendations for changes to P2P lending regulations for loan-based crowdfunding platforms. Based on the FCA’s findings it invites responses to rule changes for loan-based firms which cover 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;
  • provide transparent and robust systems for assessing the risk, value and price of loans, and fair/transparent charges to investors; and
  • promote good governance and orderly business practices.

“Platforms do not always communicate to investors the true nature and risk of the investment they will be exposed to,” the FCA said. Many P2P platforms were “emphasising the positive nature of investments while failing to balance this out with appropriate explanation of risks” and “creating a sense of scarcity that might encourage investors to act impulsively”. It also said P2P platforms should offer more information about the creditworthiness of the borrowers on their platforms, and take extra steps to protect investors in the event of a collapse. Customers might also be lulled into a “false sense of security” by the availability of contingency funds designed to top-up payments to investors when borrowers default. The marketing of such funds could be misleading investors into thinking their returns were guaranteed when they were not.

Christopher Woolard, executive director of strategy and competition at the FCA said: “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”.

Comments are requested by 27 October 2018 and the FCA aims to publish rules in a policy statement later in 2018.

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