As you may have seen on Wednesday, the Financial Conduct Authority (FCA) announced new regulations to cover UK peer to peer (P2P) investments. Review the full policy statement here or read on for Proplend’s take on the announcements.
What are FCA regulations all about?
Since our inception five years ago during the relatively early days of P2P, Proplend has been a keen supporter of an effective, well-regulated industry and we welcome these policy updates. We have always held ourselves to high standards of transparency, risk-mitigation, and communication, and we see the new regulations as a step towards ensuring similar values across the whole industry.
Whilst the FCA’s underlying focus has been to protect investors, it has been looking to find the appropriate balance between advancing its policy objectives and enabling future innovation. The overarching theme is one of platform transparency and clarity towards investors as regards;
- business model
- approach to risk management and loan pricing
- track record of returns and defaults, especially around P2P portfolio target rates of return
- types of investor it can market to and how much different types of investor can initially lend
- underlying loan asset class
- funding and operation of a contingency fund (or loan-specific reserve, if applicable)
What changes am I likely to see?
Proplend is comfortable that it is already well positioned to comply with the new rules and guidance and as such there should be little change for existing investors. We will continue to focus on investor transparency, along with disciplined credit and risk management.
Where we will see changes is for new (retail) investors and new investments, both of which will be subject to the implementation of appropriateness tests and marketing restrictions. New regulations effectively limit how much much inexperienced P2P Lenders can invest unless they are able to certify as High Net Worth (updated Nov 2019). As individuals gain platform, product and investment experience, these restrictions will ease allowing them to invest more above the 10% threshold – should they choose.
Given the number of platforms, the range of business operating models and loan asset classes, we view the appropriateness test as a sensible speedbump. It provides an opportunity to gauge investor knowledge of peer to peer investing in general, P2P risk and platform-specific operations – before any new investments are made.
What happens next?
The appropriateness requirements will apply equally to our Classic investing, ISA and Pension accounts, but won’t be applicable to investors who make P2P investments after having taken regulated advice (and institutional investors). Whilst the policy statement has been released this week, the industry now has until early December this year to meet the requirements.
For existing Proplenders and anyone joining the platform during the next couple of months, we expect it to be very much business as usual. We will of course keep you informed in advance of any changes we do roll out ahead of the 9 December 2019 adoption deadline. Proplend expects to implement the new regulations around 4 weeks ahead of the FCA deadline (updated Nov 2019).
