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In the wake of Lendy’s failure, FCA confirms new rules for P2P investments including a 10% cap

“For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection.”

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Christopher Woolard/FCA

The financial regulator is imposing a long-discussed 10% limit on the peer-to-peer investments ordinary investors can hold in their portfolio.

After a long consultation, the FCA today confirmed that a host of new requirements for the sector which it says it will continue to “closely monitor”.

“These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities,” said Christopher Woolard, the FCA’s executive director of strategy and competition who has led the review.

“For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection.”

The publication of the rules comes after Lendy, the failed peer-to-peer network with £165m in outstanding loans, has dominated the news in recent weeks.

Rhydian Lewis, the CEO of RateSetter, called the FCA’s headline 10% portfolio limit “unnecessary and just patronises normal people” but said overall the new rules would have a positive impact.

Other rules being introduced include:

  • More explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes they advertise, with a particular focus on credit risk assessment, risk management and fair valuation practices.

  • Strengthening rules on plans for the wind-down of P2P platforms if they fail.

  • Introducing a requirement that platforms assess investors’ knowledge and experience of P2P investments where no advice has been given to them.

  • Setting out the minimum information that P2P platforms need to provide to investors.

  • Applying the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other Handbook requirements to P2P platforms that offer home finance products, where at least one of the investors is not an authorised home finance provider.

The new rules must be implemented by platforms by 9 December 2019, apart from the MCOB sourcebook which must be applied immediately.

“Rather than a 'clampdown' this is a validation of our mission to open the asset class of loans to everyone, not just the rich,” added RateSetter’s Lewis.

“No longer can our sector be dismissed as the Wild West of investing: the cowboys are being driven out and the regulation is now on a par with mainstream savings and investment choices.”

The Peer-To-Peer Finance Association's Chair, Paul Smee, said: "Much of what is included in the FCA policy statement published today reflects what is already good practice in the peer to peer lending market and we welcome that. We are pleased that the FCA recognises the significant and positive impact which peer-to-peer lending has on the economy, as the sector becomes a mature feature of the UK financial services landscape; and we consider that overall they are proposing a proportionate way forward for regulation."

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Christopher Woolard

Director of Strategy and Competition

Financial Conduct Authority
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Paul Smee

Former Chair of the P2PFA

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