Tisa draws up P2P health check for investors

The move comes after City watchdog, the FCA, imposed greater controls on the industry which come into force at the end of this year.

Investment firms trade body Tisa has launched guidelines for peer-to-peer businesses to make sure customers understand the nature of their holdings.

The move follows a clampdown on these firms by City watchdog the Financial Conduct Authority (FCA) in June, covering marketing, corporate governance and other controls. The most eye-catching measure is that retail investors should put no more than 10 per cent of their funds into these platform lenders.  

The regulator introduced changes after the collapse of peer-to-peer group Lendy, which fell into administration in May with £160m in outstanding loans and with more than £90m in default. The FCA’s new regulations come into force on 9 December.

Tisa technical policy director Jeffrey Mushens said: “These tests are set to place a significant burden on peer-to-peer platforms. Though the FCA has provided some useful guidance around how to develop the tests, ultimately it will be the responsibility of each platform to devise their own method of assessment in line with their business model.”

‘Plain language’

The trade body said the guidelines have been drawn up by a working group of some of its 200 members, including Ratesetter and Goji. It has also consulted with the FCA on the document, called Peer-to-peer lending: Approach to implementation of the appropriateness test. 

The guidelines say that firms should write their appropriateness tests “in plain language”, should avoid yes or no answers, but be “brief enough to ensure the customer engages with the questions properly and is not encouraged to skip questions or falsify answers”.

The document adds that the lender must clearly set out the customer’s exposure to the credit risk of the borrower, that all capital in a peer-to-peer portfolio is at risk, and these investments and not covered by the Financial Services Compensation Scheme.

Deal or no deal

Platform lenders must come to one of three decisions after reviewing a customer’s answers. The client “understands the matters of the investment”, “does not understand and is not capable of understanding, or “does not understand but is capable of understanding”. Firms can “consider” whether to provide additional material to “educate” customers in the final category.

Mario Lupori, RateSetter chief investment officer and chair of Tisa’s working group, added: “The rules and the test are not new. They already exist for many mainstream investments and the FCA is bringing peer-to-peer into that fold. We feel these rules will be healthy for the sector and positive for customers.”

The new Tisa guidelines can be found here.