Last week the Financial Conduct Authority (FCA) published its long awaited review of the Peer to Peer (P2P) and Crowdfunding industries. It’s been two years since the last review and the contents of its draft proposals look to be largely influenced by their experiences and observations authorising 63 current UK platforms during the intervening period.
The FCA are inviting responses to new proposals to ensure:
- Investors receive clear and accurate information about a potential investment and understand the risks
- 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
- Good governance and orderly business practices are promoted
Significantly, the FCA also proposes to extend existing marketing restrictions currently in place for for investment-based crowdfunding platforms to loan-based P2P platforms.
A more detailed summary of the proposals outlined can be found at AltFi.com, while the full (156-page) report is available on the regulators’ site – https://www.fca.org.uk/publication/consultation/cp18-20.pdf.
New terms to categorise an “increasingly complex market”
The FCA has come up with three new terms to categorise what it sees as an increasingly complex and diverse industry. In a sector where every platform and proposition is different, like for like comparisons and classifications can be difficult. The new categories proposed are as follows:
- Conduit platforms – “The investor picks the investment opportunities and the platform administers the loan or investment arrangements”
- Pricing platforms – “The platform sets the price, but the investor picks the underlying loan or investment”
- Discretionary platforms – “The platform sets the price and chooses the investor’s portfolio of loans to generate a target rate – this is only seen in the P2P sector”
Whilst it is hoped that standardised descriptions will help people understand the main platform operating models adopted in the industry, it is acknowledged that a single platform can operate in more than one way.
At Proplend, we welcome the review and continue to be supportive of any regulation that ultimately benefits both our borrowers and lenders. We will be responding to the proposals in due course to help shape future legislation of our industry.
Related to this post …
How Proplend uses a LTV-based ‘tranching’ system to differentiate loan investment risk and reward
Investment Tranching – A different attitude to risk – May 2018 article focusing on our pricing simplicity and transparency
How Proplend determines lending interest rates – Aug 2017 article focusing on pricing and fee transparency
Sign a petition urging the FCA to revise proposals restricting retail investor access and investment freedom for P2P lending.
