October 30, 2019
New FCA Rules for P2P Platforms: A Quick Guide
The guidelines lay out P2P platforms’ obligations to stay compliant with the regulations, particularly regarding the test platforms must make customers take to assess their appropriateness for investing in a P2P loan.
In this article, we’ll look at both the FCA rules and the new TISA guidelines to discover the steps P2P platforms should be taking.
A Look at the P2P Lending Industry
Total P2P consumer lending volume stood at £1.4 billion in 2017, compared to the £2 billion seen in P2P business lending.
This growth means more consumers are exposed to both the potential risks and rewards of P2P lending. While many P2P platforms advertise rates of return that are much higher than regular savings accounts, the risks are also much higher.
These risks were highlighted in the recent collapse of P2P lender Lendy. When the company went bust, it left investors with huge potential losses, up to 93p on the pound according to the Financial Times.
What Are the FCA Rules?
The FCA unveiled its new set of rules in June, and P2P lenders must put in place steps to ensure they are compliant by 9th December 2019.
The rules are designed to help protect investors who choose to use P2P services and ensure firms operate sustainably. The rules include stipulations that:
- Retail customers new to P2P are limited to investing 10% of their investable assets to stop investors overexposing themselves to risk.
- Platforms must conform to the new requirements about governance arrangements, systems, and controls they have in place.
- Platforms must assess the knowledge and experience investors have about P2P lending to ensure they are making informed decisions about what they do with their money.
- Platforms will also have to provide investors with a minimum level of information about their services.
There are also new rules on the plans for how P2P companies will be wound down if they fail to meet requirements.
What do the TISA Guidelines Recommend?
The TISA guidelines make several recommendations to help P2P services adhere to the above guidelines. The guidelines were created by a working group made up of TISA members, including P2P platforms RateSetter and Goji. The guidelines clarify some of the points in the FCA report and explain how platforms can stay compliant. The guidelines cover the following:
- A list of general principles for the assessment, including that they should be written in plain language, be specific to the product or platform in question, avoid binary yes or no answers, and be brief enough so that customers engage with it properly.
- Make it clear that P2P platforms have the responsibility to assess the customer, even when the customer is introduced to the platform by a third-party.
- The onboarding process P2P platforms should use to assess customers. This can be at any time before they invest.
- Tests should consider the differences between investment products the platform offers.
- Platforms should maintain records of the appropriateness test customers undertake. Records should include the questions, the results of the assessment, and records of any warnings given to customers alongside their reactions.
- Existing investments are exempt from having to undergo a test. However, if an existing customer wants to take out a new investment, they must undergo assessment once the new rules come into effect.
- Provide detail about the considerations the customer assessment must cover. These include, amongst others, that the platforms should clarify that returns vary, outline the risks involved, the liquidity of the product, and the risk of the firm becoming insolvent.
- A set of example questions that P2P platforms may use in their appropriateness test. These questions cover each of the sections the assessment must cover. P2P lenders or those interested can see the full set of guidelines here.
About the guide, Jeffrey Mushens, TISA’s Technical Policy Director, said it will provide “much-needed clarity ahead of the introduction of new regulation.”
Reparo Finance Helps Brokers Deliver Business Loans
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Reparo Finance is an alternative provider of business loans. We provide asset-backed loans of up to £1 million to businesses that may have been overlooked by traditional lenders.
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