FCA urged to rethink high-risk categorization of P2P loans
The Financial Conduct Authority (FCA) has been asked to rethink how it categorizes peer-to-peer loans, fearing it unfairly qualifies the asset as high risk.
The prospect of new regulations in the P2P lending industry, such as stricter marketing rules and investor restrictions, was discussed at the P2P Leaders Forum, a virtual event hosted by Peer2Peer Financial News, this morning.
Stakeholders in the P2P lending industry questioned the direction of the regulation, warning that the “tea leaves” of the city’s recent watchdog discussion paper on strengthening financial promotion rules suggested ” increased friction ”for investors.
Speakers raised concerns that P2P loans have been listed as a high-risk investment among unregulated products such as cryptocurrencies and mini-bonds.
“The idea of one-size-fits-all regulation doesn’t seem to be beneficial for P2P lending when we have high-risk executives that others don’t,” said a panel member.
“There is concern that the outcome of the discussion paper is not suitable for P2P but perhaps more suitable for cryptocurrencies. “
Read more: P2PFN and UKCFA round table on regulation
Speakers at the event agreed that the FCA should consider the real harm investors face by investing in P2P loans, versus what they perceive to be risks.
“There have been some high profile collapses, but loss rates across the industry are low,” said one participant.
“Retail investors probably lost more money in the collapse of the Woodford funds than in the entire P2P lending industry.
“It is important to have a sense of the context when deciding what harm you are seeking to mitigate. “
Industry leaders involved in the work on the regulations have said the city’s watchdog is engaging with them on its discussion paper, but there are warnings that this is sometimes accompanied by a Prejudice.
Discussion topics include how to prove the self-certification process on a platform, speakers revealed.
One panel member suggested that investing in financial services could end up looking like cookie consent banners on websites, with users having to opt for certain products.
“Whether this is effective in saving people from the wrong thing is another question,” said one stakeholder.
Another industry leader at the event revealed that the platforms are already working on contingency plans if more stringent regulations are introduced.
This could involve seeking more institutional funding.
Read more: P2P industry explodes ‘disappointing’ plans for new investment rules for consumers
“There are questions about what the platforms will do if the bar continues to be raised in terms of retail investors,” one commenter said.
“Additional regulations could restrict retail financing.
“It could mean appealing to institutions.
“In some ways, that’s not a bad thing, as all businesses should have diverse funding models.
“But normally, it’s because of the market, not regulatory risk.”