Sunday, April 5, 2020

Watchdog Orders New P2P Protection For Investors

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City watchdogs have introduced a raft of new safeguards to protect peer-to-peer investors from losing money.

The Financial Conduct Authority announced the measures only days after the collapse of property bridging platform Lendy, leaving investors holding £165 million of loans.

The platform went into administration with a suspected £90 million of loans in default following an investigation by the FCA that alleged the firm had not maintained the regulatory standards expected.

The watchdog has labelled the P2P market as fast developing and warned that many investments offered by platforms in the market are outside the Financial Services Compensation Scheme.

P2P works by online platforms pooling cash from investors across several projects.

What the rules say

The aim is to minimise the chance of losing money by spreading risk.

However, investment is platforms like Lendy are in specific sectors, still leaving investors exposed.

Now, the FCA has issued the new rules to cover:

  • 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 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

Investment limit for unadvised investors

P2P platforms must implement the changes by December 19, except the MCOB code, which comes into immediate effect.

The FCA is placing a limit on investments in P2P agreements for retail customers new to the sector of 10% of investable assets to ensure that they do not over-expose themselves to risk.

The investment restriction will not apply to new retail customers who have received regulated financial advice.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: “These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities. For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection.”

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