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June 4, 2019

FCA issues rules for P2P sector in wake of Lendy failure

The Financial Conduct Authority (FCA) has introduced rules for the P2P sector, in the wake of a £165m collapse of Lendy, a secured property lending P2P network.

By Brian Cantwell

After a consultation, the Financial Conduct Authority (FCA) has introduced rules designed to prevent harm to investors.

This follows coincidentally in the wake of the collapse of the Lendy P2P platform last month.

Lendy, a £165m  peer to peer network for secured property lending went into administration on 24 May, with RSM overseeing the returns to creditors.

RSM is working closely with the FCA who has consented to its appointment over the companies.

P2P regulation

When the FCA set its first rules for P2P, it committed to keeping its rules under review as the sector evolved. It said its rules were designed to help better protect investors and allow firms and fundraisers to operate in a long-term, sustainable manner.

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.’

The FCA has refined its proposals to ensure the new rules protect consumers and support the P2P market. Platforms will not be prevented from including information about specific investments in their marketing materials.

As originally proposed, the FCA is placing a limit on investments in P2P agreements for retail customers new to the sector of 10% of investable assets. This is an important means of ensuring 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.

In addition to these restrictions, the new rules 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 particular 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.

P2P platforms need to implement these changes by 9 December 2019, except for the application of MCOB, which applies with immediate effect.

The FCA will continue to closely monitor the P2P market as it develops further.

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