On 4th June 2019 the Financial Conduct Authority (the “FCA”) published final new rules for peer-to-peer (or P2P) lending platforms. The new rules are the result of the FCA’s consultation that launched in July 2018, with the FCA stating that the new rules are designed to help better protect investors and allow firms and fundraisers to operate in a long-term, sustainable manner. The new rules and guidance will come into force on 9th December 2019.
Why have these new rules been introduced?
As per the FCA’s announcement, the new rules are designed to prevent harm to investors, without stifling innovation in the P2P sector and are in line with the FCA’s commitment to keep regulation of the sector under review.
According to Christopher Woolard, Executive Director of Strategy and Competition at the FCA ‘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.’
What do the new rules do?
As part of the new rules being introduced on December 9th, the FCA is placing a limit on investments in P2P agreements for retail customers new to the sector of 10 per cent 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.
Another important change being introduced under the new rules is the mandatory Appropriateness Test. As per the FCA’s announcement, it will be introducing a requirement that platforms assess investors’ knowledge and experience of P2P investments where no advice has been given to them. Many platforms including our own, already use appropriateness testing to ascertain whether individuals are eligible to invest.
At Blend Network we fully support the new FCA regulation including mandatory Appropriateness Tests and the investment limit for restricted retail customers to 10% of their net assets in P2P. We at Blend Network already use appropriateness testing and the 10 percent limit rule. Consequently, these additional regulatory requirements should not drastically alter how lenders use our platform.