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Peer2Peer Finance News | September 16, 2019

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RateSetter: FCA marketing restrictions are “disproportionate”

RateSetter: FCA marketing restrictions are “disproportionate”
Kathryn Gaw

RATESETTER has hit back at proposed marketing restrictions for peer-to-peer lenders, stating that they are “disproportionate” and “clunky”.

In a new blog post, the P2P platform’s chief executive Rhydian Lewis (pictured) responded to the recently-released consultation paper from the Financial Conduct Authority (FCA), which suggested a number of changes to the way in which the P2P sector is regulated.

Lewis said that while he “welcome[s] the bulk of the proposals as they will raise standards and drive out bad actors,” he was concerned about plans to limit the type of investors who can access P2P, and the amount of money that they can invest.

Read more: FCA to clamp down on platform wind-down plans

“We have the odd quibble on some detail here and there, but we agree with the overarching objectives,” said Lewis “We do, however, fundamentally disagree with one proposal around marketing restrictions.”

The FCA has suggested that P2P lenders could be limited to sophisticated investors or high-net-worth individuals who are fully aware of the risk involved in P2P lending. The regulator has also proposed that all investors should be limited to investing a maximum of 10 per cent of their net investible portfolio in P2P.

“We do not agree with this proposal,” said Lewis. “Having to categorise and treat people differently feels like a failure, not a control. While advice is valuable in many situations, it is unnecessary to insist on it. As for a limit, it makes sense to diversify your investments but we think this is a clunky and restrictive mechanic.

Read more: Here’s what the industry thinks of the FCA review

“Introducing marketing restrictions not only raises questions around personal freedom, fair competition and financial exclusion, but would be disproportionate given the risk profile of P2P. It would be a mis-categorisation of the asset class, as well as a backward step for competition and financial inclusion.

“We appreciate that the regulator is seeking to protect investors from harm. That is why we support those of its proposals that will manage risk such as risk management frameworks, governance and platform wind-down arrangements; what we don’t support is blocking access.

“We say: eliminate the high-risk elements of P2P lending and you can keep it accessible.”

Lewis added that he does not oppose the idea of “appropriateness tests”, which could be used to ensure that would-be investors fully understand the risks of P2P lending.

“The filter of a test, for every investor, could be highly effective and obviate the need for other restrictions,” he said. “It would ensure investors understand the risk, while not restricting access.”

Despite his criticism of the proposed marketing restrictions, Lewis said that he agreed with the majority of the proposals. He praised the regulator’s calls for more transparency among platforms, including more clarity around risk management frameworks, governance, wind-down arrangements and disclosure requirements, adding that RateSetter was already compliant with most of these issues.

The FCA consultation is open to feedback until 27 October, after which time the regulator will publish its findings and introduce any new rules.

Read more: FCA brings P2P creditworthiness rules into line with mainstream lenders