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Peer2Peer Finance News | August 25, 2019

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Here’s what the industry thinks of the FCA rule changes

Here’s what the industry thinks of the FCA rule changes
Suzie Neuwirth

THE FINANCIAL Conduct Authority (FCA has released its long-awaited, updated rules for the peer-to-peer lending sector, which confirm the introduction of investor marketing restrictions.

Here’s the industry reaction so far – keep an eye out for rolling updates

RateSetter chief executive Rhydian Lewis:

“Rather than a ‘clampdown’ this is a validation of our mission to open the asset class of loans to everyone, not just the rich.

“The limit on savers’ first investment is unnecessary and just patronises normal people. But the other aspects of the regulation mean savers can invest with confidence that P2P lending is particularly well regulated and here to stay.

“No longer can our sector be dismissed as the Wild West of investing: the cowboys are being driven out and the regulation is now on a par with mainstream savings and investment choices. We are confident that RateSetter’s growth is set to snowball from here – especially our ISA.”

Peer-to-Peer Finance Association chair Paul Smee:

“Much of what is included in the FCA policy statement published today reflects what is already good practice in the P2P lending market and we welcome that. We are pleased that the FCA recognises the significant and positive impact which P2P lending has on the economy, as the sector becomes a mature feature of the UK financial services landscape; and we consider that overall they are proposing a proportionate way forward for regulation.

“The statement is a long and complex document so we will be doing further analysis on its implications for the market.

“We will be monitoring especially closely the impact of marketing restrictions on how retail investors can participate in this important asset class and will let the FCA know if there is evidence that their rules are proving an unnecessary obstacle.”

Read more: FCA: Platforms must be more open about likely defaults

Zopa chief executive Jaidev Janardana:

“At Zopa we’re supportive of proper regulation of the P2P industry and have always worked closely with the FCA to that end. The majority of the rules introduced today are reflective of what Zopa itself already does and will bring other platforms into line with our approach. While we’re in a position to fully comply with the rules, we do have concerns about some specific areas of the new regulations.

“We share the FCA’s view that investors need to understand the risks of P2P lending and fully support the proposed appropriateness test as a way of checking an investor’s knowledge and experience of the sector.

“We are, however, concerned that the marketing restrictions don’t take into account the diversity of risk levels of the underlying assets to which P2P investors are exposed. At Zopa, our customers invest in a well-diversified portfolio of low risk personal loans, and we have consistently delivered positive returns to investors, including throughout the 2008 downturn.

“For people looking to invest in P2P, we’d suggest ensuring they have an understanding of the asset class they are investing in and the associated level of risk. Consideration should be given to how well established the platform is, its track record of performance, and whether it has a responsible approach to risk management before making their choice.”

James Meekings, UK managing director of Funding Circle:

“We welcome today’s proposals. Funding Circle has consistently campaigned for industry regulation that protects consumers and raises industry standards. We look forward to working closely with the FCA on the implementation of these new rules.”

CrowdProperty chief executive Mike Bristow:

“At CrowdProperty we welcome more specific guidelines around good practice in the P2P lending industry – there is a spectrum of practices which must become more closely aligned for the good of individual retail lenders.

“It’s a strategic sector for the UK which must be allowed to flourish in a high-quality manner. We believe that well informed retail investors should be able to participate and hope that marketing restrictions will not compromise retail investors benefiting from the more efficient matching of the supply and demand of capital that high quality P2P lending platforms deliver.”

Blend Network chief executive Yann Murciano:

“At Blend Network, we believe the measures promise to be a positive step forward for P2P platforms. We already use appropriateness tests, which the FCA is proposing. We believe these measures will have a significant positive impact on the P2P industry, particularly on the way that loan risks and platform business models are assessed.

“It is because the FCA has kept a watchful eye on the growing UK P2P industry educating and protecting consumers that is the second largest by volume in the world after the US. Last year, £3bn of loans were advanced to small businesses and property developers among others and £15bn has been advanced overall since the inception of P2P lending in 2005.

“After all, it is not regulation but strong oversight that anticipates dangers [that] is the key to preventing financial scandals happening in the first place.

“As US Commerce Secretary Wilbur Ross put it: ‘There is no evidence that regulation makes things better. The most highly regulated industry in America is commercial banking and that did not stop those institutions from making terrible decisions.’ Regulation does not solve things, good supervision does.”

Bruce Davis, joint managing director of Abundance Investment:

“The review of the sector involved unprecedented levels of data collection and scrutiny including independent research from the leading Universities studying the sector (Cambridge and Leeds).

“We welcome the proposals which level the playing field between loans and debentures in terms of the way in which the sector helps investors to understand the risks of investment which has always been the focus of the industry from its inception.”

Andrew Holgate, chief executive, Equitivo:

“Without doubt P2P has a strong place in the financial spectrum but, as with all types of investments and financial risks, the retail investor must be protected.  Poor risk management and poor regulatory frameworks caused a collapse of the banking system in 2008/9 and P2P was positioned too and intended to redress the balance so it cannot be allowed to make the same mistakes in the future.

“There will be many P2P platforms that will focus on the appropriateness test as being the major implication to come out of today’s FCA document. However we feel that they miss the main point about this document, which in our opinion, is about the credit and risk management within P2P platforms.

“There are indications that the FCA would like all platforms to move to more stringent risk controls and possible Prudential regulations, such as those that the banks operate under. We believe that this is the future direction of where the FCA what to take the industry. This shouldn’t be viewed with derision by the industry, but welcome as appropriate measures to protect the retail investor. Let’s remember that without retail investors, the P2P industry would not exist.”