FINANCIAL Conduct Authority (FCA) approval is no guarantee of quality, a peer-to-peer investment manager has warned.
BondMason, an investment firm aiming to get clients a seven per cent return by selecting P2P loans across approved platforms on their behalf, claims regulatory approval should not be seen as a “badge of trust” by investors.
Stephen Findlay, chief executive of BondMason, said the FCA approval process has given many smaller firms an advantage over bigger platforms, with established players such as Zopa, RateSetter and Funding Circle still awaiting authorisation so they can apply for ISA status and launch their Innovative Finance ISA (IFISA).
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“Just because a platform has FCA approval and is approved to offer an ISA it doesn’t guarantee quality,” Findlay said.
“When investors are looking to deploy capital across P2P platforms, FCA authorisations will serve as a ‘badge of trust’, but even though a platform is FCA regulated that doesn’t guarantee good loans or good returns to lenders.”
His comments come after the FCA warned P2P firms about the practice of wholesale lending.
The City watchdog wrote to the chief executives of all the platforms to highlight that if a lending business borrows through a P2P platform and lends that money to others, it may be “accepting deposits”. If the borrower does so without the correct regulatory permissions, this would involve a breach of the Financial Services and Markets Act (FSMA) and may be a criminal offence.
“We look forward to continuing to support the FCA and hearing the outcome of their review into direct lending later this year, but frankly, regulation should not be solely relied upon to protect the industry,” Findlay added.
“It also requires market participants to do their bit to ensure the highest quality and a responsible attitude towards investors and client money.”
With little more than a month left of this tax year, those platforms without regulatory status may struggle to get an IFISA out this tax season, but at least a dozen firms are expected to be ready.
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