PEER-TO-PEER lending industry stakeholders have criticised the interpretation of data used by the City watchdog to justify proposed investor marketing restrictions.
The industry gathered at a Peer-to-Peer Finance Association (P2PFA) event held in London last Wednesday, to discuss the Financial Conduct Authority’s (FCA’s) review of the sector ahead of the 27 October deadline for feedback.
The most contentious element of the FCA review was its proposals to introduce categorisation and appropriateness tests for P2P investors. Under the proposed changes, platforms would be restricted to marketing to those who are certified as sophisticated or high-net-worth investors or those that certify that they will not invest more than 10 per cent of their net portfolio in P2P.
Some industry onlookers have argued this could dissuade everyday retail investors from putting money into the sector and may create onerous costs for platforms.
At the P2PFA event, which was held under Chatham House rules, stakeholders suggested that the FCA had misinterpreted the findings of a 2016 survey conducted by the Cambridge Centre for Alternative Finance, which collected responses from investors. It was suggested that the FCA had used these findings as justification for the proposed marketing restrictions.
Many of the individuals surveyed were pensioners, with low incomes but greater wealth. As the survey did not indicate investable assets, the FCA is thought to have got a skewed view of how much of their money people were investing in the sector.
It is thought that this feedback is being relayed back to the FCA imminently.
However, industry professionals present at the event were broadly in support of appropriateness tests. Their main area of concern was how those tests would be implemented in practice.
Some individuals mooted the possibility of different types of investor marketing restrictions on different platforms.
It was suggested that platforms offering manual lending were more risky and thus needed more stringent processes.
However, others argued that diversification does not automatically equate to a less risky portfolio as it depends on the quality of the loans.
Appropriateness tests are already in place in other investment classes, including equity crowdfunding.
In an interview with Peer2Peer Finance News on the day that the proposals were released, the FCA’s executive director of strategy and competition Christopher Woolard said they are not trying to shut people out of P2P.
“If you strip back the documents to the essence we are looking to deal with transparency and investor protection,” he said.
“Added transparency should help sophisticated investors, for those less experienced, the underlying complexity of some of the products mean we would impose the same kinds of restrictions we do on other complex products.
“If you are a first-time investor in this space you shouldn’t be putting in 10 per cent or more of investable assets.
“It is not that only a small subset can now invest in the P2P market, it is if you are an unsophisticated investor, if you lack experience we believe there is a degree of caution needed.”