IT’S a change that has been five years in the making and from today (9 December) the peer-to-peer lending sector enters a new era of risk management and transparency.
Platforms are now restricted to marketing to those who are certified or self-certify as sophisticated investors, those who are certified as high-net-worth investors, people receiving regulated investment advice, or those who certify that they will not invest more than 10 per cent of their net investible portfolio in P2P agreements.
New investors will also have to pass an appropriateness test to assess their understanding of the sector and platforms must also be more clear about loan performance and their wind-down plans.
The new rules were first mooted by the Financial Conduct Authority (FCA) as part of its post-implementation review in 2016, two years after it took over regulation of the sector.
It warned at the time that it had seen some poor business practices, for example, in disclosure of information to clients, charging structures, wind-down arrangements and record keeping.
Fast forward to 2019 and high profile platforms such as Lendy and Funding Secure have collapsed, others such as Landbay and ThinCats have decided to give up on retail investors and favour institutions, but there are still success stories.
Zopa is planning to launch a bank, Funding Circle is now a listed company and firms such as RateSetter are close to making a profit.
That’s not to mention the awards and recognition for innovation that several P2P lenders receive.
Lee Birkett, chief executive of JustUS has vowed to maintain the “purity” of P2P.
“With a number of recent high profile Innovative Finance ISA departures such as Landbay, Moneything, LendInvest and the original P2P daddy Zopa now morphing into a traditional bank, the choice of this much lauded tax-free asset class is becoming somewhat of a rarity,” he said.
“JustUs have been working hard to maintain the purity of P2P in preparation for the new FCA rules – that is operating an online platform for people to lend to people.
“Unfortunately, many platforms have muddied the P2P waters by bringing institutional capital onto their platforms and making their lending activities similar to that of a bank and therefore ineligible to operate as an ISA Manager.
“This restriction obviously puts their online investors at a substantial economic disadvantage.”
Mario Lupori, chief investments officer, for RateSetter, added that the sector will now be better regulated than ever.
“Regulation is important in every industry,” he said.
“It sets standards and gives confidence. Today confirms P2P is becoming mainstream.”
Meanwhile, credit risk analysts Wiserfunding said P2P lending is heading for a more sustainable future.
“With improved protection, investors will be able to properly allocate funds based on their desired risk appetite,” Gabriele Sabato, chief executive of, Wiserfunding, said.
“The regulation will reduce harm both to the individual and the sector and allow investors to explore innovative investment opportunities safely.”