PEER-TO-PEER lending platforms have expressed confusion around the definition of a sophisticated investor under the new Financial Conduct Authority (FCA) rules.
In an addendum to Consultation Paper 18/20, which outlines the new rules for P2P lending, the regulator says that “our rules allow for such investors to re-classify as sophisticated investors… if they have made two or more P2P investments in the past two years.”
Under the FCA guidelines, sophisticated investors would not be subject to the controversial ‘10 per cent’ rule, which bars retail investors from putting more than 10 per cent of their portfolio into P2P loans.
However, some industry figures have blasted a lack of clarity around the definition of sophisticated investors, as the 9 December regulatory deadline looms.
“There is an awful lot of confusion out there from what I hear amongst platforms,” said Stuart Law, chief executive of Assetz Capital.
“All platforms need to have an appropriateness test. Whilst the option of a platform certifying an investor as sophisticated exists in the regulations so that they can avoid the investor having to sit the test, it is rather unwise in my view at this stage and we have taken the decision to let everyone show us they understand through a detailed knowledge test.”
An in-house lawyer and a spokesperson from another P2P platform told Peer2Peer Finance News that their interpretation of the rule was that anyone who has P2P lending experience could be reclassified as a sophisticated investor.
Peer2Peer Finance News has learnt that the FCA has told platforms that a sophisticated investor could refer to any person who has previously lent through a P2P platform; a person who has been a member of a business angels or other network for the past six months; anyone who is registered as a director of a company with an annual turnover of at least £1m in the past two years; or anyone who has worked in private equity or finance over the last two years.