Investor marketing restrictions have become a requirement for the peer-to-peer lending sector but new customers will have different experiences depending on which platform they choose.
Under the new Financial Conduct Authority (FCA) regulations, which came into effect on 9 December, all new investors must complete an appropriateness test to ensure they understand the risks of P2P lending.
Additionally, customers must complete a self-certification questionnaire, to identify whether they are a sophisticated, high-net-worth, advised or retail investor. The retail investors must then pledge not to invest more than 10 per cent of their portfolio in P2P loans – a so-called restricted investor.
Analysis by Peer2Peer Finance News of the tests offered by four of the largest P2P lending platforms – Funding Circle, Zopa, RateSetter and Assetz Capital – shows a variety of approaches.
Funding Circle, Assetz Capital and RateSetter all ask new users to select their investor profile first, while Zopa invites users to do so after the test. The investor descriptions are different depending on the platform.
RateSetter and Assetz Capital both offer the options of being self-certified sophisticated, certified sophisticated, high net worth or restricted. Zopa’s categories are experienced, high net worth or less experienced, while Funding Circle’s options are everyday, sophisticated or high net worth. Each platform has seven questions in their tests that cover issues such as the lack of Financial Services Compensation Scheme protection and the other risks involved with P2P lending. Investors will need to get all questions correct with Funding Circle, Zopa and RateSetter but Assetz Capital users only need a 70 per cent pass rate, although there are some questions that must be answered correctly.
Zopa, RateSetter and Assetz Capital customers are told which questions they have got wrong and given extra information as they go along, while Funding Circle has split its test into four categories and you are only told at the end if you got a question incorrect. RateSetter gives users a second chance to answer a question they have got wrong before moving on and in all cases investors will still need to go back and redo any questions that were answered incorrectly.
Andrew Holgate, chief executive of fintech consultancy Equitivo, said there are no exact requirements for how to set out the tests. “As with many rules set out by the FCA, the onus is on the platform to ensure it sets out policies that are appropriate to the size and complexity of the business and the product being offered, including that there is a risk of loss,” he said.
“A platform is obligated to ensure its customers understand the risks of the types of investments it offers. “A platform that only offers direct P2P investments may have a less taxing test than one that offers multiple ways to invest.
“Therefore, there is no guidance on pass rates. It is down to the platform. Could this lead to a scandal? I’m sure the FCA will be investigating platforms and their tests very closely in the coming weeks.”