Industry leaders have slammed proposed new consumer investment regulations, warning that they may push yield-seeking investors into the unregulated space.
The UK Crowdfunding Association (UKCFA) has responded to the Financial Conduct Authority’s (FCA) call for input on consumer investments on behalf of a number of peer-to-peer lending platforms and crowdfunding firms.
It has raised concerns around the FCA’s proposals, which suggest that investment products should be simplified, while higher-risk products should be labelled with traffic-light colour coding, in an effort to better communicate risk.
The UKCFA has warned that any effort to further restrict investor options in the P2P lending space could result in a binary choice between cash-like, low-risk products, and high-risk investments which are marketed in a way that is intended to keep retail investors at bay.
Bruce Davis, founding director of the UKCFA, said that the P2P sector has already implemented a number of regulatory measures which have improved the safety and transparency of consumer investments. He has written on behalf of the UKCFA to express his disappointment in the new proposals.
“It is both disappointing and concerning that there is no mention of the 10 years of work done to develop the regime for non-readily realisable securities,” Davis said. “The FCA’s own review showed that those rules have been effective and have provided a new middle ground for retail investors with the right balance of protections.
Read more: P2PFN special report on regulation
“So the characterisation of the choice for retail investors as essentially between cash-like products and then high-risk investments is something we do not recognise or agree with and we have communicated that to the FCA.”
Peer2Peer Finance News understands that the Investment Association has taken a similar stance to the UKCFA in its feedback to the FCA. “If in five years’ time we are limiting retail consumers to low-risk products then there is a real danger that people will be pushed into the unregulated space in the search for an investment,” Davis said. “The whole tone of the call for input document suggests that the industry has not been successful as a whole and we disagree with that.”
Meanwhile, several P2P lending platforms told Peer2Peer Finance News that they are worried that the FCA’s call for input could lead to further tightening of marketing restrictions in the alternative lending sector.
The City watchdog has been showing its teeth in its regulation of the alternative finance space. In December 2019, it introduced stricter P2P rules and last month, it confirmed its ban on the marketing of mini-bonds to everyday investors. However, some industry stakeholders supported the FCA’s latest proposals.
Nicola Horlick, chief executive of P2P lending platform Money & Co – which is a member of the UKCFA – said that she agrees that “P2P lending is high risk and should have lots of caveats and warnings surrounding it.”
“It is down to all P2P lenders to make sure that the risks are properly explained on their websites,” she added. “I agree with the changes and feel that P2P lending should be confined to more sophisticated investors.”
The FCA said in its call for input that its intention is to “deliver a consumer investment market that works well for the millions of people who stand to benefit from it, and the businesses in the real economy for which it provides essential funding.”
The call for input closed on 15 December. The FCA is set to release its findings later this year and the results will be used to shape the FCA’s work over the next three years.