Stricter peer-to-peer lending regulations have not deterred investors from the sector despite initial fears, Peer2Peer Finance News analysis suggests.
Since 9 December 2019, platforms have been restricted to marketing to those who are certified or self-certify as sophisticated investors, those who are certified as high-net-worth (HNW) 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.
All new investors must complete appropriateness tests to show their understanding of the risks of P2P lending. There were initial fears that the additional requirements would deter new investors but industry analysis by Peer2Peer Finance News has found that the investor base has remained steady and platforms are recording pass rates of 80 to 90 per cent. David Bradley-Ward, chief executive of P2P business lender Ablrate, said the platform’s pass rate is around 80 per cent.
Read more: Regulation: The devil is in the detail
Half of its investors are self-certified sophisticated, 24 per cent are HNW, 10 per cent are certified sophisticated and 16 per cent are classed as restricted or retail. “The appropriateness test is a barrier for some investors but we think it is absolutely necessary,” he said. “We have gone further and refunded and closed a small number of accounts where they have passed the test but subsequently, we concluded that they were unsuitable or vulnerable either from their pattern of investing or from questions received.”
Similarly, Brian Bartaby, founder of P2P commercial property lender Proplend, said investors have a typical pass rate of 85 to 90 per cent. “We have been relatively lucky that given our minimum investment is £1,000, this tends to mean the majority of our lender base has always been able to classify as either sophisticated or HNW,” he said.
And rural business lender Folk2Folk said it has a “very high first-time pass rate” due to clearly communicating the risks to investors when they sign up, although it did not disclose the exact percentage. Investor knowledge also seems to be improving.
P2P property lender LandlordInvest said 84.4 per cent of investors pass the test first time, up from 80 per cent at the start of the year. “This is a small but meaningful improvement in test outcomes, suggesting a possible increase in new investor’s knowledge,” Joe Vallender, chief technical officer at LandlordInvest, said.
The largest segment of its investors, 39.7 per cent, are classed as sophisticated, while 33.5 per cent are restricted and 26.8 per cent are HNW.
Ian Anderson, chief operating officer at business lender ArchOver, said all investors can pass if they read the available guides on its website. He said 80 per cent of users on the platform are either sophisticated or HNW.