The Financial Conduct Authority (FCA) has been urged to rethink how it categorises peer-to-peer lending, amid concerns that it is unfairly labelling the asset as high risk.
The prospect of new regulations in the P2P lending sector such as tougher marketing rules and investor restrictions was discussed at the P2P Leaders Forum, a virtual event hosted by Peer2Peer Finance News, this morning.
P2P lending industry stakeholders queried the direction of regulation, warning that the “tea leaves” from the City watchdog’s recent discussion paper on strengthening financial promotion rules suggested “increased friction” for investors.
Speakers raised concerns that P2P lending has been listed as a high-risk investment among unregulated products such as cryptocurrencies and mini-bonds.
“The idea of one-size-fits-all regulation doesn’t seem to be of benefit to P2P lending when we have high-risk frameworks that others don’t,” one panel member said.
“There is concern that the output from the discussion paper won’t be appropriate for P2P but maybe more suitable for cryptocurrencies.”
Read more: P2PFN and UKCFA roundtable on regulation
Speakers at the event agreed that the FCA should look at the actual harm that investors face by investing in P2P lending, against what it perceives to be the risks.
“There have been high-profile collapses but the loss rates on the whole across the industry are low,” one participant said.
“Retail investors have probably lost more money in the collapse of the Woodford funds than across the P2P lending sector.
“It is important to get a sense of context when deciding what the harm you are looking to mitigate is.”
Industry leaders involved with working on the regulations said the City watchdog is engaging with them on its discussion paper but there are warnings that it sometimes comes with a pre-judgement.
Areas of discussion include how to evidence the self-certify process on a platform, speakers revealed.
A panel member suggested that investing in financial services could end up looking like the cookie consent banners on websites, with users having to opt for certain products.
“Whether that’s effective to save people from the wrong thing is a different matter,” one stakeholder said.
Another industry leader at the event revealed that platforms were already working on contingency plans if tougher regulations are introduced.
This could involve seeking more institutional funding.
“There are questions of what platforms will do if the bar continues to be raised in terms of retail investors,” one speaker said.
“Extra regulations could squeeze retail funding.
“That could mean bringing in institutions.
“In some respects that is not a bad thing as all businesses should have diversified funding models.
“But normally that is because of market, not regulatory risk.”