From tougher marketing restrictions to higher regulatory fees, there is plenty on the Financial Conduct Authority’s (FCA) roster that could hit peer-to-peer lenders in the new year.
Here is what to expect from the City watchdog in 2022.
1. High risk investment review
The FCA is planning to strengthen financial promotion rules for high-risk investments, due to concerns that everyday investors do not properly understand the risks involved.
It has controversially lumped P2P lending alongside unregulated products such as cryptocurrencies and minibonds.
The FCA published a call for input (CFI) on consumer investments in April seeking views on whether more types of investments should be subject to marketing restrictions and if tougher rules on financial promotions are needed.
This was followed by a proposed strategy in September and a policy statement is expected in the second quarter of 2022.
2. Directly authorised v appointed representative
Becoming an appointed representative (AR) can lower the barriers to entry for firms such as P2P lenders as it just means teaming up with a regulated firm.
An AR is an unauthorised firm that operates under the regulatory umbrella of an authorised firm, known as the principal.
The principal takes responsibility for the oversight of the AR. A number of P2P lending platforms have operated using the AR model.
But the FCA is worried about potential consumer harm in this model.
It has proposed changes that would improve principals’ oversight of ARs and require principals to provide the FCA with more information on their ARs, allowing the FCA to spot risks more quickly.
It will also expect ARs to be more effectively overseen by their principals.
The FCA is also seeking views on the wider risk posed by some of the business models operated by principal firms, and whether setting limits on these arrangements may help to reduce potential harm.
3. P2P platform failure investigations
Investors with money tied up in collapsed P2P lending platforms such as Collateral, Lendy and FundingSecure are still awaiting the outcome of ongoing investigations.
The FCA is supposed to be investigating its role in regulating these firms and any wrongdoing that led to their collapse.
There is no indication of an outcome in 2022 but investors will hope for some progress as many, such as Collateral lenders, have been waiting up to four years.
4. Regulatory fee hikes
P2P lenders could be hit with higher regulatory fees from next year.
The FCA has revealed a hike in fees for all regulated firms to help fund its plans to be a “more innovative and assertive regulator”.
The City watchdog has proposed increasing its minimum fee, paid by most regulated firms including P2P lenders, from £1,151 to £2,200.
It also wants to merge a fee charged separately to consumer credit lenders into the minimum fee.
The figures are up for consultation until the end of January 2022.
Once agreed, invoices are sent out by the FCA in July, to be paid by September.
5. Consumer duty
The FCA is introducing a new consumer duty for all regulated firms.
It is proposing a new consumer duty to be introduced by 31 July 2022 stating that “a firm must act to deliver good outcomes for retail clients.”
Financial services firms, including P2P lenders, will be required to test and show that their communications are clear and that consumers are receiving good outcomes.
“Under the consumer duty we would expect firms to consider the likely outcomes their customers will receive, from product or service design and through their full lifecycle,” the FCA said.
“We would expect firms to monitor, assess, understand and be able to evidence the outcomes their customers are receiving.
“Where firms identify that consumers are not receiving good outcomes, we would expect them to take appropriate action to rectify the causes.”