P2P lenders face £1m bill for FCA appropriateness test changes
Peer-to-peer lenders are facing a £1m bill across the sector to implement the City watchdog’s proposed changes to regulation of high-risk investments.
The Financial Conduct Authority (FCA) outlined its long-awaited consultation on financial promotions last week, which includes requirements for P2P lenders to introduce tougher appropriateness tests and investor self-certification.
Much of its consultation focuses on introducing regulations to help manage the risks in the cryptocurrency sector, including investor categorisation and appropriateness tests that are already used within the P2P industry.
But the FCA has also beefed up its requirements for P2P lenders.
Changes include stopping users from retaking an appropriateness test for 24 hours if they fail and ensuing questions in subsequent tests are different.
Read more: P2P sector reacts to new FCA proposals
Firms will not be allowed to encourage investors to retake the test if they fail and must instead just inform them of the results and give them the option to retake or find content about the investment.
The FCA has also proposed introducing an evidence declaration where investors will be required to state why they meet the relevant criteria, for example stating their income to demonstrate they are high net worth.
Additionally, P2P lenders will also have to keep records on details such as how many users have seen its risk warnings and sought more information, the outcome of appropriateness tests and investor categorisations.
Many P2P lenders may already do this but the FCA estimates in its cost benefit analysis that these changes will cost the 41 authorised P2P platforms that are currently open for business and 19 investment based crowdfunding platforms £1.94m across the sector.
This is broken down as £19,000 for familiarisation and legal costs, £226,000 for governance and £1.7m for the costs of making changes to IT systems.
The FCA said it cannot quantify the impact on the revenue of P2P lenders.
The costs are a drop in the ocean compared with crypto firms though, which are facing a one-off bill of £59m.
Read more: FCA increases authorisation application fees