Four regulatory changes that could impact P2P this year
Regulation has been a hot topic for the peer-to-peer lending sector in recent years and new proposals from the City watchdog suggest more changes to come.
Here Peer2Peer Finance News summarises four changes that could affect the sector.
High-risk investments
Earlier this month, the Financial Conduct Authority (FCA) set out its proposals on strengthening financial promotion rules for high-risk investments, including P2P lending.
The regulator is planning to ban the promotion of investor incentives, such as new joiner or refer-a-friend bonuses, and will improve risk warnings on ads.
It also wants to strengthen appropriateness tests by, for example by removing the ease of retakes, to improve risk warnings on ads and to “ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered”.
P2P platforms are facing a £1m bill across the sector to implement the changes. The FCA has invited feedback on its proposals by 23 March and intends to confirm its final rules this summer.
The Treasury’s consultation on financial promotion exemptions
Last month, the Treasury launched a consultation on the financial promotion exemptions for certified high-net-worth individuals, sophisticated investors and self-certified sophisticated investors.
The government proposed increasing the threshold for high-net-worth investors in line with inflation. To qualify as high net worth, investors currently need to certify that they have earned at least £100,000 in the previous year but the government is looking to raise this to £150,000. It is also planning to raise the net asset threshold from £250,000 to £385,000.
It has also suggested amending the criteria for self-certification, suggesting alternative tests and placing a greater degree of responsibility on firms to ensure individuals meet the criteria to be deemed high net worth or sophisticated.
The consultation is open to 9 March 2022.
Appointed representatives
In December, the FCA proposed tougher rules for the oversight of appointed representatives (ARs), saying that there are “real risks of consumers being misled and mis-sold”.
This could impact any P2P lending platforms currently operating under an authorised firm’s regulatory umbrella, and the principals themselves.
The regulator said that harm to consumers often occurs because principals do not perform enough due diligence before appointing an AR, or from inadequate oversight and control after an AR has been appointed.
The FCA is also working with the Treasury to look into whether legislative change is required.
Consumer duty
The City regulator has unveiled plans to introduce a new consumer duty by 31 July 2022 for all regulated firms, including P2P platforms.
The FCA said that “a firm must act to deliver good outcomes for retail clients.”
Financial services firms, including P2P platforms, will be required to test and show that consumers are receiving good outcomes and their communications are clear.