FCA gifts new P2P regulations just in time for Christmas

25 November 2019

Author: Lynsay Black
Practice Area: Banking & Finance


Reminder – New rules affecting both P2P Platforms and Investors are coming into force on the 9th December 2019 – Firms must act now to avoid penalty!

Peer to Peer (“P2P”) Lending works by creating a marketplace for investors to lend money directly to businesses and individuals. Since regulations were introduced in 2014, this form of alternative financing has increased in popularity exponentially and has attracted the attention of the FCA as a result. Following a review in 2016 the FCA reported that the sector had “developed a wider, more complex, range of business models” and proposed new rules and guidance to deal with their concerns.

The new rules, designed to enhance investor protection, are being implemented on the 9th December 2019, meaning P2P firms need to act now to avoid penalty.

Below is a short guide of the key rules being implemented:

Marketing Restrictions

New marketing restrictions are being applied to protect new or less-experienced investors so that “only consumers capable of understanding the risks and of bearing the consequences invest in P2P agreements".

Following 9th December 2019, platforms who communicate directly to offer financial promotions can only market to those who:

  • Are Self-certified “sophisticated investors” or “high net worth investors”;
  • Confirm that they will seek regulated advice before the promotion is made; and
  • Are certified as a restricted investor, meaning that they cannot invest more than 10% of their net investable assets in P2P agreements in the 12 months following certification.

Appropriateness Test

Platforms will be required to introduce an “appropriateness test" before they can accept an instruction to invest, this will test the investors’ knowledge and understanding of P2P investments where no regulated advice has been given to them. Whilst each platform will need to devise their own test, the FCA has provided some guidance as to what the investor must demonstrate, including (but not limited to) their understanding of:

  • Their exposure to credit risk of the borrower;
  • That all capital is at risk; and
  • That investments are not comparable to deposits in a savings account.

Wind-Down Arrangements

Although the requirement to have wind-down plans has been in place for some time, platforms must now strengthen these plans and provide this information up-front, to ensure that investors understand what would happen to their investment should the something happen to the platform during their investment and so that they are able to measure this risk before making an investment. Following the Lendy collapse earlier this year, it is now more prominent that this information is provided.

MCOB Requirements

Don’t forget, those P2P platforms which offer (or intend to offer) home finance products, where at least one of the investors is not regulated, must apply the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other handbook requirements as of 4th June 2019.