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ISSUE 60 | SEPTEMBER 2021
Industry braces itself for more investor restrictions THE PEER-TO-PEER lending sector is anticipating a regulatory clampdown on appropriateness tests and investor categorisation after a swathe of warnings from the City watchdog in recent months. In April, the Financial Conduct Authority (FCA) said it was considering toughening up its rules on the promotion of “high-risk” investments, including P2P lending. The regulator then wrote to the boards of P2P lenders in May, urging them to ensure their secondary markets, wind-down plans, loan disclosure and fees were fair and clear for consumers. And last month, the FCA published a letter it sent to bosses of equity crowdfunding platforms in July, warning that “too many” consumers are still investing in inappropriate, high-risk investments that do not meet their needs. The FCA expressed concerns that investors may be holding more than 10 per cent of their portfolio in investments
that “could pose a significant risk of harm”. Investor marketing restrictions have been in place within the equity crowdfunding space for a number of years and similar rules were subsequently introduced for P2P lending platforms in 2019. Platforms are currently restricted to marketing to sophisticated or highnet-worth investors, those receiving regulated financial advice, and those who certify that they will not invest more than 10 per cent of their net investible portfolio in P2P agreements – known as restricted investors. This means users have to select one of the categories to describe themselves before investing. Jatin Ondhia, founder of Shojin Property Partners, said the FCA’s approach
suggests that it does not believe restricted investors understand the risks of alternative lending. “It is wrong that restricted investors should be prevented from investing in equity crowdfunding projects and the further restrictions being considered by the FCA take us back many years by enabling only wealthy investors to take advantage of the new fractional investment models in this space,” he said. “The whole intention was that the market should be opened up to everyone.” He said the majority of operators in the P2P lending market are looking after investor interests and want to build a sustainable alternative investment marketplace to spread wealth across all sectors. “The FCA risks throwing
out the baby with the bath water,” he added. “In the long run this market will prevail and if the FCA doesn’t get a handle on this it will lose its crown to one of the many other competing regulated markets such as Singapore, the USA or Europe.” David Bradley-Ward, chief executive of Ablrate, agreed that the trajectory of the regulations seems to be to restrict access further for retail investors. “What effect this will have on the industry is a matter of how those restrictions are implemented by the FCA and whether certain models are given a different categorisation within those restrictions,” he said. “We have seen this coming for years. “I cannot count the number of times I have talked about liquidity being the key. If the industry in general had addressed these concerns in the past few years we would not be at this stage.” Compliance specialists >> 4 are picking up