Peer-To-Peer Lending Market Might Need to Follow Mortgage Lending Rules
The Financial Conduct Authority (FCA) has taken into account the idea of extending mortgage lending regulation to loan-based peer to peer lending and crowdfunding platforms.
The FCA is suggesting some changes in peer-to-peer lending rules due to certain concerns raised in an industry consultation.
One of the concerns highlighted is that investors are having a hard time comparing platforms with each other as well as comparing crowdfunding with other asset classes due to its complexity and uncertain product proposals.
Another thing is, investors are also finding it difficult to assess the risk and return on investment in the platform simply because there’s no clear information given by the platform and therefore investors can’t fully understand it.
In addition, the FCA’s requirement to be “clear, fair and not misleading” is not always being fulfilled by financial promotions.
Additionally, other firms’ plans for wind-down when they encounter a failure are not adequate to successfully run-off loan books to maturity, hence there’s a need to strengthen the rules on this regard.
It was in April 2014 that the FCA’s current rules on loan-based and investment-based crowdfunding platforms came into action and now, they want to have an equivalent regulatory framework which will give adequate protection to investors but also allowing for innovation and growth in the market.
Andrew Bailey, CEO of the FCA, said that his aim is to provide the investors with the appropriate protection from the risks associated with the crowdfunding industry and at the same time, continue to promote effective competition in the interests of consumers.
“Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified,” he said.
The FCA will report back on next steps early in 2017.
My Comment: It’s very important that you, the prospect lender do your homework on both the firm offering peer to peer lending or crowdfunding deals and carry out due diligence on the deal itself (the borrower). There are no guarantees in any deal or investments and any firm suggesting or implying this are in breach of abusing financial promotion rules and may even be unregulated.