The Financial Conduct Authority (FCA) is preparing to launch an analysis of peer-to-peer (P2P) lending, with the goal of institutionalising practice between platforms to secure investors.
The city watchdog has been identifying and analysing issues in the peer-to-peer market after it put out a call for input over a year ago, which found that it was hard for investors to learn the differences between platforms and the risks they were taking.
It said it would put out a discussion this year on new guidelines, which City A.M. understands is still on course to be disclosed before year end.
“I think the review is necessary because we’ve seen a lot of issues in the industry over the years. Another notch up on control by the FCA would potentially be a good thing,” according to Stuart Law of Assetz Capital.
“Some lenders have definitely treated the investors like a pool of money to be invested as they see fit – sometimes doing nothing like what the investors thought they would be investing in.”
Yet Stuart includes that it is not just investors who’re presently struggling with the system. It is also hard for the lenders to toe the line and not slip into becoming a bank or a fund, which is made harder by the reality that there is insufficient regulation or legislation which actually defines peer-to-peer lending.
“The fewer words in regulation, the harder it can be to comply in some ways because there’s less guidance. If the FCA were to publish a review, it would give better guidance,” Stuart explained.
This issue has been hinted at by the city watchdog itself, which published a letter back in February to chief executives of peer-to-peer or crowdfunding platforms warning them that they could theoretically be “taking deposits” within the law’s context.
If borrowers were to accept this money without the essential regulatory authorisation, it would create a criminal offence.
Stuart hopes that the FCA will concentrate on institutionalising the due diligence procedures that platforms must carry out and making them reveal more of the information they find to investors, instead of saying that crowdfunding has to be definite to experienced investors. “To block investors from one of the few secure and strong income sources would be a mistake.”
Investors should carry out their own due diligence and ask questions before they lend, Your capital maybe at risk!