New FCA Consultation on P2P Lending and CrowdInvesting

The FCA is consulting on proposed changes to the regulation of P2P lending and crowd-investment platforms. Firms have until 27 October 2018 to respond. While the Treasury recently insisted at EU level (for what that's worth, post-Brexit) that it sees a significant distinction between P2P lending and crowd-investment platforms, the FCA's proposals severely erode any such distinction.

The FCA is concerned that investors may not:

• be given clear or accurate information, leading to the purchase of unsuitable financial products;
• understand or be aware of the true investment risk they are exposed to;
• be remunerated fairly for the risks they are taking;
• understand what may happen if the platform administering their loan fails;
• understand the costs they are paying for the services the platform provides; or 
• may pay excessive costs for a platform’s services

As a result, the FCA proposes to:

• set out the minimum information that P2P platforms need to provide to investors; 
• clarify what systems and controls platforms need to have in place to support the outcomes platforms advertise - particularly on credit risk assessment, risk management and fair valuation practices; 
• ensure arrangements are in place that take account of the practical challenges that platforms could face in a wind-down scenario; 
• extend marketing restrictions that already apply to investment-based crowdfunding to P2P platforms; 
• to apply Mortgage and Home Finance: Conduct of Business sourcebook (MCOB) and other Handbook requirements to P2P platforms that offer home finance products, where at least one of the investors is not an authorised home finance provider - to address a potential gap in protections for home finance customers who undertake transactions through a P2P platform.