The UK market regulator is to limit the amount of money retail investors can allocate to peer-to-peer (P2P) lending, amid concerns of overexposure to the small, but fast-growing sector.
The Financial Conduct Authority (FCA) is placing a limit on investments in P2P agreements for retail customers new to the sector of 10% of investable assets to ensure they “do not over-expose themselves to risk”. The investment restriction will not apply to new retail customers who have received regulated financial advice. This comes just weeks after the collapse of property-focused P2P site Lendy, whose insolvency has been described as a “slow-motion car crash”. Comments from experts have arisen to disclose such an announcement.
One of the first ones, Dr Roger Gewolb, Executive Chairman and Founder of loan price comparison website FairMoney., has recently commented: “The FCA should be congratulated that it has now released these new rules in such a timely manner; however, I continue to believe that the FCA should not be the regulatory body to take action with the P2P lending sector.”
“It is disappointing that the new FCA rules appear to conflate P2P equity investments with P2P lending, as we should perhaps be less concerned with P2P equity, investors no doubt better understanding the risks involved when injecting capital into these businesses,” he continued.
Borrowers, on the other hand, are still not fully equipped with all the facts to understand how little protection they have when borrowing from a P2P lender. They are also not in a position to properly and professionally access the information on loan portfolios and their performance that is given to them by many of the P2P lending platforms. These lenders need proper independent supervision and regulating to protect potentially vulnerable borrowers and this regulation absolutely needs to come without stifling the industry, the same as it has done for a very long time with all deposit-taking institutions.
For the expert, the Bank of England should be regulating the P2P lending market and treating lenders the same as licensed deposit takers. However, what the FCA has issued today appears to still leave the duty of care for creditworthiness and lending performance with the companies themselves, effectively no doubt leaving the cowboys in charge of the ranch in some cases
“Many of the “peer” depositors/investors in P2P lending have been replaced with institutions’ money such as insurers and pension funds. They don’t require the same level of protection (and they are probably given better information by the lenders) as ordinary people who invest into P2P lending platforms to take advantage of the more favourable interest rates and these people need protection and that, in my opinion, is where the Bank of England and not the FCA need to step in,” the expert concluded.
Hernaldo Turrillo is a writer and author specialised in innovation, AI, DLT, SMEs, trading, investing and new trends in technology and business. He has been working for ztudium group since 2017. He is the editor of openbusinesscouncil.org, tradersdna.com, hedgethink.com, and writes regularly for intelligenthq.com, socialmediacouncil.eu. Hernaldo was born in Spain and finally settled in London, United Kingdom, after a few years of personal growth. Hernaldo finished his Journalism bachelor degree in the University of Seville, Spain, and began working as reporter in the newspaper, Europa Sur, writing about Politics and Society. He also worked as community manager and marketing advisor in Los Barrios, Spain. Innovation, technology, politics and economy are his main interests, with special focus on new trends and ethical projects. He enjoys finding himself getting lost in words, explaining what he understands from the world and helping others. Besides a journalist he is also a thinker and proactive in digital transformation strategies. Knowledge and ideas have no limits.