FCA shelves P2P development loan ban after industry feedback

Peer-to-peer lending industry stakeholders have praised the City watchdog for taking feedback into account when tabling stricter financial promotions rules, and for shelving a proposed ban on the marketing of P2P property development loans for the time being.

Last year, platforms hit out at a Financial Conduct Authority (FCA) discussion paper that proposed a mass marketing ban be extended to P2P agreements which share the relevant features of a speculative illiquid security (SIS) and carry the “possibility for arbitrage”.

In January, the regulator published its latest consultation, ‘CP22/2: Strengthening our financial promotion rules for high-risk investments, including cryptoassets’, in which the proposed marketing ban on P2P development loans has been removed.

“We understand respondents’ concerns about the potential impact of extending our SIS rules on firms legitimately raising capital from retail investors,” the FCA said in its paper.

“We also understand concerns that not all P2P lending models present the same risks to retail investors. We published a discussion paper before consulting precisely to better understand the potential impact of these proposals and avoid unintended consequences.

“To fully address the issues that respondents raised, we do not propose to extend our SIS rules in this consultation. We intend to revisit this issue later in the year.”

Read more: P2P sector reacts to new FCA proposals

P2P platforms and stakeholders were pleased that the FCA took industry feedback on board and made these changes.

“It’s good to see common sense has prevailed,” said Lee Birkett, chief executive of JustUs.

Stuart Law, chief executive of Assetz Capital, said that the fact the regulator listened to the industry and removed the potential ban on P2P development loans is “amazing, correct and very important”.

“Very little that goes into an FCA consultation paper gets deleted so it’s very good the FCA has decided not to include it in this paper because it would have been very unlikely to have been removed afterwards,” he said.

Read more: FCA urged to rethink high risk categorisation of P2P lending

Filip Karadaghi, co-founder of LandlordInvest, was pleased with the FCA’s change of heart regarding the potential ban and said the platforms which are currently engaging in development lending appear to be acting responsibly.

“Development finance is riskier than bridging finance as it requires more specialist knowledge and those engaging in it in P2P are doing well,” he said.

Bruce Davis, co-founder of crowd bonds platform Abundance and director of the UK Crowdfunding Association (UKCFA) said he was pleased the FCA listened to feedback and even referenced UKCFA research showing investors’ understanding of the sector, in the paper.

He said before submitting formal responses in a few months’ time, the trade body will attend any roundtables that it is invited to by the FCA in order to discuss the proposals, and question members on any unintended consequences of the regulator’s plans.

“We were pleased to see the FCA referenced our research and took it into account and we’re looking at whether we should do a follow up survey to look at the proposals in more detail,” he said, speaking in a personal capacity.

Mike Carter, head of platform lending at the 36H Group, was also positive about the regulator’s plans. “We cautiously welcome some of the proposals in [the consultation paper] and also that for now P2P property loans won’t be included within SIS investments, although this door remains open as the FCA say they will be looking at this again later in the year,” he said.

Under the proposals, the FCA also wants to put P2P agreements under the banner of ‘restricted mass market investments’, alongside cryptocurrency and non-readily realisable securities.

The City watchdog said this was to rationalise its current rules after firms said its handbook was difficult to navigate.

For financial promotions for high-risk investments, the FCA is planning to ban the promotion of investor incentives, such as new joiner or refer-a-friend bonuses and will improve risk warnings on ads. It has also outlined plans to strengthen appropriateness tests, for example by removing the ease of retakes.

The regulator is inviting feedback on its proposals by 23 March and plans to confirm its final rules this summer.