Investor incentives banned under new rules
Peer-to-peer lending platforms will no longer be able to offer investor incentives such as ‘refer a friend bonuses’ under stricter rules confirmed by the City regulator today.
The Financial Conduct Authority (FCA) has finalised its long-awaited rules regarding the marketing of high-risk investments to consumers, which includes P2P lending under its definition.
Financial services firms approving and issuing marketing must have appropriate expertise, the FCA said, and firms marketing some types of high-risk investments will need to conduct better checks to ensure consumers and their investments are well matched.
Firms also need to use clearer and more prominent risk warnings.
As part of its consumer investments strategy, the FCA wants to reduce the number of people investing in high-risk products that it says do not reflect their risk appetite. This is due to the regulator’s concerns that some people investing in high-risk products do not properly understand the risks involved.
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“We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk,” said Sarah Pritchard, executive director, markets at the FCA.
“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.
“This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”
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The City regulator said that the new rules are part of its “more assertive and interventionist approach” to protect consumers from poor financial promotions.
In the year to the end of July 2022, 4226 adverts were amended or withdrawn after intervention from the FCA.
The regulator said that the new rules will not apply to cryptoasset promotions as it is awaiting government confirmation of how crypto marketing will be brought into the FCA’s remit.
However, it said these rules are likely to follow the same approach as those for other high-risk investments.
The FCA has also launched a consultation into Long Term Asset Funds (LTAFs) – a new category of funds unveiled last year designed to invest efficiently in long-term, illiquid assets.
The proposals could see these funds marketed to a wider group of retail investors and schemes.
It is unconfirmed whether P2P loans could be included in these funds.
The FCA is inviting feedback on the proposals by 10 October 2022 and will confirm its final rules early next year.
The new rules on the marketing of high-risk investments follows last week’s announcement about the new Consumer Duty, which aims to improve how regulated firms – including P2P lending platforms – serve customers.
The Duty will include requirements for firms to end rip-off charges and fees, make it easier to switch or cancel products, and provide helpful and accessible customer support, not making people wait so long for an answer that they give up.
