P2P investors may see fewer products due to new rules

Peer-to-peer investors can expect additional transparency as a result of new regulations, but some stakeholders warn there may be reduced product choice over the next year.

On 27 July, the Financial Conduct Authority (FCA) unveiled its long-awaited Consumer Duty, which aims to improve how regulated firms – including P2P lending platforms – serve customers.

The Consumer Duty mandates firms to provide more clarity on their products and services, rather than burying key information in lengthy terms and conditions.

Firms will be required to test and show that their communications are clear and that consumers are receiving good outcomes.

It will apply to existing products and services from 31 July 2023 and be extended to cover products and services in ‘closed books’ from 31 July 2024.

Then on 1 August, the City watchdog separately confirmed new rules on the marketing of high-risk investments, which includes P2P lending under its definition.

Platforms will no longer be able to offer investor incentives such as ‘refer a friend bonuses’ and will need to use clearer and more prominent risk warnings.

The FCA has designed a bespoke risk warning for P2P firms to display to customers, to be implemented by 1 December 2022. All high-risk investment providers will also be required to offer personalised risk warnings from 1 February 2023.

Mark Turner, managing director in Kroll’s financial services compliance and risk practice, said this could raise the bar when it comes to the level of service that P2P platforms provide, but warned it may also mean fewer products on the market.

“There are still, arguably, some areas where there is scope for different interpretations of the new rules, particularly in the context of appropriateness assessments – whether a warning but allowing customers to proceed is permitted, or whether there is a greater expectation for firms to turn away clients,” he told Peer2Peer Finance News.

Read more: New financial promotion rules will cost £135 per investor

“At the very least, the FCA will expect firms to justify their policies and individual decisions in the context of the requirements of the Consumer Duty.

“On the one hand, retail investors should see more information, starker risk warnings and more protection from some of the more questionable practices that still exist in pockets, but on the other hand they could well see less product choice.”

However, Bruce Davis, managing director of Abundance and director of the UK Crowdfunding Association, said it was too early to tell if the new rules will impact product choice.

“There is a lot of change coming through which we still need to assess, in terms of how it will affect the type of firms in the sector and what products they offer,” he said.

“I definitely think that the stricter rules will act as a disincentive to new entrants to the market as the level of ‘positive friction’ now required before customers can invest will make life very hard for those starting out in the market with a new offer.”