P2P firms “in the dark” over consumer duty requirements
Many peer-to-peer lending firms are still “in the dark” about what is required from them once the new consumer duty comes into law in July.
The Financial Conduct Authority (FCA) requires all financial services firms to comply with new rules which set standards for how they treat customers. Firms must act in good faith, avoid causing harm, and help customers achieve their financial goals. The new standards must be assessed by the firm’s board and reported on annually.
However, several P2P lending platforms have expressed concerns around the way the new duty will be supervised, and the spiralling costs to smaller financial services businesses.
“While the consumer duty’s intentions are noble and no right-minded platform would disagree with them, many are rightly questioning the package of measures and the potential for unintended consequences,” one platform chief told Peer2Peer Finance News, on condition of anonymity.
“What’s more, the scope of the consumer duty needs to be absolutely clear – which at the moment is where it’s found seriously wanting. It leaves many unanswered questions, particularly on how smaller firms are to apply it in practice. And what exactly is a retail customer? At what point do they become acceptable as marketing prospects?”
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The platform chief added that if the new regime tips the scale too far in favour of consumers, it risks stifling innovation within the fintech sector.
In off-record conversations, platforms have privately expressed concern around the lack of clarity in the new regulations, which state that “the rules and guidance must be interpreted in line with the standard that could be expected of a reasonably prudent firm.”
“I doubt a single firm knows what prudence looks like in that context, because we’ve so far been given no external objective standard to measure ourselves against,” said the platform chief.
“Then there’s the question of cost. To meet the requirements, platforms will need to invest significantly in technology to develop an evidence framework that demonstrates appropriate customer outcomes. And yet so far, the FCA has given no clear guidance on what this framework will involve, which means most of us – even with the best intentions at heart – are still totally in the dark about what’s expected of us.”
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Earlier this year, Sheldon Mills, executive director of consumers and competition at the FCA, acknowledged that some firms may need to make significant changes in order to comply with the new duty. However, he added that these firms “will also see the benefits of the duty, with increased trust in the sector, more flexibility to innovate and in time fewer rule changes.”
Meanwhile, P2P stakeholders have warned that there could be unintended consequences if the FCA rushes the consumer duty through without due care.
“As a result, it might just fail to produce any of its intended benefits and simply crush a segment of the economy that delivers crucial (and now irreplaceable) support to the building industry, and higher interest investment vehicles for those with the appetite for them,” said the platform chief.
“This last point would be a travesty, given that there is now no area of the economy now performing both these functions: if P2P is gone, those benefits are gone. And they’re irreplaceable as things stand now.”
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