Revealed: Secret talks underway to roll back financial promotion rules

Representatives from the peer-to-peer lending community have been in secret talks with government officials and regulators about rolling back some of the new financial promotions rules, Peer2Peer Finance News can exclusively reveal.

A number of closed-door meetings have already taken place to discuss the impact that the new regulations have had on the P2P sector and retail investors.

Peer2Peer Finance News understands that approximately 30 Financial Conduct Authority (FCA) representatives attended a meeting with P2P industry executives in May to discuss the impact of the rules. Platforms shared data with the regulator showing that some of the changes are having a negative impact on their business by discouraging would-be investors.

Read more: FCA ramps up scrutiny of new firms

“We raised our concerns and wanted to try to understand how the FCA would view the data that we have and whether this is a problem in terms of policy,” said one P2P stakeholder who attended the meeting.

The FCA was described as being “defensive” in its response.

“Addressing the harm from high-risk investments is a key part of our consumer investments strategy,” the FCA has previously said.

“Long term social and economic changes have made the consumer investment market more important than ever. Consumers are increasingly responsible for making complex decisions about how they invest their long-term savings for life events and to support themselves in later life. There is more choice of products and services than ever before. It is increasingly easy to target consumers with adverts for high-risk investments online.”

Read more: ESMA updates rules on SPVs in crowdfunding and P2P

The regulator has previously stated that its long-term aim is to improve consumer outcomes by halving the number of vulnerable people who are making inappropriately high-risk investments.

Last year, the FCA unveiled new financial promotion rules for high-risk investments, which were designed to ensure that only suitable investors access these products. All P2P platforms now have to carry a prominent risk warning on their website, investor incentives have been banned and the requirements around appropriateness tests have been strengthened.

The risk warnings came into effect last December, and all other rules came into effect on 1 February this year.

The most controversial rule involves a 24-hour cooling off period. This begins when the consumer requests to view a direct offer financial promotion. From this point, P2P lending platforms are not allowed to show consumers the relevant financial promotion until at least 24 hours have elapsed. However, they can proceed with other parts of the consumer journey, including carrying out anti-money laundering checks and the aforementioned appropriateness assessment.

P2P stakeholders claim that this 24-hour cooling off period goes too far and is actively discouraging people from investing in P2P loans, even where P2P lending would be a good fit for them.

“That customer journey is having a really big impact on our ability to market our products to new customers,” said a P2P stakeholder who attended the May meeting.

Read more: Credit seekers could turn to alternative lenders as borrowing falls

Attendees at the meeting are believed to have focused on this 24-hour rule, with the aim of having it removed completely.

In 2021, the FCA stated an aim to “reduce by 20 per cent the number of consumers who could benefit from investment earnings but are missing out.” P2P stakeholders claim that the financial promotion rules do not support this aim.

Over the past few months, P2P platforms have been submitting data to the UK Crowdfunding Association (UKCFA) which shows how the 24-hour cooling period and other financial promotion rules are causing fewer investors to diversify their cash and investment holdings into P2P.

“We are engaging with the FCA on this issue directly and have raised our concerns with the policy team,” said a UKCFA spokesperson.

“We will continue to engage both with the FCA and with the Treasury if we don’t see significant engagement with our concerns.

“At this point we are exploring all options to represent our concerns whether that’s to the regulator or the Treasury.”

Indeed, Peer2Peer Finance News is aware that City minister Andrew Griffith has spoken with at least one P2P representative about the sector’s concerns around the financial promotion regulation.

Griffith has been vocal in the past about his support for the fintech sector. Earlier this year it was reported that Griffith was “scathing” about the FCA’s upcoming consumer duty, arguing that it could be harmful to the financial services sector.

“We would like to see a review of the rules to make sure that they’re fulfilling the stated objectives,” added the UKCFA spokesperson.

“We believe that the rules go too far at present.”

The FCA did not respond to requests for comment.

Read more: Invest & Fund: P2P lending has proven its resilience