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Peer-to-peer investment cap comes into force

Written by: Paloma Kubiak
New peer-to-peer lending regulations come into effect from today, including a cap on how much first-timers can invest in P2P loans.

From today, ordinary investors can only deposit up to 10 per cent of their assets in peer-to-peer loans, unless they’ve received regulated financial advice or have already made two investments in the past two years.

The cap has been introduced by the city regulator, the Financial Conduct Authority (FCA), in a bid to prevent consumers over-exposing themselves to risk and to protect them from poor practice.

It forms part of a package of measures from the FCA aimed at cracking down on the industry.

Under the new rules, peer-to-peer platforms will also have to assess an investor’s knowledge of P2P and make sure they understand their money is not covered by the Financial Services Compensation Scheme (FSCS) before they allow them to invest.

Platforms will also need to adhere to stricter marketing rules, including a ban on mass advertising campaigns. This means advertising can only be targeted to high-net-worth or sophisticated investors.

When the rules were announced in June, Rhydian Lewis, chief executive of platform RateSetter, said the limit on savers’ first investment is “unnecessary and just patronises normal people”.

Today, he said: “For first-time P2P investors, 10% is a sensible place to start and once you are experienced you can invest more. This is exactly what we have seen over the last ten years, with people dipping their toe in and then growing as they see the value. The limit will become a target, encouraging every investor to think about diversifying some of their money into P2P.”

It has been a bad year for the peer-to-peer industry, with several online platforms going bust including Lendy and Funding Secure, leaving many investors facing huge losses.

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