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Regulator cracks down on peer-to-peer investing with new restrictions

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04/06/2019
Ordinary investors will only be able to invest up to 10 per cent of their assets in peer-to-peer loans from December, under strict new rules announced by the regulator.   

Peer-to-peer platforms will also have to adhere to marketing restrictions including a ban on mass advertising campaigns.

The new rules from the Financial Conduct Authority (FCA) are designed to protect investors from poor practice and the potential risks of P2P. Headline rates are often attractive., but investors are not always aware of the exact level of risk they’re being exposed to.

See YourMoney.com’s Peer-to-peer guide for more information.

As part of the package of measures, platforms will 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.

The 10 per cent investment restriction will not apply to new retail customers who have received regulated financial advice.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities. For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection.”

P2P platforms have in most part welcomed the new rules.

James Meekings, co-founder of Funding Circle, said: “Funding Circle has consistently campaigned for industry regulation that protects consumers and raises industry standards. We look forward to working closely with the FCA on the implementation of these new rules.”

However, Rhydian Lewis, CEO of RateSetter, said: “The limit on savers’ first investment is unnecessary and just patronises normal people.”

He did, however, add: “The other aspects of the regulation mean savers can invest with confidence that P2P lending is particularly well regulated and here to stay.

“No longer can our sector be dismissed as the Wild West of investing: the cowboys are being driven out and the regulation is now on a par with mainstream savings and investment choices.”

Meanwhile, Laura Suter, personal finance analyst at investment platform AJ Bell, suggests the regulator should also focus on other high-risk products.

“The flood of money to peer-to-peer in recent years has placed a spotlight on the sector, but it’s baffling that this limit is in place for peer-to-peer but not for other high-risk investment areas, such as cryptocurrencies, for example,” she said.

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