Earlier this year the Financial Conduct Authority announced new rules for the peer-to-peer (P2P) investment sector in order to prevent harm to amateur investors.

This is part of the FCA’s ongoing commitment to review the rules on P2P investment while keeping pace with the evolution of the sector.

It stated in June that the rules aim to protect investors while also ensuring that fundraisers and firms can operate sustainably over the long term.

FCA executive director of strategy and competition Christopher Woolard 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.”

New levels of protection


The proposals by the FCA include rules to support the P2P market in general while also protecting consumers who choose to invest in this way.

P2P investment platforms were also told that they will not be banned from including in their marketing materials information relating to specific investment opportunities.

A key element in the proposals is the P2P investment cap for new customers entering the sector for the first time.

The FCA announcement in June placed a limit of 10% of investable assets on P2P investment agreements for newcomers to the sector.

In this way, the agency said that it is helping to ensure that new investors do not expose themselves to excessive levels of risk.

What the new rules cover


The FCA summarised some of the main areas covered by the new rules, in addition to the 10% cap on P2P investment.

They include:

  • Requirements for platforms to clarify the governance arrangements, systems and controls that must be in place to support their advertised outcomes.
  • A specific focus within this on credit risk assessment, risk management and fair valuation procedures.
  • Stronger rules on plans to wind down failing P2P platforms.
  • A requirement for platforms to assess the knowledge and experience of P2P investors who have not received professional advice.
  • Rules on the minimum information to be provided to investors by P2P platforms.
  • Rules for P2P home finance investment platforms to implement the Mortgage and Home Finance Conduct of Business sourcebook when one or more investors is not an authorised home finance provider.

A deadline of December 9th 2019 was announced for P2P platforms to make all of the necessary changes, while the Mortgage and Home Finance Conduct of Business rule came into effect immediately in June.

Protecting against P2P investment fraud


In early September at the Cambridge Economic Crime Symposium, FCA chair Charles Randell delivered a speech explaining how the cap is one of the measures the agency uses to protect investors who are at risk of P2P investment fraud.

He said: “Financial crime, specifically fraud against individuals, has reached epidemic proportions. One of the most damaging financial crimes is investment fraud, where people are scammed out of their savings.”

The FCA must supervise regulated financial firms, of which there are about 60,000 in the UK, including large banking groups and financial services providers, as well as smaller high street firms providing services like independent financial advice, insurance and mortgage brokerage.

He continued: “We have a system which allows, and sometimes now demands, that individuals take potentially very difficult and risky decisions about their savings.

“As a regulator, we must deliver the best protection for consumers that we can … But even when we are at our very best, more individual responsibility and freedom of choice are likely to mean more risk to consumers.”

The P2P cap is just one way the FCA is taking action on certain high-risk investments; others include a ban on high-risk bets on investments, and on bets against cryptocurrencies.

Exemptions to the P2P investment cap


The 10% cap on P2P investments applies only to new retail customers who have not received financial advice from a regulated advisor.

Exemptions to the P2P investment cap apply to two groups:

  • Those who are new customers but HAVE received regulated financial advice.
  • Those who are classified as ‘sophisticated’ investors.

In a policy statement dated June 2019, the FCA went into more detail about the reasons behind the 10% figure and the exemptions that apply.

“The figure is based on what currently applies in the NRRS [non-readily realisable security] context and is a means of finding a balance between protecting customers from bigger losses and allowing customers the freedom to make their own investment decisions,” the policy note said.

“It is important to clarify that the 10% limit on P2P investments is designed to ensure that less experienced customers are appropriately protected. Investors can re-classify as sophisticated investors, thereby removing the 10% investment limit, when they have more






Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.