There are increasing calls for the UK’s financial regulator to ban peer to peer (P2P) non-advised sales as another firm goes bust.
The Financial Conduct Authority (FCA) is introducing new rules which will limit the amount of assets that individuals can invest in P2P deals to 10% of a retails customers’ assets without taking financial advice.
But for some protestors that is not enough.
Anthony Morrow, chief executive of robo-adviser OpenMoney, said: “I know the FCA are and have made several attempts at coming down harder on P2P platforms, making the governance a lot stronger, but it feels as though it’s not really enough.
“The easy sweep would be if these businesses are going to continue to exist then they need to really change how they go about attracting money.
“These businesses promote themselves as a genuine alternative to cash but with investment return – which just feels pretty irresponsible to allow the market to continue the way it is.”
He added that the P2P market was facing ‘challenging times’ and the majority of retail investors were still entering the landscape unadvised.
Barrister Philip Sinel agreed that a ban was necessary, saying: “My own overview with P2P is the banks fell apart ages ago so you’re getting a secondary market, with people going out there and being entrepreneurial – which is great because you need that to keep the economy stimulated – but, I don’t think people should be buying P2P without advice.”
He said minimum standards imposed across the sector were necessary to ensure retail investors understand the product, its fee structure and the security it affords
He continued: “With all these things there is a balance between stifling enterprise and movement and making sure people do get in and out of these things in a reasonable fashion.
“There is always risk in investment, but those risks need to be flagged up and the fee structure needs to be flagged and the security needs to be flagged.”
The concerns surfaced as several P2P firms went out of business in the year, notably Lendy and Funding Secure.
Both firms offered crowd-funding loans to purchase property with Funding Secure also offering pawn-broking style loans on valuable items.
Under the new rules which will come into force in December, P2P operators must assess a client’s knowledge and experience of peer to peer platforms before making any sale and set new minimums for the level of information platforms must disclose.
The regulator also has its eye on credit risk assessment, risk management and fair valuation practices.
FCA spokesman 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.
“The FCA has refined its proposals to ensure the new rules protect consumers and support the P2P market.
In particular, additional guidance has been provided to make it clear that platforms will not be prevented from including information about specific investments in their marketing materials.”