The FCA | What does it mean for lenders?

What is the FCA?

The Financial Conduct Authority (FCA) is the UK’s independent financial regulator, accountable to HM Treasury and Parliament. It regulates the financial services industry to protect consumers, enhance the integrity of the industry and promote healthy competition between financial service providers.

In February 2016 was one of the first P2P platforms to receive full FCA authorisation.

Applicants have to meet a range of requirements for registration before we allow them to operate in the market. We review their business plans, risks, budgets, resources, systems, controls and whether key staff have the necessary qualifications, experience and ability to carry out their roles effectively.  They must meet these requirements before we will authorise or register them. – Financial Conduct Authority

What does the FCA do?

Handbooks and guidance are published for firms to follow, and together with oversight and enforcement of any violations, the FCA ensures financial services companies are ethical and don’t deliberately or inadvertently mislead consumers and that companies provide sufficient information to allow consumers to make good decisions.

For example, all financial promotions must have prominent risk warnings, whether on social media, websites and email. Marketing content must also of course be clear, fair and not misleading. Firms must always act in the best interest of their customers.

P2P lending and the FCA

The FCA regularly reviews P2P and crowdfunding, as it’s a relatively new industry. New rules for P2P platforms were introduced last summer in the FCA’s Policy Statement known as PS19/14 which covered:

  • Assessment of investor knowledge and experience of P2P investments. P2P firms must require all investors to complete an appropriateness test before onboarding or continuing to invest. This quiz tests someone’s knowledge and understanding of the platform and risks involved in order to protect new or less-experienced investors. If you’re a registered lender you will be familiar with the test.
  • Classification of lenders: High net worth, Sophisticated Investor, Self-certified Sophisticated Investor, Restricted Investor. This is a way of limiting high-risk or complicated investments to those with a good deal of experience.
  • Arrangements, systems and controls platforms must have, focusing on credit risk assessment, risk management and fair valuation practices. These regulations ensure credit risk is managed effectively, and loans are priced appropriately, so that there is a high probability that investors receive the advertised returns and are not exposed to excessive risk. These regulations mandate what is standard practice across other mainstream financial services industries.
  • Strengthening rules on planning for platform wind-down. This Living Will protects lenders should a P2P firm cease to trade.
  • Specifying information that P2P platforms must provide to investors, including the way it should be set out. For example firms need to denote late payments by saying ’90 days past due’ instead of ‘120 days past due’, which makes it easier to compare platforms. The new rules ensure appropriate customer disclosure and transparency, which are essential to a successful P2P platform.

The FCA and

As a P2P platform authorised and regulated by the FCA, is bound to adhere to the FCA objectives of competitive, consumer-protected activity; lenders and borrowers alike can rest assured they are getting a safe, secure and fair service.

Understand the Risks:

When lending, your capital is at risk | P2P investments are not covered by the FSCS | Returns may vary | Tax treatment may vary | Find out more about the risks of P2P lending

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