FCA confirms advice regulations to apply to advising on P2P investment opportunities

Out-Law News | 23 Mar 2016 | 11:33 am | 2 min. read

Adviser charging rules and a range of other regulations will apply to firms providing advice on investment opportunities offered via peer-to-peer (P2P) platforms, the Financial Conduct Authority (FCA) has confirmed.

In a new policy statement (110-page / 1.36MB PDF) the regulator said that it will extend rules that already prohibit the payment or receipt of commission by firms in the context of personal recommendations made to retail investors to cases that involve advice on P2P agreements.

Advisors will have to take reasonable steps to ensure their personal recommendations on P2P investment opportunities are suitable for their clients and further rules on inducements will also apply, the FCA said. People advising on P2P agreements will also need to be "appropriately supervised and assessed as competent to carry out that activity (including attaining an appropriate qualification)", it said.

The move represents an extension of existing rules that already apply when financial advice is provided on other products in the retail investment market.

Investors that put their money in to P2P investment propositions following a personal recommendation by a financial advisor will "have recourse to the FSCS" (Financial Services Compensation Scheme), the FCA said. This is "to protect them against failures by authorised advisory firms", it said. The regulator also said that retail investors will be able to raise complaints about the service they receive in relation to advice on P2P agreements with the Financial Ombudsman Service.

"Further, if the advising firm goes out of business, the investor may be able to seek compensation from the FSCS," the FCA said.

The regulator also said that its approach to regulating the provision of advice on P2P agreements could change in future. It said it will consider the recommendations contained in the recent Financial Advice Market Review and determine whether there is a need to amend its approach.

Specialist in financial services regulation Chris Davidson of Pinsent Masons, the law firm behind Out-Law.com, said: "The FCA acknowledges that continued low interest rates could spur an increase in the number of ‘less sophisticated investors’ investing on loan-based propositions via P2P platforms. It has acknowledged that there is evidence of growth in the market in this respect."

"However, as noted in FAMR, there is an advice gap that particularly affects people who are not sophisticated investors and who may not either be able to afford or see the value in regulated financial advice. It will be interesting to see whether gaps in the advice market can be filled by new automated guidance tools and whether simplification of the advice regulatory process benefits investors, advisors, product providers and platforms alike," she said.

The FCA also confirmed that loan-based crowdfunding platforms operating in the UK will have the option to store funds they hold from all the loan deals they facilitate in a single account.

It said it will follow through with changes to its rules to allow the platforms to store money being lent between businesses (B2B) as well as those being lent in a P2P context in the same place, so long as it is kept separate from the platforms' own funds. As an intermediary in arranging the loan, the platforms hold the funds as client money until they are loaned.

Currently, the rules require that platforms keep funds being loaned through peer-to-peer agreements separate from their own funds as well as the funds being exchanged in the course of business-to-business (B2B) loan agreements that fall outside the regulatory framework. The P2P loans are regulated by the FCA whereas certain unregulated B2B loans fall outside the regime. The change is intended to simplify client money arrangements for platforms holding both B2B and P2P client money.

In its paper the FCA also clarified the type of information that firms will need to provide to retail customers when providing new innovative finance individual savings accounts (IFISAs).

Some of the changes to the FCA's handbook have immediate effect, whilst other amendments will come into force on 6 April.