A draft Order expanding the scope of regulation with respect to peer-to-peer (P2P) platform activities, and clarifying certain activities relating to mortgages was published by the Government on 2 February 2016 (the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 (the Amendment Order). The Amendment Order contains a number of clarifying changes regarding the scope of regulated activities relating to mortgages and consumer credit. This blog post focuses on the new regulated activity of advising a person in their capacity as a lender, or potential lender under a relevant A.36H agreement.
The amendments with respect to the P2P regime arise out of the Government’s plan to allow loan-based crowdfunding investments (A.36H agreements) to be included in an ISA, in a new component to be known as an “Innovative Finance ISA” or “IFISA”.
Operating an electronic system in relation to lending (i.e. P2P platforms)
The Amendment Order introduces a new regulated activity of advising a person in their capacity as lender (or potential lender, or an agent of such a person) under a relevant A.36H agreement. In order to be captured by the new regulated activity, the advice must be on the merits of the person (as principal or agent) either:
- entering into a relevant A.36H agreement as lender (or assuming the rights of a lender under such an agreement by assignment or operation of law);
- providing instructions to a P2P platform operator, with a view to entering into a relevant A.36H agreement as lender (or assuming the rights of such a person, as above), where the instructions involve:
- accepting particular parameters for the terms of the agreement presented by the operator;
- choosing between options governing the parameters of the terms of the agreement presented by the operator; or
- specifying the parameters of the terms of the agreement by other means;
- enforcing or exercising the lender’s rights under a relevant A.36H agreement; or
- assigning rights under a relevant A.36H agreement.
There are, however, some important exclusions from the new activity.
In general, the new activity will capture a number of parties who provide services around P2P platforms, but who are not currently required to be authorised. Firms who operate in this segment of the market should take this opportunity to review their activities to ensure that they are not affected by this legislative change.
The Amendment Order also adjusts the scope of the regulated activity of operating an electronic system in relation to lending (i.e. a P2P platform). There are some tweaks to the definition of an “A.36H agreement”, which might on one view, narrow its scope of application. However, the Amendment Order also introduces a new regulated activity where a person operates a system which enables a person to facilitate another person assuming the rights of a lender under an A.36H agreement either by assignment or operation of law.
Following publication of its discussion paper in November 2015, the FCA is now consulting on how the disclosure rules in COBS will apply to firms in relation to investments in P2P agreements held in an IFISA wrapper (e.g. in relation to disclosing information about the non-transferability and illiquidity of the investments).
The FCA’s approach here is to draw this element of the consumer credit regime, within the ambit of its rules for investment business. This may be a sign of changes to come in terms of conduct rules for the consumer credit regime more generally.