On 4 June 2019, the FCA published Policy Statement 19/14: Loan-based (‘peer-to-peer’) and investment-based crowdfunding platforms: Feedback to CP18/20 and final rules (PS19/14).
In PS19/14 the FCA summarises the feedback it received to its consultation last year on loan-based crowdfunding platforms (P2P platforms) (our blog is here) and sets out the final policy positions it has reached taking into account the feedback it received. It also contains the final rules, which implement the policy decisions that have been made.
In summary, the FCA confirms in PS19/14 that it is:
- introducing more explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes their advertise. These new rules focus particularly on credit risk assessment, risk management and fair valuation practices, especially for platforms with more complex business models;
- strengthening rules on plans for the wind-down of P2P platforms;
- applying marketing restrictions to P2P platforms, designed to protect new or less experienced investors. The FCA has also clarified the practical implication of these new rules as they apply to P2P agreements;
- introducing a requirement that an appropriateness assessment be undertaken, where no advice has been given to the investor. The FCA has also provided guidance on what the assessment should include;
- setting out the minimum information that P2P platforms need to provide to investors;
- requiring P2P platforms to implement these changes by 9 December 2019; and
- from 4 June 2019, applying the Mortgage and Home Finance Conduct of Business sourcebook (MCOB) and other Handbook requirements to P2P platforms that offer home finance products, where at least one of the investors is not any authorised home finance provider.
In its discussion on the responses to its earlier consultation, the FCA states that the proposals that generated the most feedback were those relating to the application of marketing restrictions to the P2P sector. The FCA states that most of the P2P platforms responding to this proposal felt that the approach was disproportionate and a blunt tool to achieve the FCA’s consumer protection objective. However, there was support from other respondents for these proposals with some suggesting that the FCA should go further.
Having considered the feedback the FCA reports that it has decided to finalise most of the rules as consulted on. It has, however, sought to clarify its expectations and policy intent by:
- providing guidance on the application of the restriction on information that can be made available to prospective investors in P2P agreements. This clarifies that retail investors can be provided with information on specific investments before they have to complete a client classification process;
- clarifying that the appropriateness assessment needs to be undertaken before an investor can submit an application to invest. The FCA has also provided more information about what the assessment should include;
- adding clarification that those P2P platforms offering a target rate of return, should be able to demonstrate they have appropriate access to data, and the modelling capability and governance arrangements to do so effectively;
- adding guidance on the inputs that might be needed to calculate credit risk at portfolio level, by also referencing the variability of losses through the cycle;
- required P2P platforms to assess and determine, depending on their business mode, when they will be revaluing P2P loans; and
- required P2P platforms to disclose if they consider a borrower is unlikely to meet their obligations, even if there has not yet been a default.