New FCA rules affect marketing by P2P platforms

It's been a busy week of announcements at the FCA, which has been a bit quiet of late on matters relating to alternative finance.

On Monday, we had the news that the required wording for a new risk warning has been agreed for high risk investments, which peer-to-peer lending and equity crowdfunding are deemed to be.

Platforms are now required to say:

Don't invest unless you are prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more [link to a risk summary].

This is, in fact, a slightly watered down version of the original proposal, which included the statement "you could lose all the money you invest". The P2P industry successfully argued during the consultation process that the overall loss rate in the sector, the regulatory requirements, and the incidence of people losing 100% of their money was very low, making the original proposal too severe.

Acknowledging the lack of liquidity looks to have been a necessary bargaining chip.

In addition to the generic risk warning, a personalised warning is required during the onboarding process. This needs to say:

[name], this is a high-risk investment. How would you feel if you lost the money you're about to invest? Take 2 minutes to learn more [link to a risk summary].

So, no victory on removing the risk of total loss from this part of the warning, apparently.

All platforms must implement the updated risk warnings by 1 December 2022.

Risk warning aren't, though, the FCAs only concern. Incentives to invest have also come under scrutiny and some incentives, like refer a friend bonuses, are now banned.

Following on from the risk warning announcement, a press release from the FCA yesterday (3 August), confirmed new rules for Appointed Representatives (ARs), making principal firms more accountable for the ARs under their wing. The new rules no doubt reflect a concern that 13 principal firms have been sanctioned since 2019 over the misconduct of an AR, a clear sign that they had not been performing their responsibilities adequately.

Principal firms will now need to "assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business, as well as review all information on their ARs' activities, business and senior management annually, and be clear on the circumstances when they should terminate an AR relationship".

The changes will take effect on 8 December 2022.

Hard to argue this improved oversight isn't sensible. What the impact will be on the attractiveness of the AR model, both for Principal firms and their ARs, remains to be seen.