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How regulatory framework protects P2P investors


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The peer-to-peer (P2P) lending market was established in 2005. Since then, the market has evolved rapidly, as have the regulations underpinning protection for investors – and this looks set to continue.

In the UK, the sector has been overseen by the Financial Conduct Authority (FCA) since April 2014, when it took over the regulation of consumer credit from the former Office of Fair Trading. In November 2016, we became the UK’s first P2P lender focused on the SME market to move from interim to full FCA authorisation.

The FCA has introduced clear rules aimed at safeguarding P2P investors. However, technology is accelerating the pace at which businesses adapt to the changing economic landscape, and financial watchdogs in the UK have also been adapting their frameworks to ensure that regulation and investor protection are appropriate to the risks associated with the investment products.

For example, client money must be protected and firms have to meet minimum capital standards. Resolution plans must also be in place to ensure that, if a platform collapsed, loan repayments would continue to be collected for investors.

Gaining authorisation from the financial regulator added credibility and trust in what remains a relatively young marketplace. It has also meant that regulated platforms such as LendingCrowd have been able to launch Innovative Finance ISAs (IFISAs) after gaining ISA manager status from HM Revenue & Customs.

The FCA published its business plan for 2018/19 last week and said it would finalise proposed new rules for the P2P industry before publishing them for consultation this year. The watchdog said: “We want a sector that can innovate, compete and challenge established firms and business models without putting consumers at unacceptable risk.”

The continued evolution and strengthening of the regulatory regime is highly likely to support increasing interest among financial advisers and wealth managers looking for a suitable alternative for their clients’ investments. The introduction of the IFISA, combined with robust and transparent credit data on borrowers, means that more practitioners are opening their eyes – and those of their clients – to the opportunities on offer.

Our duty of care

At LendingCrowd, we take seriously the duty of care we have to our investor and borrower clients. Our in-house Credit Team, who have more than a century of combined experience, ensure that only established and creditworthy businesses are able to borrow through us. However, reward rarely comes without risk, and savvy investors know they should not put all their eggs in one basket – by holding a diverse portfolio of assets, they can reduce risk on their investments*.

We are one of the few P2P platforms that still offers an active, self-select, model alongside passive products.

Our active Self Select Account enables investors to hand-pick their loans, while our passive Growth Account and Income Account automatically spread their investments across as many businesses as possible, which means the impact is reduced if a business cannot repay its loan. All three accounts can be held within the LendingCrowd IFISA wrapper, providing tax-free* returns.

The UK’s P2P lending market is maturing and moving into the mainstream, as shown by the introduction of the IFISA. As well as offering healthy returns for investors, the sector generates real benefits for the economy by providing access to finance for small businesses who may struggle to secure funding from banks.

Debates over the regulatory framework may continue, but the ongoing focus by the FCA on appropriate regulation can only serve to further strengthen outcomes for investors and borrowers on P2P platforms.

*Capital at risk. Tax treatment depends on the individual circumstances of each investor and may be subject to change in future.

Article author

Stuart Lunn

Stuart Lunn

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If you invest through LendingCrowd you should understand that your capital is at risk.

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Read more about the risk involved when investing and borrowing.

The company's registered office is 23 Manor Place, Edinburgh, EH3 7DX.

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