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Reaction to FCA comment on crowdfunding and peer-to-peer lending

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Commenting on the FCA’s statement on new rules for crowdfunding and peer-to-peer lending firms, Rutherford Wilkinson technical director Mike Gordon says it shows how far the sector has to go before it meets the same regulatory standards as other lenders such as banks.

Gordon writes that the FCA found in their analysis that the plans some firms have for wind-down in the event of their failure are inadequate to successfully run-off loan books to maturity, while client money handling standards did not always meet the necessary high standards. The FCA plan to report in mid-2017 with the final conclusions of the post-implementation review and we’re likely to see more rules imposed on the sector.

“Zopa's, the largest player in the market, temporary freeze in taking new retail money as creditworthy borrower pools have dried up earlier this week has been taken by some as a good sign that the lender wasn’t prepared to lower its standards to take more business. However, this is just a sign of massive growth in still a niche market and we can’t rely on every lender not to lower their standards.

“This is a sector that clearly has a long way to still go in terms of its development and with the launches of the Innovative Finance Isa promising investors 6 to 8 per cent, it is quite worrying. Perhaps, it would make sense for investors to treat with caution the Innovative Finance Isa until firms have adequately improved their standards.  This is a question that the FCA asked in the paper- if the availability of investment through ISAs and pensions may create a change in the investor base towards less experienced or knowledgeable retail investors, who trust the ISA ‘brand’ and who may not fully appreciate the risks involved."

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