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FCA’s new rules will not prevent P2P platform failures, says FairMoney’s Gewolb

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Following the new rules confirmed by the Financial Conduct Authority (FCA), Roger Gewolb, founder of FairMoney.com, a fair loan comparison site, comments that while they go some way to protecting investors, the new measures will not prevent further platform failures. 

The FCA is placing a limit on investments in peer-to-peer (P2P) agreements for retail customers new to the sector of 10 per cent of investable assets to ensure they ‘do not over-expose themselves to risk’. 

“Essentially it is a problem with the platforms’ business model,” Gewolb (pictured) explains. “The platforms describe their products as investments rather than deposits. But the truth is that this money would be going to banks but for the higher interest rate paid by the platforms.” 

To be a licensed deposit taker, you are submitting to a regime of regular inspections, supervision and regulations. Yet, according to Gewolb, it is relatively straightforward to set up a P2P lending platform. 

As a result, he believes that we will see more P2P failures in the next year or so, perhaps one larger firm and a number of smaller firms. “Longer term, I also think we will see a move towards industry consolidation and a more formalised structure,” he adds.

“There is no outside supervision of the actual underwriting and management and collections procedure with these new rules; they have still left the burden of how you write your loans and loan portfolio performance with the companies themselves,” adds Gewolb. “Platforms need to have this same supervisory regime.” 

Gewolb welcomes the new rules. However, he believes that the FCA should not be the regulatory body to take action with the P2P lending sector. “It is disappointing that the new FCA rules appear to combine P2P equity investments with P2P lending, as we should perhaps be less concerned with P2P equity.”

His general belief is that while investors tend to have a better understanding of the risks involved when injecting equity capital into these businesses, lenders should have proper independent supervision and regulation to protect potentially vulnerable borrowers, in the same way as deposit-taking institutions. 

“The warnings on the platforms are not prominent enough and I believe that there is a significant proportion of people who are unaware that they are not protected by the Financial Services Compensation Scheme for example.”

He also questioned how the investment restriction was going to work in practice, particularly regarding the fact that the restriction will not apply to new retail customers who have received regulated financial advice, “In the case of lending P2P, how many people go to advisers to get that advice and conversely, will we see advisers and wealth managers selling P2P investments any time soon? I am not sure.” 

“There is no shortfall of investment capital, but with the variety of lenders in the market – banks, insurers, pension funds and retail – it is vital that the protection fits the product and that, in my opinion, is where the Bank of England and not the FCA needs to step in.”

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