UK: New Peer to Peer Lending Rules Kick in on December 9th: “A Watershed Moment for P2P”

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Crowdfund Insider | | Dec 10, 2019

rate setter new - UK: New Peer to Peer Lending Rules Kick in on December 9th: “A Watershed Moment for P2P”New peer to peer lending rules come into effect on Monday, December 9th. The new rules were the result of a review by the UK Financial Conduct Authority (FCA).

The UK largely created the entire sector of peer to peer lending. One of the most prominent sectors of Fintech, P2P lending has emerged as a viable asset class generating better risk-adjusted returns in a low-interest rate environment. While not without a few growing pains, P2P has been a net positive for both credit markets and for smaller investors seeking higher rates of return on their money.

At the time the updated rules were announced in June of 2019, the FCA stated:

“[The] P2P sector had developed a wider, more complex, range of business models. Many platforms in the sector are now taking a much more active role, by taking decisions on behalf of the investor. In addition, we explained that we had also seen some poor business practices, for example, in disclosure of information to clients, charging structures, wind-down arrangements, and record-keeping.”

The response by platforms has mostly been positive with some questioning if the net effect will be to dim innovation in the online lending sector. The UK P2PFA, the advocacy group representing the P2P industry, stated at the time the new regulations were announced that the rules “reflect what is already good practice in the peer to peer lending market and we welcome that.”

Orca Money, a P2P investment aggregation site, worried that institutional money would now take over the P2P sector.

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Zopa, the grande dame of P2P lending in the UK, recently published a blog post seeking to “demystify” how the rules will impact individual investors in P2P assets. Going forward, individual investors on will be classified within various categories including:

  • Certified sophisticated investor – no restrictions on how much you can invest – based on past activity.
  • Self-certified sophisticated investor
    • You have made more than one investment in a P2P agreement or portfolio in the past 2 years
    • You work, or have worked in the past 2 years, in a professional capacity relating to finance, resulting in an understanding of P2P
    • You are currently, or have been in the past 2 years, a director of a company with an annual turnover of at least £1 million
    • You are a member of a network or syndicate of business angels and have been so for at least the last 6 months
  • High net worth investor – you earn more than £100,000 per year, or hold net assets of at least £250,000.
  • Restricted investor  – you may invest 10% of your net assets with certain exclusions

See:  The future of fintech: lending + services

RateSetter, one of the largest peer to peer lending platforms in the UK labled the regulation a “watershed moment” for P2P – a positive for the evolution of the peer to peer lending industry.

RateSetter said that the FCA’s approach “decisively addressed any sense that P2P is lightly regulated” and the rules put the regulation of P2P “on par with other mainstream financial sectors.”

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NCFA Jan 2018 resize - UK: New Peer to Peer Lending Rules Kick in on December 9th: “A Watershed Moment for P2P” The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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