It is the first step in a review of the industry that will also include the FCA analysing market trends and the individual businesses.
Although the regulatory regimes are entirely different - one set of rules for P2P lending (loans involving an individual) and another for investment-based crowdfunding (shares, bonds and funds) - the call for input highlights two common areas the FCA wants to investigate: conflicts of interest and investors' understanding of risk.
The FCA questions whether the mainly disclosure-based regulatory regime they created for P2P is sufficient. The review that launched with the call to input will be core to deciding what changes are required.
The FCA highlighted the following areas of interest:
The FCA will be looking at the due diligence undertaken by platforms and whether that is sufficient given their role and target audience.
Some concerns have been raised that investors may be categorising themselves as sophisticated or high net worth, when they are not. The FCA will explore whether this is a problem in practice
The knowledge tests that platform users are asked to pass will also be scrutinised by the regulator. appropriateness tests create. At a minimum that is likely to involve looking at the quality of the questioning (whether the right people fail) and what occurs when a user fails the test.
Innovative Finance ISA & SIPPs
The FCA refers to the general public's trust in the ISA brand and whether consumers will underestimate the risk of crowdfunding and P2P investments made through this wrapper as a result. It is equally concerned about pension money invested through self-invested personal pensions (SIPPs) given the new freedoms to remove money from pension pots and put them towards other investments.
Responses to the FCA's paper are due by 8 September. We would encourage all firms affected to respond and, where possible, to provide the FCA with evidence.
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