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Regulators comments about P2P lending

This article is part of
Guide to Peer-to-Peer

Peer-to-peer lending was given a boost by the Conservative government in the Summer Budget.

A new ‘innovative finance Isa’ will be created from the next tax year which will allow peer-to-peer investing to be held inside the wrapper.

Indeed in contrast to start-up equity crowdfunding, Neil Faulkner, co-founder of peer-to-peer lending risk-ratings agency 4thWay, says the regulator and government are incredibly open to peer-to-peer lending.

Mr Faulkner says: “High-quality regulation has been rushed through at a speed we are not used to by the regulator.

“Peer-to-peer lending is not limited to high-net worth or sophisticated investors and there are no limits on the amount that investors are allowed to invest.

“While the regulator appears to remain positive on the industry, it has reported a handful of concerns about how the platforms describe their products.

“It has therefore taken steps to shut down some early, aggressive marketing, such as calling peer-to-peer lending accounts ‘savings’.”

But Mr Faulkner says platforms have generally moved very quickly to address these concerns and the regulator is watching to ensure that they do so.

Yet concerns remain about peer to peer lending through Sipps.

Sipp providers have warned of the dangers of including peer-to-peer lending products within their wrappers, responding to initial distribution deals being signed in recent months.

P2P lender Ratesetter’s senior commercial manager Ceri Williams told FTAdviser that in the last three weeks prior to the start of September around £350,000 worth of Sipp money, across several trustees, had been lent via the provider, although all of this came through the non-advised route.

Martin Tilley, director of technical services at Dentons Pension Management, argues P2P is an asset class in its infancy and that the providers of these vehicles are under a misapprehension.

He says: “It is not that Sipp providers are not keen on this product because it is a non-standard asset, it is the fact that there is no filtering process to ensure that monies invested by a Sipp cannot be lent back to a party connected; which would trigger an immediate tax charge.

“Of all of the P2P lenders we’ve spoken to, none have any process in place to identify potential connected party lending nor do some recognise this as an issue.

“One unnamed firm told us that if they realised it had happened they’d immediately take steps to rectify it,” he continues, adding that it would be too late then as the tax charge has already been incurred.

The Financial Conduct Authority’s thematic review of Sipp providers last year mandated they must have a robust and evidenced method of assessing all investment types, so Mr Tilley says that those which have accepted P2P to date have mitigated the potential tax charges in some way.

“All the while the asset is unregulated and holds no protections, so of course IFA’s will be extremely reluctant to advise upon it. The due diligence they would have to do on the P2P provider and its process for selection of parties to whom they will lend, will be enormous.”