Investments 

FCA warned about advisers’ ability to meet P2P rules

FCA warned about advisers’ ability to meet P2P rules

Concerns have been raised that advisers will be unable to comply with the Financial Conduct Authority’s requirements on peer-to-peer product due diligence.

In April, the government will introduce the Innovative Finance Isa (IFISA), which allows peer-to-peer (P2P) agreements to be included within an Isa tax wrapper.

Additionally, the government intends to make advising on P2P agreements a regulated activity.

To take account of these legislative changes, the FCA asked for views on updates it is planning to make to its rules and guidance on disclosure and advice relating to P2P agreements.

Several responses to the FCA’s consultation raised concerns about the issue of due dilligence.

In a policy statement on this issue, published yesterday (21 March), the FCA acknowledged there was concern advisers would not be able to conduct the due diligence necessary to allow them to comply with suitability rules.

It said: “They [the respondents] argued that, as a result of the difficulty in being able to measure risks associated with P2P agreements, there would be limited interest from existing advisers in advising on P2P agreements, and that these were likely to remain ‘non-advised’ investments unless this situation changed.”

An example given to the FCA was advisers would struggle to determine how a platform operator had assessed the creditworthiness of a borrower.

But the FCA said: “Advisers must form their own opinion of the risk of any investment and advise their clients based on this opinion.

“If an adviser is unable to form an opinion based on the information available, then the correct response is not to advise the client to invest in that product.”

The FCA has said firms holding themselves out as independent should not be obliged to consider P2P agreements when recommending retail investment products to a retail client, something the majority of responses to the consultation supported.

During the consultation the FCA was also asked whether P2P agreements would be regarded as complex and therefore if an appropriateness test must be carried out where a sale is non-advised.

In response the regulator said it was not applying the appropriateness test to P2P agreements when sold on a non-advised basis but said this is something it may revisit in the future.

All the responses were broadly supportive of the FCA’s plans to ban commission for investments in P2P agreements.

Nor were any substantive objections raised to the FCA’s proposal that individuals advising on P2P agreements be qualified to the same standard as those advising on retail investment products.

The rules will come into effect on 6 April.