Calls for the non-advised sale of peer-to-peer products to be banned have intensified in the aftermath of another lender's collapse.
The Financial Conduct Authority is set to introduce rules next month which will prevent individuals from investing more than 10 per cent of their assets in P2P investments without financial advice - but it has now been suggested this restriction should apply to the entirety of non-advised sales.
The P2P market has witnessed a number of high profile failures this year, with the collapse of platform Lendy in May and most recently Funding Secure in October.
Both platforms facilitated crowdfunded loans which were used to fund the purchase and development of property, with Funding Secure also arranging pawn-broking style loans secured on valuable items.
In the wake of its collapse questions have been raised as to how retail clients can be better protected in the market, with many pointing their fingers to an outright ban of non-advised P2P investments.
Anthony Morrow, chief executive of robo-adviser OpenMoney, said the P2P market was facing "challenging times" and the majority of investors were still entering the landscape unadvised.
Mr Morrow said: "I know the FCA are and have made several attempts at coming down harder [on P2P platforms], making the governance a lot stronger, but it feels as though it’s not really enough.
"The easy sweep would be if these businesses are going to continue to exist then they need to really change how they go about attracting money.
"These businesses promote themselves as a genuine alternative to cash but with investment return.
"Which just feels pretty irresponsible to allow the market to continue the way it is."
These included that new clients would not be able to invest more than 10 per cent of their assets in P2P products without advice.
Mr Morrow said: "By ensuring P2P investments are only an advised product means that for some customers - who have got a diversified investment portfolio with plenty of assets, who understand the risks when explained to them - then having some of that money tied up in P2P lending arrangements is probably not a bad idea."
Philip Sinel, barrister and litigation lawyer at Jersey-based Sinels Advocates, agreed that a ban on non-advised P2P investments was necessary.
Mr Sinel said: "My own overview with P2P is the banks fell apart ages ago so you’re getting a secondary market, with people going out there and being entrepreneurial.
"Which is great - because you need that to keep the economy stimulated - but, I don’t think people should be buying P2P without advice."
Mr Sinel said minimum standards imposed across the P2P sector were necessary to ensure investors understand the product, its fee structure and the security it affords.
The regulator's new rules due for implementation in December will set new minimums for the level of information platforms must disclose.
Mr Sinel said: "With all these things there is a balance between stifling enterprise and movement and making sure people do get in and out of these things in a reasonable fashion.
"There is always risk in investment, but those risks need to be flagged up and the fee structure needs to be flagged and the security needs to be flagged."
Scott Gallacher, chartered financial planner at Rowley Turton Private Wealth Management, said he has always had concerns about the P2P market, warning the general public was unlikely to appreciate the potential risks associated with the sector.
He added: "I’m not sure an outright ban would be appropriate but certainly people should be made fully aware of the risks they are taking."
Darren Cooke, chartered financial planner at Red Circle Financial Planning, said he would like to see P2P products banned to the general public in any form, advised or not.
Mr Cooke said: "I can’t think of any advisers I know who recommend it to clients, I certainly wouldn’t. So if they made it advised only that would pretty much kill it anyway. I think that says it all really."
rachel.mortimer@ft.com
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