P2P investments limited to 10% for non-advised investors

Laura Suter
4 June 2019

•         Investors will be limited to 10% in peer-to-peer loans
•         Regulator has cracked down on marketing of peer-to-peer products

Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the FCA’s changes to the peer-to-peer sector:

“Peer-to-peer platforms have been dealt a blow by the regulator today, as the FCA introduces new rules to tighten up the sector. From December, anyone wanting to invest in peer-to-peer will now have to pass a test to show they understand the risks they involved, and new investors will be limited to having 10% of their assets in the sector. Providers will also be restricted in how they market products in the future, stopping mass advertising campaigns. 

“Newcomers to the peer-to-peer sector who haven’t sought financial advice won’t be able to invest more than 10% of their investible assets in peer-to-peer, as the regulator aims to limit the amount of risk investors are exposed to. The industry argued this limit is arbitrary and hard to enforce, but the regulator is pressing ahead regardless. It will be interesting to see how investors have to calculate and declare their investible assets to ensure they don’t exceed the cap. The flood of money to peer-to-peer in recent years has placed a spotlight on the sector, but it’s baffling that this limit is in place for peer-to-peer but not for other high-risk investment areas, such as cryptocurrencies, for example.

“Investors will now also have to answer questions about peer-to-peer before they’re allowed to invest, to ensure they understand they’re not covered by the Financial Services Compensation Scheme, how the loans work, and the risk warnings.

“The regulator’s moves to ensure peer-to-peer providers spell out the risks of the investments to customers should be encouraged, particularly looking at how providers manage the risk of a borrower defaulting and how they reach their example interest rate figures. The latest ISA season highlighted the flood of marketing from peer-to-peer lenders, some of which made comparisons with cash ISA rates or didn’t fully highlight the risks involved in the sector.”

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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