Peer-to-peer and equity crowdfunding face tougher FCA rules on marketing

Clearer risk warnings and a ban on ‘refer a friend’ bonuses.

Image source: Joshua Earle/Unsplash.

New marketing rules are set to be introduced by the UK’s financial regulator to reduce the number of consumers making “high-risk investments” that are not in line with their risk tolerance.

The Financial Conduct Authority (FCA) yesterday set out rules that will impact the peer-to-peer lending and equity crowdfunding sectors, including clearer risk warnings and banning some incentives to invest, like refer a friend bonuses.

Firms will also be required to conduct more rigorous assessments of potential customers to ensure that investments are suitable.

“We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk,” said Sarah Pritchard, executive director of markets at the FCA.

“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.”

While the FCA has been consulting since January when it first outlined the proposals, the industry reaction was critical towards the changes.

“Overall the rules continue to apply a one-size-fits-all approach to investments that have entirely different risk characteristics,” said Mike Carter, head of platform lending and investment at Innovate Finance.

Innovate Finance represents several of the UK’s largest alternative lending platforms like Assetz Capital and CrowdProperty through its 36H group.

“Additionally, the FCA holds out the prospect of further rule changes once the Treasury has concluded its own review of ‘high net worth’ exemptions, and a separate FCA review into high-risk investment categorization in order to prevent “arbitrage”,” added Carter.

“This piecemeal approach to regulation is unhelpful for innovation. We will continue to work with members to help shape these further proposals and navigate the new regime.”

The FCA said that firms would have four months to introduce new risk warnings and six months to comply with the remainder of the new rules before they come into effect.