Peer-to-peer lending sites: MSE guide discussion

Fatbritabroad

Yes I'm my industry they are all over the big boys like a rash when I generally find it's the smaller players who are doing all kinds of dodgy things and getting away with it. I kind of understand as the risk with the number of clients we have is far greater but still it grates

fun4everyone

May I ask which industry you work in fatbritabroad, can’t help but be curious now.

masonic

BrokeyMcBrokeface wrote: »

Thankyou! How do they verify your identity? And is it therefore the case that no research is carried out into the source of funds invested?

fun4everyone has covered off your questions quite thoroughly, the only thing I'd add is that there would normally be no requirement to verify source of funds for transfers of sums of money from other accounts in your name that could reasonably have been saved up by the individual, say less than the £20k annual ISA allowance. Very large sums of money might cause checks to be carried out, but it would not be advisable to invest such large sums in a single P2P platform.

masonic

Fatbritabroad wrote: »

Ft story on lendy being put into special measures. Thoughts on impact to the wider p2p market? From what I've seen this isn't a surprise to seasoned investors in this area

No surprise at all and it will probably have no impact. The issues surrounding Lendy have been a couple of years coming, and lots has been said here about their poor origination and management of loans.

Ultimately I wouldn't be surprised if P2P is thrown in with other unregulated investments, with the 'light touch' regulation continuing, but investors having to self-certify high net worth or sophisticated, or agree to be Restricted Investors and limit their P2P exposure to less than 10% of their net worth (as this worked so well with London Capital & Finance!)

fun4everyone

masonic wrote: »

Ultimately I wouldn't be surprised if P2P is thrown in with other unregulated investments, with the 'light touch' regulation continuing, but investors having to self-certify high net worth or sophisticated, or agree to be Restricted Investors and limit their P2P exposure to less than 10% of their net worth

I would agree with this. Personally I think a lot of retail investors who maybe did not quite understand what they were getting into with p2p are involved with stuff like Lendy and Collateral because of the IFISA. Yes I know those two platforms I mentioned did not have the ability to offer that themselves but the mere fact George Osborne announced that you could wrap p2p investments inside an ISA made it look much more respectable and mainstream than perhaps it should have looked.

Fatbritabroad

fun4everyone wrote: »

May I ask which industry you work in fatbritabroad, can’t help but be curious now.

No problem. Commercial insurance. I'm a broker

jamesd

sendu wrote: »

Thanks, very informative. Have you looked at the equivalent details behind FC? I looked at the various legal stuff I could find on their website and it seemed OK to me, but I may be missing some subtlety.

No, but likely to be all UK.

jamesd

masonic wrote: »

Ultimately I wouldn't be surprised if P2P is thrown in with other unregulated investments, with the 'light touch' regulation continuing, but investors having to self-certify high net worth or sophisticated, or agree to be Restricted Investors and limit their P2P exposure to less than 10% of their net worth

None of those regulatory restrictions apply to unregulated investments, They apply to certain types of regulated investment and the FCA administers them as specified by the acts of Parliament that imposed them.

Zopa started out as an almost unregulated investment, with no FSA supervision, just the OFT lending license that was required, but not to protect lenders. They imposed their own limits to help lenders avoid being classed as lending as a business activity but neither the OFT nor HMRC required it.

masonic

jamesd wrote: »

None of those regulatory restrictions apply to unregulated investments, They apply to certain types of regulated investment and the FCA administers them as specified by the acts of Parliament that imposed them.

Zopa started out as an almost unregulated investment, with no FSA supervision, just the OFT lending license that was required, but not to protect lenders. They imposed their own limits to help lenders avoid being classed as lending as a business activity but neither the OFT nor HMRC required it.

They apply to unregulated mini-bonds. For example, those who invested in London Capital & Finance mini-bonds were required to complete an investor declaration and classify themselves as either High Net Worth, Sophisticated or Restricted, and Financial Promotions about the bonds had to be approved by a FCA Authorised Firm, even though the investment was unregulated.

Both EISs and VCTs are unregulated collective investment schemes, and investors in those coming through retail channels need to self-certify as belonging to one of the above investor classes, and again I believe the Financial Promotions must be approved by a FCA Authorised Firm.

The Restricted Investor Statement includes the text "I undertake that in the twelve months following the date below, I will not invest more than 10% of my net assets in non-readily realisable securities."
See COBS 4.7 Direct offer financial promotions, in particular 4.7.7 which applies to Financial Promotions that are disseminated in such a way that they are likely to be received by a Retail Client.
Non-readily realisable securities include (c) a non-mainstream pooled investment, such as (a) a unit in an unregulated collective investment scheme.

None of this currently applies to P2P lending (though a small number of P2P platforms voluntarily comply with COBS 4.7.9-10). It is currently regulated under the 'light touch' regime, but it wouldn't be difficult for the FCA to include P2P within the non-mainstream pooled investment umbrella and wash its hands of trying to regulate the sector any more stringently than unregulated investments. I doubt anyone would notice the difference, other than Retail Clients who arguably have too much of their net assets invested in P2P.

jamesd

Neither VCTs nor EISs are generally classed as unregulated collective investment schemes, though it is possible to structure them in a way that is caught by the unregulated collective investment schemes regulations. The FCA considered and rejected that idea.

Not sure whether you missed my point. You seem to be writing as though the FCA UCIS regulations mean there's no regulation of them, rather than them not fitting into certain FCA-regulated category, so something can be a U (by the FCA) CIS but still be a collective investment that is regulated in various ways.