FCA: Peer-to-peer to become fully advised

Sarah Davidson

November 12, 2015

In a discussion paper published today the FCA outlined plans to introduce guidance on how information should be disclosed in relation to peer-to-peer agreements included within the new innovative finance ISA which will be available from April next year.

In particular, the FCA is asking whether prospective investors in IFISAs should be given information on:

• what the tax consequences are if the peer-to-peer agreement is not repaid

• the tax consequences arising from an investor wishing to withdraw a peer-to-peer agreement from an IFISA

• the procedure for switching ISA manager

In addition, if peer-to-peer platforms with ‘interim permission’ are able to offer IFISAs or become ISA managers the FCA will consider whether further information should be disclosed to prospective investors outlining the risks.

When the FCA took over regulation of loan-based crowdfunding in April 2014, firms operating peer-to-peeer platforms that had previously held an Office of Fair Trading licence were able to register for an interim permission from the FCA to continue conducting this regulated activity from April 2014.

Having an interim permission ensures firms can remain in the loan-based crowdfunding market until their application for full authorisation is considered. Firms operating peer-to-peer platforms should have submitted their application for full authorisation by the end of October 2015, and the FCA has said it will take between six and 12 months to consider an application.

Rules on advice

From April 2016 giving advice on investing in peer-to-peer agreements will be a regulated activity. Firms providing the service will need FCA authorisation and will need to abide by FCA rules.

As a result of the introduction of this new regulated activity, the FCA is considering whether its rules on the suitability of advice should apply to firms giving advice on peer-to-peer agreements.

If the FCA decides to apply these rules in relation to peer-to-peer agreements, advisers would need to ensure that they take reasonable steps to make sure that personal recommendations are suitable for their clients.

In addition, the FCA is considering making advice on peer-to-peer agreements subject to rules that ban the payment and receipt of commission.

As with other investments subject to these rules, advisers would need to have a charging model for advice to invest that does not rely on the payment of commission.

The rule changes would also prevent the payment of commission to platforms such as those run by self-invested personal pension scheme operators.

The FCA is asking those with views on how it should respond to the legislation on IFISAs to send them by the 31 December 2015. The FCA will then consult on any changes once legislation is made.

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