Change is coming - FCA P2P rules review

I can only think that some P2P platforms will be pushing back against this document. We have seen the FCA float sensible changes before, only for lobbying from platforms to result in such changes being either watered down or quietly dropped. Take, for example, the more toward more investors needing to self-certify as sophisticated investors, high net worth investors, or that they will not invest more than 10% of their net investible portfolio in P2P agreements. Now, self-certification is a waste of time in pragmatic terms (the investor lies, the platform doesn't check, both are happy). Nonetheless, the signal is all wrong here for platforms. They market P2P very much as a replacement for instant access or term deposits. It's saving, not investment, in their marketing. The idea of a 10% cap, is an especially negative signal. It forces investors to think twice about their exposure, which is hardly what you want if P2P is being marketed as "cash-like".

Similarly, take the comments around SMs. Investors, by and large, like SMs and platforms like to promote the idea of liquidity (instant access again). Here though the FCA is pushing for the transfers of loan being executed at a fair price. Theoretically, it could kill par-only SMs. Variable priced SMs, however, they point out also have issues due to asymmetry of information and other factors. Forcing platforms to revalue defaulted loans is going to make products like AC's QAA harder. The QAA is pragmatically a collective investment scheme, dressed up like a P2P account. If, however, transfers cannot be made between clients at par for defaulted loans then this could fall apart. This is going to make it harder for platforms to maintain SMs and it could threaten various products that are less than vanilla interpretations of P2P.

What this report doesn't address is the basic flaw in the way P2P regs were setup. P2P regulation was mirrored to some extent on consumer loan regs used by banks, driven by the spurious idea that somehow P2P was similar to bank lending. Bank lending is a purely bilateral process. The bank, subject to prudential limits, lends to the borrower, creating deposits ex nihilo (it's a misconception that banks act as intermediaries, lending out deposits that savers place with them). P2P, by comparison, is actually like the misconception: the platform intermediates, in return for a fee/spread, a process where an investor lends money to a borrower. This is clearly a trilateral process. By using a bilateral model for a trilateral process, I feel you can't help but create issues. Hence why TCF (treating the customer fairly) usually is about treating borrowers fairly, not the investors. Until the regs explictly see that there are two clients, borrower and lender, who are equal, I get the feeling P2P regs will always be playing catch-up for lenders.