The FCA would like our help

Why is it 'gaming the system' if I invest at 6% for 5-years then want to sell out after 2 years to another willing buyer?

If I sellout the remainder of that loan after 2 years, into a 3-year market trading at 5%, I am the one losing out, and a 3-year investor would be getting a great bargain off me!!! Why would RateSetter want to penalise that?

Because I might need the money unexpectedly? Or my risk appetite has changed? Any number of reasons.

But who cares about the reason for selling out. The simple fact is, in that scenario I could be giving another RateSetter customer a great bargain, instead I am being penalised. Makes no sense to me at all.

It makes sense if you're RS. They get to charge you sell out fees and keep the difference in rates so they are the ones getting the great bargain.

Its gaming the system because they are amortising loans so the interest payments are a greater proportion of the repayments at the start of a 5 year loan than they would be for a 1 year loan. The rate is higher as well. So if you sell out early eg after 1 year you are getting a better return than you should ... hence the clawback. Its exactly the same as mainstream fixed rate accounts (MSE even highlight accounts that allow early withdrawals with penalties as giving a better short term rate than short term accounts even after penalty)

£1000@6% for 5yrs (Year 1) earns £55.19 = 5.52% (uncompounded)
£1000@6% for 1yr earns £32.80 = 3.28%
£1000@4% for 1 yr earns £21.80 = 2.18%

If there wasnt a penalty then everyone would do it and there would be an impact on rates.

I have to admit that seeing a 31 page note from the FCS fills me with dread, when will they learn to communicate, not just put together a committee to publish a dumb-ass document.

What do these guys want to know?

I have seen this point made before and it is incorrect. People can only sell out if there is someone to buy the loan part off them. There is no need for a penalty whatsoever.

Sophisticated Investor / HNW restrictions should not be relevant to any mainstream p2x platform lending. The risks are more akin to buying and selling shares, that any fool can do and lose money on, rather than professional private equity investing / unlisted company financing which is in a different scale of risk.

In Sophisticated Investor / HNW restricted investments the key is that the investor needs to be capable of understanding greater depth of financial complexity, or in a position to accept their investment may be wiped out and not complain.

However, p2x risk warnings should not be limited to small print / tick boxes, while presenting p2x like it's a higher interest type of savings account now that banks can't be trusted (I paraphrase).

I'm uncomfortable when risk warnings are effectively over-ridden by smooth promotions that gloss over risk. There have been other examples of this such as the Zero Dividend Preference shares scandal of some years ago. There is a level of communication needed to ensure less financially competent lenders understand how their money is at risk. Because some p2x is marketed as an alternative to savings accounts, there is a greater responsibility to ensure lenders understand the implications of the differences.