"For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection."
The FCA is placing a limit on investments in P2P agreements for retail customers new to the sector of 10% of investable assets to ensure they "do not over-expose themselves to risk". The investment restriction will not apply to new retail customers who have received regulated financial advice.
Last week regulated peer-to-peer firm, Lendy, entered administration following action taken by the FCA. The firm had £160m in outstanding loans with more than £90m in default.
The FCA says its new rules will "allow firms and fundraisers to operate in a long-term, sustainable manner".
The rules cover more explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes they advertise, with a particular focus on credit risk assessment, risk management and fair valuation practices.
The regulator is also strengthening rules on plans for the wind-down of P2P platforms if they fail.
Platforms will now need to assess investors’ knowledge and experience of P2P investments where no advice has been given to them.
Finally, the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other Handbook requirements will be applied to P2P platforms that offer home finance products, where at least one of the investors is not an authorised home finance provider.
Platforms need to implement these changes by 9 December 2019, except for the application of MCOB, which applies with immediate effect.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities. For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection."
Rhydian Lewis, CEO of RateSetter, added: “Rather than a 'clampdown' this is a validation of our mission to open the asset class of loans to everyone, not just the rich.
"The limit on savers’ first investment is unnecessary and just patronises normal people. But the other aspects of the regulation mean savers can invest with confidence that P2P lending is particularly well regulated and here to stay.
"No longer can our sector be dismissed as the Wild West of investing: the cowboys are being driven out and the regulation is now on a par with mainstream savings and investment choices. We are confident that RateSetter’s growth is set to snowball from here – especially our ISA."
