FCA applies MCOB rules on peer-to-peer home finance platforms immediately

The regulator is forcing P2P platforms that offer home finance products to adhere to the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other Handbook requirements immediately.

This applies where at least one of the investors is not an authorised home finance provider and is being introduced with immediate effect.

P2P platforms must implement the other changes by 9 December, the FCA’s policy statement 19/14 said.

A range of restrictions on marketing materials will be introduced, along with a cap on investments of 10 per cent of investable assets, in P2P, for retail customers new to the sector.

The FCA will also introduce a requirement that platforms assess investors’ knowledge and experience of P2P investments, where no advice has been given to them.

And platforms will need to give earlier notice as to when defaults are likely to occur.

Lendy effect

The P2P property finance sector has been hit by the high-profile demise of Lendy which was finally pulled into administration late last month – and it appears the FCA is targeting the issues which plagued Lendy and resulted in £153m of loans going into default.

In particular, it noted that its new rules aim to create an environment where home finance customers “have a similar level of protection to that they would have if the provider were authorised”.

Questions were raised about the valuations applied to Lendy’s property loans and it appears the FCA is seeking to tackle this by noting that platforms should “carry out risk assessment and pricing of underlying assets to a high standard”.

It also wants to see that platforms are:

• well-governed and compete effectively for business,
• structure their business in a way that aligns their fees, charges and profits with the principle of treating customers fairly,
• have appropriate arrangements to ensure that P2P agreements continue to be administered if the platform ceases to operate for any reason.

As a result, it hopes investors will:

• have the necessary information about a platform’s services and charges to help them make informed decisions,
• have clear and accurate information about the investment risk of a product to make suitable investment choices in line with their risk tolerance,
• are appropriately rewarded for the risks they are taking,
• understand that their capital is at risk and they may suffer losses.

Defaults

P2P platforms will be required to give earlier notice of loans which are likely to go into default and must revalue their loans more regularly.

Platforms will have to disclose if they consider a borrower is unlikely to meet their obligations, even if there has not yet been a default.

And the FCA added a clarification that those P2P platforms offering a target rate of return, should be able to demonstrate they have appropriate access to data, and the modelling capability and governance arrangements to do so effectively.

FCA executive director of strategy and competition Christopher Woolard 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.”