FCA’s 10% P2P Proposal – Show The Ferret To The Nest Egg…
Question: When is advice not advice? Answer: When it comes from the Financial Conduct Authority (FCA).
Let’s start with a little context. There’s been a greater focus on the peer-to-peer (P2P) sector from commentators and regulators, following the lamentable failure of the P2P platform, Lendy. Lendy’s collapse was linked – completely unfairly – with a number of problems experienced by investors in unregulated investments. That scene was set by the London & Capital Finance debacle, followed by a slew of other similar but unrelated failures (unless you count the role of the regulator – which many disgruntled investors do).
Measures are prudent and welcome
It’s in the light of the difficulty the FCA found itself in that we should consider the regulator’s announcement of a new limit on investor exposure to P2P assets, the loans facilitated on this and other P2P platforms. Investors should not commit more than 10 per cent of their portfolio to P2P is the broad thrust of the proposition. It comes amid a drive towards greater transparency in reporting defaults and bad debts in platforms’ loan books, more scrupulous risk management requirements and clarity on dealing with wind-downs in the event of a platform failure.
That’s right and proper. P2P is a young and fast-expanding sector of financial technology, and these measures are as prudent as they are welcome.
The necessary implication is that the fund was previously actively deemed suitable for investors
- The 10 per cent figure though is in fact not so much a limit as an aspiration. According to the latest HMRC figures, some £270 billion sits in adult Cash ISAs (figures to April 2018 – for the raw data from HMRC click here). So £27 billion of P2P inflow would be very welcome indeed.
The larger question, though, is whether there’s an implicit asset-management decision here – by limiting P2P exposure, isn’t the FCA at the same time both accepting P2P as a valid asset class and setting up an asset allocation model, with P2P as the sexy 10 per cent of the cash exposure?
The argument for this seems pretty persuasive: think of the brouhaha as Neil Woodford’s income vehicle fell out of favour with intermediary/introducer, Hargreaves Lansdown. By deeming the fund not fit for purpose, the necessary implication is that the fund was previously actively deemed suitable for investors. This is, in everything but name, advice.
But there’s no need to labour the point. If the FCA wants to style its ruling an acknowledgment of the validity of P2P as an asset class, we’ll happy leave it at that.
Now, roll on that 10 per cent inflow…
