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Alternative Finance blog

FCA New Rule on Transparency

FCA New Rule on Transparency

4 months

The new Financial Conduct Authority (FCA) rules become enforceable on 9 December which will affect crowdfunding and peer-to-peer (P2P) platforms, PS19/14 section 2.36, detail the need for the platforms to be transparent and provide potential investors the ability to compare opportunities across all platforms.

Extract from The FCA Rule

The investment - to ensure that investors are provided with relevant information about an investment, to improve transparency of the fees and platform charges for the services provided, and to help prospective investors compare investment opportunities across different platforms. This included:

  • ongoing disclosures – to ensure that, at any point, customers can access details of each P2P agreement they have entered into
  • outcomes - where a platform sets the price (pricing platforms and discretionary platforms), it must publish an ‘outcomes statement’, which includes:
    • the expected and actual default rate of all P2P agreements by risk category
    • a summary of the assumptions used in determining expected future default rates
    • the actual return achieved (where a platform offered a target rate)

As an aggregator we aim to rate all the investment opportunities in the Equity & Debt crowdfunding market and believe a detailed loan book from P2P platforms should be openly displayed. There are obviously some sensitive commercial elements to this from a platform’s prospective. However, once the new rules come into force it will create a level playing field and investors will be able to see how many loans a platform has placed and successfully fulfilled.

The golden rule here is for the platforms to embrace the transparency which will instil confidence and trust in their platform. P2P sites must disclose and move forward with the mindset they are going to become more successful in a fully transparent market place.

As a regulated professional and an organisation which is trying to compare platforms, we estimate there is less than 10% of P2P platforms publishing unfettered loan books. It is impossible for a professional to compare platforms without this unrestricted data let alone a retail investor.

To create a level of transparency and comparison across all platforms, every P2P site should be publishing a full unbiased loan book to allow professional advisors such as NextFin and IFA’s to compare fairly. When this happens the industry’s reputation will grow and in turn the market will grow, allowing prospective investors to easily compare between platforms.

We understand there are certain elements to the loan book which are confidential under GDPR, however investors do need to know a minimum level of information including, the risk band of the business they will be lending to, what interest rate is payable, when the loan is due, the size of the loan, what securities are behind the loan and the default rates of the platform, in order to make a fair comparison from one P2P platform to another.

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