UK Edition
Peer-to-peer lenders 'break advertising rules', regulator warns
The Financial Conduct Authority has raised concerns about the advertising methods of some peer-to-peer companies, the websites offering savers a better return on their cash from lending directly to individuals and businesses.
The regulator has said that some websites do not have enough information about their default rates, and that some have been breaking rules on misleading advertising.
Experts say it may impose more restrictions on lenders to make sure customers are getting accurate information about the risks and returns involved.
Peer-to-peer lending is a type of investing where investors lend money to borrowers directly, and earn from the interest. Equity crowdfunding is where investors put money into an asset, such as property or business, and receive a stake in the venture, or other perks, in return.
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In a report asking for input on the way peer-to-peer and crowdfunding firms are regulated, the FCA said there were concerns that novice investors might be misled or confused by incomplete or unavailable information.
It said: "We have some potential concerns about how firms are presenting information to investors.
"It is, for example, quite difficult to find clear information on default rates on platform websites or to understand how the likelihood of default differs depending on when a loan was originated."
The report also said that some firms were breaking rules about promoting peer-to-peer schemes.
"We are concerned that we continue to see peer-to-peer financial promotions which are not compliant with our financial promotion rules across all types of media (for example, unbalanced presentation of risks and misleading comparisons with savings accounts and banking)," it said.
The regulator is consulting over whether the rules peer-to-peer lenders and equity crowdfunding companies have to follow should change.
It particular it may force companies to give out more information to investors and make closer assessments of their knowledge and the suitability of their chosen investments.
Last week small lender Funding Knight was rescued after going into administration, putting at risk the funds of 900 investors.
The controversy surrounding US firm Lending Club has also led many to question the long-term viability of the peer-to-peer sector.
Neil Faulkner, of risk rating agency 4thWay, said that the UK's "big three" lenders - Zopa, RateSetter and Funding Circle - had been very good at complying with the rules.
He added that he expected the regulator to tighten up rules for how lenders were allowed to market themselves.
"Some of the firms do intense marketing and test the boundaries. They are very responsive when we make suggestions, though.
"I think the FCA may well look at ways to tighten that up, to make sure people are getting enough of the right information."
Christine Farnish, chair of The Peer-to-Peer Finance Association, said that the FCA should be careful over-regulation did not stop lenders from competing with big banks.
"If platforms are to continue to be able to compete with powerful, large incumbents, then the regulator must strike the right balance and ensure that regulation is proportionate to the risks posed," she said.
Rhydian Lewis, CEO and co-founder at RateSetter, said: "Peer-to-peer investing is becoming very popular and it makes sense for the FCA to ensure it is appropriately regulated.
"We look forward to continuing our active and positive engagement with the FCA during the review process.”
olivia.rudgard@telegraph.co.uk