Consumers who receive advice on peer-to-peer lending should have recourse to FOS and the FSCS, the FCA confirmed this week.
Previously, investors have been unable to lodge a complaint at the FOS or the FSCS following advice to invest in P2P agreements, as such advice had been classed as an unregulated activity. This is due to change on 6 April 2016, when firms currently without permission to advise on investments under article 53 of the RAO, will need permission in order to advise on P2P arrangements. April 2016 will also see the introduction of the Innovative Finance ISA, which will allow P2P agreements to be included within an ISA tax wrapper.
Following a consultation paper in February, the FCA confirmed in a statement issued on 21 March that, when advising on P2P lending, advisers must form their own opinion of the risk of any investment and advise the client based on those views and in compliance with the suitability requirements. Should the advisor be unable to form their own opinion on risk, then they should not provide advice to the client to invest. This advice is at odds with the industry response to the consultation, which argued that it could be impossible for advisors to conduct due diligence on P2P lending. The FCA has also confirmed that they will extend the ban on commission to P2P agreements.
The FCA's rationale for their contentious decision to allow investors in P2P access to FOS and the FSCS is twofold. Firstly the FCA considers it to be important that customers have protection against failures in advice provided by firms. Secondly, the FCA is of the view that consumers receiving regulated advice on P2P agreements should have the same access of FOS as they do when receiving regulated advice on other investments.
The industry has reacted to this news with concern and many have queried how the new costs arising at the FSCS will be funded. It is anticipated by the regulator that most P2P advice will be provided by already established firms, who will contribute a levy to the FSCS in relation to the new activity.
It could be said that the FCA's decision to allow consumers who have received P2P advice to complain to the FOS and FSCS is simply bringing P2P advice in line with other regulated advice. However against the backdrop of the recent final report from FMAR, which did little to allay concerns about distributors' advisory liabilities, this announcement is typical of the regulatory blockers to innovation in the name of consumer protection.