January 21, 2022
  • January 21, 2022

FCA urged to oppose marketing ban on P2P development loans

By on June 18, 2021 0

The city watchdog has been asked to differentiate between good and bad practice in the peer-to-peer real estate development lending space, rather than implementing a blanket investor marketing ban.

Following comments on its call for papers on consumer investments, the Financial Conduct Authority (FCA) released proposals to strengthen its financial promotion rules for high-risk investments, including P2P lending.

The FCA noted similarities between P2P deals – using the example of a real estate development loan – and Illiquid Speculative Securities (SIS) and raised the question of whether this should have an impact on the commercialization of these. products to retail investors.

Real estate development lender P2P Capitalstackers has called on the regulator to discern the different types of lenders and practices, rather than potentially imposing a blanket ban on marketing, as it has done with mini-bonds.

The platform argued that direct lending – where an investor lends to a single borrower for a specific project – is better than automatic investing on multiple loans because the investor can do their own due diligence on the project.

Capitalstackers also claimed that manual lending can lead to better liquidity, as investors get their money back once this specific project comes to fruition.

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The platform suggested that the rules should give investors the freedom to seek higher returns on parts of their portfolios where they are willing to accept higher risk and where they have enough information to properly assess this. risk.

“Should we be regulating to prevent platforms from promoting secure lending opportunities to sophisticated, high net worth investors, where the risks have been made transparent and where they will be fairly compensated for the risks they choose to take?” Capitalstackers said in a blog post on its website.

“Isn’t it enough to be clear about how and when an investor can be reimbursed rather than excluding it altogether? “

The platform warned that a blanket ban on promoting P2P real estate development loans would prevent sophisticated and high net worth investors from entering the sector.

“The threat is that P2P real estate development loans are in FCA’s crosshairs and could end up being shut down as an investment vehicle, as we can only invest in real estate through institutional funds (to which (think of low returns and high costs), ”Capitalstackers said.

“Developers would be forced to enter the institution-backed debt fund market, thereby removing an extremely important funding stream that has been in place for a decade.”

The platform called on investors to respond to the FCA’s consultation before the July 1 deadline.

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“When a P2P agreement has characteristics similar to those of an SIS (for example, when it is a loan to a real estate developer), there is a possibility of arbitration,” FCA said in his proposals.

“In other words, a real estate developer could still seek an investment in the retail business through a P2P platform instead of issuing a mini bond, and that P2P deal could still be mass marketed.

“We are investigating whether (and why) you think the existing requirements for P2P platforms are adequate to protect retail investors from the risks of P2P agreements that share characteristics with SISs.

“Or should the ban on mass marketing be extended to P2P agreements that have the relevant characteristics of an SIS, and if so, what evidence of harm to consumers is there?” We also want to know the potential impact of any changes in this area, especially the number of consumers and P2P agreements that could be affected, and what that change would cost businesses and borrowers.

Do you have an opinion on FCA’s P2P real estate development loan proposals that you would like to share with the Peer2Peer Finance News team? Please feel free to email us directly at info@p2pfinancenews.co.uk.