Some peer-to-peer (P2P) lenders may be forced to close as a result of the City watchdog’s tough new regulatory rules.
The proposals will force P2P lenders to give people a two-week cooling-off period as well as making sure that crowdfunders are sophisticated investors.
Announcing the rules, Christopher Woolard, the Financial Conduct Authority’s (FCA) director of policy, risk and research, said: “Consumers need to be clear on what they’re getting into and what the risks of crowdfunding are.
“Because so many new businesses fail, and because you might lose all of the money you invested, crowdfunding should only be targeted to those who have experience of high-risk investing, and have enough money to absorb any losses.”
The watchdog is worried that P2P lenders are using high interest rates – often from 5-10 per cent – to attract savers fed up with the paltry rates paid on savings accounts. But many may not be prepared for the risk that P2P represents.
For instance, when ethical soapmaker Bubble & Balm, collapsed this year, the £75,000 it raised through crowdfunding was lost.
Stuart Law, chief executive of P2P lender Assetz Capital, warned: “The FCA’s planned regulation could wipe out a significant number of P2P lenders. Many small lending platforms won’t survive – it’ll be an enormous drain on resources and a very tough process for them.”
He predicted the rules, which will come into force next April, will lead to consolidation in the industry as large platforms buy up smaller companies.