Like crypto trading, peer-to-peer lending is classified as a high-risk asset by the Financial Conduct Authority (FCA), and it is regulated accordingly. The 2019 peer-to-peer lending regulations featured a number of safeguards for investors designed to protect them from making inappropriate financial choices.
These included:
A cooling off period: After signing up to a peer-to-peer lending platform, investors must wait two business days before they can make their first trade. Within those two days, the investor can cancel their written agreements without any penalties.
Marketing limitations: The FCA cracked down on cashback schemes and refer-a-friend schemes, and imposed a series of marketing restrictions that made it harder for peer-to-peer lending platforms to advertise their products widely.
Risk warnings: Peer-to-peer lending platforms are required to issue visible risk warnings on their websites warning potential investors that they could lose all their money if they invest in this asset class.
These regulations let to some consolidation in the market, but today, the UK’s peer-to-peer lending market is delivering stable, inflation-beating returns, in a testament to the value of the sector.
Now, the regulator has its sights set on crypto trading, and it seems like the FCA is taking inspiration from its experience with peer-to-peer lending.
In 2023 the FCA released new guidance on crypto marketing, and there were a few familiar provisions.
From 4 February 2024, crypto firms have been required to include a risk warning on their website. Some restrictions have also been placed on the marketing of crypto products. In fact, the FCA claimed that more than 10,000 financial adverts and other promotions were withdrawn or changed in 2023 following regulatory intervention[2].
Announcing the new rules, Lucy Castledine, director of consumer investments at the FCA, acknowledged that the regulator had taken inspiration from its previous experience with fintech investments, saying that “the new rules for firms marketing crypto to UK consumers are aligned with the existing rules for other high-risk investments”[3].
However, Moneybrain’s Lee Birkett believes that the UK authorities are not treating crypto as the unique and separate investment sector that it is.
“The peer-to-peer framework that we helped develop is a sound and solid one,” he says. “But at the moment, the UK is still trying to navigate crypto into the traditional financial world.
“Meanwhile, Europe has taken the lead by developing a completely independent legal framework and vertical. I see crypto exploding in Europe, but the UK is limping along, not really knowing what to do.”
The FCA has been criticised for its slow response to peer-to-peer lending. The first peer-to-peer lending platform launched in 2005, yet the sector was almost entirely unregulated until 2019. Meanwhile, Bitcoin was launched in 2009, and the crypto landscape now includes more than 25,000 crypto currencies, with an estimated value of over $2tn (£1.53tn).
“In order to efficiently regulate crypto assets, the FCA needs to address its unique position in the market and not simply look at existing regulations,” says Birkett.
“Most importantly, it is vital that the regulator does not stifle innovation in this sector out of an abundance of caution.
“Crypto investing has been around for 15 years and it is here to stay. While we all want the market to be as safe and effective as possible, it should not come at the expense of the creativity and independence that the sector is known for.”
[1] .https://www.fca.org.uk/news/press-releases/fca-confirms-new-rules-p2p-platforms
[2] https://www.fca.org.uk/news/press-releases/financial-watchdog-stops-thousands-misleading-ads-promotions
[3] https://www.fca.org.uk/news/news-stories/guidance-crypto-firms-help-them-comply-marketing-rules
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