Rebuildingsociety chief executive Daniel Rajkumar has urged the Financial Conduct Authority (FCA) to review its high-risk investments policy, arguing it places peer-to-peer lenders at a competitive disadvantage.
Writing to the regulator and his MP, Hilary Benn, on 13 February, Rajkumar said the High-Risk Investments regime is making it economically unviable for P2P lenders to invest in small- and medium-sized enterprises (SMEs).
Having used freedom-of-information requests, Rajkumar believes the traditional financial services sector influenced policy against innovators by participating in consultation papers that lead to a tightening of the rules.
His letter called on the FCA to review the regime and help redress the imbalance in access to British Business Bank schemes such as the coronavirus business interruption loan scheme (CBILS).
“Ultimately, it is the SME that is the intended beneficiary of the initiative, it should be the SME that can decide from where it wants to access the funding,” he said.
Read more: Rebuildingsociety says consumer duty is pivotal for P2P lending
Under the FCA’s current regime, peer-to-business lending is categorised as a ‘restricted mass market’ investment, alongside equity lending and crypto assets.
“It is not fair or appropriate to categorise peer to business lending alongside equity crowdfunding,” Rajkumar said. “The FCA have made it economically unviable for P2P lending to work with SMEs because of a lack of attention to the fair competition objective.”
In the email, he exposed the advantages enjoyed by banks and the unregulated market, who do not offer risk warnings or cooling off periods, are not banned from offering incentives, and have no limits on lending.
Rajkumar said: “There should be a blanket ban on incentives offered in connection with all regulated financial services. This means that the value-judgement is predicated solely on the pricing of the service proposition.”
He added: “As an IFISA provider, we find it very difficult to compete to win new customers when my competitors are allowed to incentivise offers, but we are not.”
Read more: Revealed: Secret talks underway to roll back financial promotion rules
He said fintech entrepreneurs are being driven abroad by the harsh regulatory conditions in the UK and that as a direct consequence of not having fair competition, Rebuildingsociety is forced to take higher risks.
“Lending to Community Interest Companies is very high risk and likely to lead to losses. Nobody else lends to this part of the market, we are now looking at creating a lending proposition which we know has high likelihood of leading to net negative financial returns, in the long term,” he said.
His email to Benn reiterated these concerns and requested a treasury select committee to question FCA chief executive Nikhil Rathi on why P2P lending, crypto and equities are all deemed Restricted Mass Market Investments.
Speaking to Alternative Credit Investor today, Rajkumar said: “SME lenders operating inside the regulatory perimeter should not be disadvantaged to competitors operating a similar model outside the perimeter. Currently the Restricted Mass Market Investments category is too broad.
“I do not believe it’s appropriate to bundle P2P lending, equity crowdfunding and crypto assets together in the same ‘too small to succeed’ category. I’m pleased that the FCA have agreed to look into my concerns regarding fair competition, in respect of SME lending and look forward to hearing back.”
