The wonderful world of regulatory permissions 


This is an old blogpost, on a topic which ValidPath has subsequently considered carefully, and you can read more about it here...
A 2019 update on due-diligence, flagging up our concerns about P2P
An update on one particular (very popular!) P2P offering
ValidPath's view of various higher-risk offerings

I have written before about the nightmare that was the FCA's application process for gaining full Consumer Credit permissions, when the FCA took over the regulation of this function from the OFT, or whatever that body had morphed into.  This kind of experience leaves a profound impression on one, as one realises that, whatever the business of regulation is actually about, it cannot really be about the needs of the consumer, who is, in effect, deprived of the focused attentions of their advisers during this kind of ill-conceived exercise in gold-plating.

Contrast that kind of long-drawn-out form of purgatory with the latest bestowal of permissions in advising on P2P Agreements.  We had not asked for this permission.  We are not entirely sure that any of our Members are likely to want to rush into advising on this area, having never received a request for permission to do so.  We are far from enthusiastic about the prospect, given that this is another specific area of advice which carries heightened risk for the adviser.  And yet, as of the 5th April, we are advised that - Lo! - the permissions are ours.  We expended no effort whatsoever to obtain them - no 18 months of stop-start inaction, no new fees payable, no hurdles to jump through to prove how we might need them, and no mind-numbing updating of each Appointed Representative's records on the FCA's Connect system, followed by interminable queries as to why we were doing so.

It is a contrast that is so extreme and inconceivable, that it leaves one just shaking one's head in bewilderment.  How is it possible that such a slight matter (the retention of some essential and historic functionality in the advice model relating to debts) could require so much of us, whilst this potentially more weighty matter just gets slipped in as a kind of free bonus?  Don't get me wrong:  I am not complaining that we did not have to endure such pointless effort all over again, indeed I am rather grateful that we did not as it has clearly left us with some time for more useful and constructive activity.  But it does appear to betray a rather strange, schizophrenic culture at the heart of Regulation, one where balance is lacking, where values and emphasis are very far from being proportionate in their allocation.

It is, if you visit the webpage covering this matter, fascinating to see how the matter of regulatory fees will be covered in relation to P2P business.  The FCA has indicated that P2P business will simply be subsumed under existing investment categories, so the current percentage of turnover charges will apply to it.  But, if regulated firms choose not to write this kind of business (and there may well be perfectly good reasons for not doing so), then we/they will be charged anyway at a flate rate.  It's not a large sum, but there is a principle here:  regulated firms choosing not to write P2P business will be charged a FOS fee anyway.  This is a strange and invidious form of taxation.  It is like being charged VAT on goods you didn't purchase, or CGT on gains you did not make.

Advising on P2P arrangements becomes a regulated activity today (6th April).  By all means read the guidance supplied by the FCA, and clearly there is some relevance here for advisers, relating to the new Innovative Finance ISA.  Our expectation is that advisers will not wish to rush into this area, that they will ensure that they gain additional training on the matter, that the interaction between such vehicles and broader asset-allocation models is considered in some detail, and that a great deal of care is employed when matching such products to categories of clients.

Kevin Moss, 06/04/2016