Advising on peer-to-peer (P2P) lending agreements became a regulated activity on April 6 2016. The current situation is that all firms that hold permission to advise on investment contracts have automatically been granted permission to advise on P2P.

These firms must now decide over the next 12 months whether they wish to retain their permissions in relation to P2P. Firms can decide to opt out at any time up until April 6 2017, however the simple method of opting out via a tool on the Financial Conduct Authority (FCA) website will be withdrawn on October 6 2016. Until then however, firms can complete a variation of permission form and email it to P2Padvice@fca.org.uk. There will be no cost to firms for withdrawing this permission.

Any firm that does not opt out by April 6 2017 will then need to pay the necessary authorisation fee to the FCA. Until this date there will be no additional charge for holding P2P permissions.

Another reason why firms may wish to opt out is that having P2P permissions could increase their professional indemnity insurance premiums.

Firms who give P2P advice are subject to similar standards as those applying to other forms of investment advice. These include:

• The FCA’s rules on ensuring suitability of advice apply in full
• P2P advisers cannot receive commission from the provider, and so must be remunerated entirely via fees
• P2P advisers must be appropriately supervised and assessed as competent, and need to attain a suitable Level 4 Diploma qualification
• Firms must have systems and controls in place for monitoring P2P advice which are equivalent to the controls they have in place for other investment advice.
• Firms giving P2P advice must hold the same level of capital resources as any other investment advice firm
• All of the FCA’s financial promotions rules, as set out in Chapter 4 of the Conduct of Business Sourcebook, apply to firms giving P2P advice
• Clients who receive advice on P2P agreements have access to the Financial Ombudsman Service should they wish to complain, and to the Financial Services Compensation Scheme should the advising firm go out of business

Financial advisers who hold themselves out to be independent at present can continue to do so even if they do not offer advice on P2P agreements.

Investment in peer-to-peer loans is now permitted within an Individual Savings Account (ISA). An ISA that includes a P2P component is known as an Innovative Finance ISA (IFISA). However, only operators of P2P platforms that hold full permission from the FCA can offer IFISAs. On March 31 2016, the FCA issued a statement to the effect that only eight P2P operators held full permission, and media reports said that only two of these eight had obtained ‘ISA Manager’ status from HM Revenue & Customs.