RBC Steering Rich Clients to Private Debt

The Bloomberg headline below is all you need to know about the inequality of investing access

The P2P lending industry was seen as an innovation, not only for the SME marketplace but for retail investors seeking yield in a super low-yield marketplace. Zopa were the trail blazers, followed by companies such a Funding Circle and Ratesetter.

All three are now out of the business of allowing retail investors access to these markets. Zopa are a bank, Funding Circle left partly due to regulatory concerns with Lisa Jacobs, Funding Circle CEO, saying

“..it was “sad” the platform had moved away from its P2P roots but put the decision down to a combination of reasons including regulation and the evolution of the industry.

She said she couldn’t say “one way or the other” whether Funding Circle would have exited from retail P2P lending if the FCA were kinder to the sector and emphasised the platform has always supported regulation that protects customers.

This all comes down to a big mis-match with what is being said by the regulators and what is actually been done. At the recent Innovation Finance Global Summit 2022, Jessica Rusu, chief data, information and intelligence officer at the Financial Conduct Authority (FCA), said that the watchdog has launched a ‘unified firm support service called Innovation Pathways’.

She said these will provide ‘bespoke regulatory support to firms with innovative business models that want to deliver positive innovations and consumer outcomes in the market’.

Unfortunately this is not what is happening on the ground. If you want to find out for yourself and you are a regulated firm, mention you are looking at getting involved in Crypto and see what happens!

Adam Afriyie MP is the Chair of the All-Party Group on Fintech, and he just happens to be my local MP. We haven’t met, he has never responded to my emails and yet I forgive him for the article he wrote in Cityam, where he highlghts this odd scenario we have in the UK. Entitled “Why the UK must embrace crypto” he points out the same issue with what the government are saying and what the regulators are doing.

It is a question of when, not if, the widespread adoption of blockchain, cryptocurrencies and other digital assets will take place.

Adam Afriyie MP

He goes on to state “I have spoken to several digital firms in the space, and they describe some alarming and unnecessary elements of the regulatory framework which make it more difficult to operate in the UK than elsewhere. I also have received reports that the FCA is ‘advising’ digital assets firms to withdraw applications from the temporary cryptoasset register and reapply outside the UK”.

We wrote about how the attitude of regulators currently is just not something that can be operated as it was in the last few decades. Other jusrisdictions are rubbing their hands together and inviting fintechs, especially crypto firms, into their countries with open arms. Don’t take my word for the FT wrote about Dubai luring crypto firms to its shores. Those companies that have recently set up having a combined valuation of over $50 bn… and these companies didn’t exist 5 years ago.

It is taking approximately 18 months- 2 years to get regulated in the UK for an average firm, that is a very long time in the current march towards digitisation.

An interesting part of the FT article talks about how Singapore was seen as a budding jurisdiction for crypto businesses but because of slow regulatory approval the ‘crypto caravan has moved on’. Basically, overnight, companies with billions in valuations have moved their eyes from one jurisdiction to another and if people are not viewing Singapore as attractive, how are they viewing the UK? This speaks to how mobile the financial industry now is and the regulators are still moving at a glacial pace.

So what is the UK to do?

The UK regulators need to worry about ‘Regulator Arbitrage’. The FCA need to realise that they are now in competition, and by default the UK is in competition with other jurisdictions for the soul of the financial industry for the next 50 years.

I give the FCA some aggro in these posts, but the fact is that the government needs to invest in the FCA. Give them more resources, treat them like a marketing tool for UK financial services. A well functioning, welcoming regulator in the UK would beat any jurisdiction, hands down.

Imagine an environment where UK financial services companies worked hand-in-hand with the regulator on innovations, rules and best practice? The FCA will say they have numerous consultation papers, everyone knows they may as well be called ‘Rule change warnings’ because that is how everyone treats them.

We all trott out our feedback on these consultation papers and the FCA go ahead and implement everything anyway……or throw a bone by not implementing something, and then you have lobby groups saying ‘we are pleased the FCA listened to us’ etc.

Genuine cooperation would make the UK the invincible force it should be, my fear is that we are a day late and a dollar short. On the one hand they are closing access to products such as private debt, and on the other allowing the big banks and IFAs to steer customers into those very products. Will it be the same in crypto and other innovative financial products institutions can play but the average Joe can’t?

I hope not.