Is P2P Lending Regulated?

If you are exploring peer-to-peer (P2P) lending or considering investing in loans, it is natural to ask whether P2P lending is regulated. In the UK, peer-to-peer lending platforms operate within a defined regulatory framework overseen by the Financial Conduct Authority (FCA), with firms required to hold the appropriate permissions for the activities they carry out.

At The Money Platform, regulation was not something we worked towards after launching. We were created as part of the FCA’s Project Innovate Incubator Programme, now known as Innovation Pathways, which allowed us to develop our lending model within a regulated environment from the very beginning. That early engagement helped shape how our platform operates today.

As an FCA-authorised platform, we are required to follow prescribed regulatory standards. These standards cover areas such as how new lenders are onboarded, how client money is handled, how investment risks are presented, and how borrower applications are assessed. It is also important to note that these standards are kept under review and continue to evolve as new risks and scenarios emerge.

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How should lenders be onboarded?

Lender onboarding is a clear example of how the FCA’s regulatory framework has evolved in recent years. In 2022, the FCA introduced Policy Statement PS22/10, which for peer-to-peer firms brought stricter requirements around prominent risk warnings, investor categorisation and self-certification, appropriateness assessments, and cooling-off periods for new investors. The rules also restrict incentives to invest and require risks to be presented as clearly and prominently as potential benefits, shifting the focus from disclosure alone to actively reducing the risk of poor investment decisions through design and regulatory friction.

From our own experience of the frictions introduced by PS22/10, the appropriateness test, which is designed to determine a prospective investor's understanding of the risk involved, has prevented 40% of applicants from depositing funds on the platform.

Prior to PS22/10, there were fewer controls on how risks were presented and less built-in friction during the onboarding process, which increased the risk of impulsive or poorly understood investment decisions.

How should we handle lender funds?

A peer-to-peer firm operating in the UK must handle lender funds in line with the FCA’s client money and safeguarding requirements. In practice, this means keeping lender funds segregated from the firm’s own money, typically in a designated Client Money Account, using those funds only for their intended purpose, and maintaining robust reconciliation and record-keeping processes. Firms must also have clear wind-down arrangements and transparent disclosures so lenders understand how their money is held and what would happen if the platform were to fail, ensuring funds always remain protected and traceable.

How are borrower applications assessed?

Under FCA rules, a P2P firm must assess borrower applications through a robust creditworthiness and affordability process that is fair, proportionate, and evidence based. This involves verifying income and expenditure, assessing the borrower’s ability to repay sustainably without causing financial hardship, and considering credit history alongside other relevant data. Decisions must be based on accurate information, supported by clear policies and governance, and regularly reviewed to reflect changing risk or customer circumstances. The overall aim is to lend responsibly, reduce the risk of borrower harm, and ensure outcomes align with regulatory expectations rather than purely commercial objectives.

Over the years, we have developed the TMP Score, in line with FCA regulations, as traditional credit scores alone do not always provide a complete or fair picture of someone’s finances. We built our own scorecard to assess creditworthiness using a broader range of data. By taking this approach, we are proud to have deployed over £65million of lender funds to borrowers since 2016.

Many of these loans may not have been possible without our proprietary scorecard. Looking ahead, the TMP Score will continue to evolve as we refine our data and decisioning, helping us responsibly extend access to credit to more people over time.

How should borrowers and investors be treated by us?

FCA authorised peer-to-peer firms must treat borrowers fairly throughout the lifecycle of their loan, from application and underwriting through to repayment and, where necessary, collections. This includes carrying out robust affordability assessments, providing clear and fair information about loan terms and costs, and ensuring communications are transparent and not misleading. Firms are also required to identify and support vulnerable customers, offer appropriate forbearance where borrowers experience financial difficulty, and ensure that any collections activity is proportionate and considerate. The overarching regulatory expectation is that lending decisions and ongoing account management prioritise good customer outcomes and avoid causing foreseeable harm.

For lenders, FCA rules require P2P firms to act in a way that delivers fair value, transparency, and appropriate protections throughout the investment journey. This includes providing clear and balanced information about risks and returns, ensuring marketing and onboarding processes support informed decision-making, safeguarding lender funds, and operating strong governance and oversight arrangements. Under FCA’s Consumer Duty, these expectations apply to both lenders and borrowers, requiring P2P platforms to consistently act in good faith, avoid foreseeable harm, and support informed financial decisions on both sides of the market.

From our perspective at The Money Platform, strong regulatory oversight is a positive development and helps set consistent standards across the industry. That said, operating in good faith and putting customers first has always been central to how we and other well-run platforms approach lending and investing. Long before recent regulatory changes, we sought to act responsibly, transparently, and with a clear focus on delivering fair outcomes for both borrowers and lenders.

Why do we publish an outcomes statement?

We publish an Outcomes Statement that explains how we measure and monitor outcomes for both borrowers and lenders across the full lending journey. It sets out how loans are originated, how customers are supported and how we review fairness and sustainability. You can read it here: https://themoneyplatform.com/outcomes-statement

We see this as an important part of being open about how the platform operates.

Does regulation remove risk?

Regulation does not remove risk from P2P lending, but it does play an important role in reducing the likelihood of harm and ensuring risks are properly understood. The FCA sets rules around transparency, governance, and customer protection, helping to ensure platforms operate responsibly and are held to account. However, P2P lending remains a higher-risk activity, and outcomes can be affected by factors such as borrower defaults, economic conditions, and platform performance. Regulation is designed to improve decision-making and protections - not to eliminate risk entirely.

Closing Thoughts

P2P lending in the United Kingdom operates within a clear and evolving regulatory framework designed to protect both borrowers and lenders, improve transparency, and promote better financial outcomes. FCA oversight does not remove risk, but it does set important standards around how platforms operate, how decisions are made, and how customers are treated throughout the lending and investing journey. At The Money Platform, regulation has always been a foundation rather than an afterthought, shaping how we assess borrowers, safeguard lender funds, and support informed decision-making on both sides of the market. For anyone considering P2P lending, understanding how regulation works, and what it does and does not do, is a critical part of making a well-informed choice.

Continue Learning About Lending

If you are still learning about loan investing, peer to peer lending, or how online lending platforms work, we have a range of guides and insights to help you explore further.  

You can continue learning here: https://themoneyplatform.com/blog  

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