Senior Tory Andrew Tyrie has warned that tax incentives to invest in peer-to-peer lending may be dragging consumers towards inappropriate products.
Treasury Select Committee chair Tyrie wrote to the Financial Conduct Authority in June to call for closer scrutiny of the market.
And in a letter published yesterday, outgoing FCA boss Tracey McDermott admitted the sector poses risks to consumer protection, with consumers losing their money if an investment fails.
The government launched an ISA product specifically designed to support peer-to-peer lending in April.
The FCA has since begun a review into the crowd-funding sector over fears that retail investors may not appreciate the risks associated with crowd-funding.
“Government policies to promote the crowdfunding sector may have the right intention – to increase competition in the small to medium enterprise lending market – but government tax incentives, in effect government subsidies, may be encouraging some consumers into the use of inappropriate products,” Tyrie said yesterday.
“The FCA needs to be alert to these risks. The government may need to reconsider these tax incentives.”