EXCLUSIVE: FCA circles on P2P platforms with September 'business model' inspections

By Daniel Lanyon on Monday 5 September 2016

Alternative Lending

The UK regulator is paying visits to all the major p2p and marketplace lending firms in September to 'closer understand' their  varied business models. 

The Financial Conduct Authority (FCA) will spend the next month in site visits to the larger p2p and crowdfunding platforms with the goal of better understanding their business models , according to two people familiar with the matter. 

Back in July the FCA voiced a number of concerns it held over the p2p and marketplace lending space as well as crowdfunding. These included appropiate levels of disclosure, due diligence and potential conflicts of interest. The industry's rapid growth has largely outstripped the regulator's - which has the power to impose fines on organisations - involvement in terms of rules and standards with most platforms currently holding 'interim regulation'. 

"In the last month the FCA has gone jeepers and said I actually don’t understand the model...what does p2p lending really mean?", said one commentator speaking on condition of anonymity. 

A team from the UK regulator will undergo three confidential visits to the likes of Funding Circle, RateSetter and Zopa - three of the largest platforms - as well as several others in order to better understand how each business functions within the p2p framework. 

"The authorisation department has asked us lots of questions like 'do you have disaster recovery'...and on the other hand they are coming and asking 'how does your business work'," said another top industry figure also requesting anonymity.

"All the big players all work differently and they haven’t really worked that out," they added.

It is broadly accepted that the FCA is more sceptical of the nascent industry than the UK Treasury which is seen as being very enthusiastic for P2P and fintech as a whole, particularly during the past six years under George Osborne's former chancellorship.

The new CEO of the FCA Andrew Bailey said in July that he has concerns over the UK’s peer-to-peer lending sector, particularly in terms of how platforms are marketing themselves.

"I am pretty worried about some of the things that are said about these funds when they’re sold to people,” he said. “Some of the things that you read is that they get very near, but not quite there, to promising capital certainty,” he said.

There was absolutely no suggestion from anyone AltFi spoke to that the regulator was being obstructive in its practices. 

The FCA published its 'post implementation' review also in July. It said that it might require firms to only display money that has been contributed by “persons unconnected with the business”. 

The FCA has also said that it might take steps to mandate the disclosure of performance data: “Based on the outcome of the review, to help potential investors better understand the risks, we could consider whether to mandate additional disclosures, for example setting out how many businesses that raised funds have since failed and how many have had successful pay-outs,” it said in the review.

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