FCA cleared Lendy despite concerns about mis-selling loans

The City watchdog knew of mis-selling at Lendy when it granted the peer-to-peer lender regulatory approval ten months before its collapse.

The Financial Conduct Authority (FCA) instructed Lendy to compensate customers over loans to ordinary investors who were misled before granting the platform full authorisation last July, according to The Times.

The Portsmouth-based platform failed in May with outstanding loans of more than £160m, and more than £90m is in default. Around 9,000 retail investors are expected to recover little more than half of the total £152m that is owed to them.

The revelation that the FCA uncovered bad business practices at Lendy, and still authorised the firm will cast further doubt over the rigour of the watchdog’s oversight, which led to the body’s chief executive Andrew Bailey being jeered by small investors at its annual public meeting in London last week.

Compensation scheme

Lendy, founded in 2012, began crowdsourcing money from retail investors to write secured loans to property developers in 2014. It experienced a sharp rise in defaults in the run-up to its collapse, at which point two-thirds of its loans had insolvency proceedings against them.

But it has that in late 2017, the regulator asked the business to compensate people who had invested in certain loans on the back of what the FCA deemed to be incomplete or inaccurate information.

The peer-to-peer lender, which has sponsored the Cowes Week sailing regatta, agreed to a £1.9m into a remediation scheme. When the platform failed in May, almost £600,000 in compensation had still to be paid.

“The FCA was aware of the remediation programme and the repayments followed an intervention by the FCA in late 2017 to request these,” said the watchdog in a statement. “At the time of authorisation the remediation programme was progressing as planned. The slow progress of this exercise post-authorisation was one of the triggers for the FCA’s increased intervention.”

‘Necessary action’

The regulator added: “Being fully authorised has helped ensure the FCA has been able to take any necessary action.”

The body also said that “no new loans were offered post-authorisation” other than very low levels of existing developmental tranche loans.

Adam Bunch, of the Lendy Action Group, which represents investors in the firm, told the newspaper that FCA’s authorisation of Lendy had given some investors confidence to continue using the platform. He said: “It’s staggering that Lendy was granted full authorisation when the FCA was aware of mis-selling.”

Former City minister Lord Myners has called for an independent review into the FCA supervision of Lendy.

Independent probe

The watchdog’s conduct is already under an independent probe following the collapse of investment firm London Capital & Finance (LCF), in January. LCF sold high-risk mini-bonds, despite advertising its product as a low-risk individual savings allowance, its failure left around 11,500 small investors facing as much as £236m of losses. 

The watchdog has also come under pressure due to its handling of the June suspension of star asset manager Neil Woodford’s £3.5bn flagship fund, and the Royal Bank of Scotland’s now-defunct Global Restructuring Group, which is accused of seizing the assets of struggling small businesses between 2008 and 2013.