FCA tells peer-to-peer lenders “act now” or face crackdown

By Oliver Smith on 27th September 2019

P2P/Marketplace Lending

A shot across the bow for the CEO's of Britain's 65 P2P lending platforms.

FCA tells peer-to-peer lenders “act now” or face crackdown
Image source: Image by anSICHThoch3 from Pixabay

Some 65 peer-to-peer lending platforms have received a letter from the Financial Conduct Authority (FCA) warning them to “act now” to clean up poor practice or face a “strong and rapid” crackdown, The Times reports.

The news comes after the failure of Lendy, which was authorised by the FCA despite known mis-selling concerns and held some £152m of customer investments, and Collateral which operated despite not being licenced by the FCA.

In the seven-page letter seen by The Times the regulator flagged that weaknesses in disclosure to clients was leaving investors with “considerably greater risk than they appreciate” and unclear charging structures were leaving to “headline-grabbing returns in a low interest rate environment”.

The letter also highlighted property platforms are a particular concern for the FCA, some of which have a “range of weaknesses” according to the regulator.

In June the FCA published its new rules for the sector, including a 10% cap on ordinary investors can hold in their portfolio, which were welcomed by the industry.

These rules are due to come into force in December.

Most worryingly, the FCA warned that some platforms had made “significant changes to their business models without notifying us”. 

Furthermore that “other failures could materialise...” and that there was “significant risk of contagion” if “investors lose confidence as the result of poorly performing loans and/or disorderly wind-downs”.

In response to the letter Dr Roger Gewolb, Founder of loan comparison site FairMoney.com, called on the FCA to "inspect these quasi-banks as if they are banks", warning that "there is no standard, no best practice in this industry, no proper rules laid down by their trade association and they all operate in their own manner."

"This is an unsustainable way to operate and unfair to both borrowers and investors."

Noline Matemara, a partner and financial services regulation expert at law firm TLT LLP, said: “The threat of a ‘strong and rapid’ crackdown marks quite a significant change in tone and approach, and there can be no doubt that those market operators continuing to demonstrate poor practice and expose investors to risk are firmly in the sights of the regulator."

"Those choosing not to address concerns over client information disclosure, charging structures and data management will now be under greater scrutiny than ever before.”

Read more: AltFi Insights – FCA new peer-to-peer rules clampdown on marketing, investor caps and wind-down arrangements