Trove of emails reveal FCA concerns about P2P years before it introduced regulation

Internal correspondence at the UK financial regulator disclosed in a recent Employment Tribunal appear to show repeated missed warnings by the regulator about the risks involved in peer-to-peer lending industry years before regulations were introduced.

Peer-to-peer lending had been touted as revolutionising finance when it emerged around ten years ago, returning better value to lenders and borrowers via online lending that bypassed the banks.

But several high-profile exits and collapses, with millions of pounds lost to retail investors, have left peer-to-peer lending with a tarnished reputation.

Now a trove of emails disclosed in an Employment Tribal case reveals the Financial Conduct Authority (FCA) had concerns about the industry’s risks in 2016, three years before the City regulator introduced rules for the sector in 2019.

The emails were disclosed in the case of Walker Sigismund who worked at the FCA as a risk manager before being made redundant in 2018 and have been reported by court reporting blog Mouse in the Court.

The correspondence reveals that by 2016 executives at the FCA were privately worded about the risk of  “complete capital loss” for investors and that the market was “not working to create a safe space for consumers”.

A 2017 email sent to Andrew Bailey, then CEO of the FCA said: “we are still concerned that consumers stepping in the PtP world do not know that they are potentially exposed to high risks and we believe that they cannot be expected to understand the risks even with enhanced disclosure.”

An FCA manager, citing a lack of safeguards, wanted “an explicit acknowledgement that we expect that retail consumers will lose some or all of their investment".

Amid proposed regulations of the sector, Sigismund said in an email that the FCA was expecting “substantial pushback” from the Treasury.

In 2019, Lendy, one of the UK’s leading P2P property investment platforms collapsed, leaving investors unable to access their funds.

Zopa and Funding Circle later exited the industry while RaterSetter shuttered the investment side of its business.