THE FINANCIAL Conduct Authority’s (FCA) final rules on the peer-to-peer lending sector did not come as a surprise. After years of discussions, an interim review, more feedback and more proposals – which last year, controversially, mooted investor marketing restrictions – today’s paper seemed like a done deal before it even came out.
As expected, P2P platforms will now have to introduce appropriateness tests and marketing will be restricted to sophisticated or high-net-worth investors, or those who pledge not to invest more than 10 per cent of their portfolio in P2P.
Late last year, with the regulator in the final throes of producing its sector reforms, a separate issue emerged.
News surrounding P2P property platform Lendy started to hit the press, due to mounting arrears and a legal dispute with a borrower.
It goes without saying that this was the bad press the sector didn’t need, but did it have an impact on the outcome of the FCA review?
One well-connected industry source has privately suggested that the regulator was more conservative in its approach due to the impending Lendy scandal.
For example, many platforms argued that the wide variety of business models should be reflected in appropriateness tests, but the FCA eschewed this in its final rules.
The FCA said that differing marketing restrictions would have “significant practical challenges” and could have “unintended consequences”, encouraging platforms to move towards certain types of business models.
The industry source suggested that the FCA board would have been less flexible and opted for the most stringent options when making its final decisions due to the Lendy fall-out.
However, another industry source said that the Lendy saga would not have impacted the final rules per se, but would have certainly highlighted the FCA’s need to be more explicit about the rules.
The complexity around Lendy’s issues invited the need for more clarity, the source added.
While it seems unlikely that the actual collapse of Lendy would have impacted the FCA review so close to the deadline, it is undeniable that the platform’s problems intensified scrutiny of the sector in the six months or so leading to the final report.
With insolvency now firmly in the spotlight, platforms will be under more pressure than ever before to prove to the regulator that they are serving their customers correctly, both in the good times and the bad times.