THE FINANCIAL Conduct Authority (FCA) has revealed more details behind its decision to authorise defunct peer-to-peer platform Lendy just 10 months before its collapse.
Responding to parliamentary questions from former City minster Lord Myners, the FCA’s chief executive Andrew Bailey claimed that the FCA gave Lendy full authorisation in July 2018 in order to protect investor money while a remediation exercise was carried out at the platform.
In May 2019, Lendy went into administration, and investors have since been advised that they will receive just 57-58p for every pound that they had placed on the platform.
“If we had taken the decision to not authorise there was a risk that the FCA would not be able to ensure the remediation plan progressed as planned, and there was an additional question over whether any redress could have been made if the firm was unable to trade,” Bailey wrote. “This could have led to increased consumer harm.”
Lendy received interim permissions on 1 April 2014, and applied for full FCA authorisation on 30 March 2016.
“Prior to authorisation of the firm we were in close and continuous dialogue with it, providing feedback on their application and what they needed to do to protect the interests of consumers,” explained Bailey.
“Due to this dialogue, the firm put in place an action plan to address concerns we had relating to its governance and systems and controls. It also volunteered to complete a remediation exercise after we identified issues with the quality of information being presented to investors on certain loans.
“An independent third party had been engaged to consider the full loan book in light of our initial concerns. The remediation exercise was based on this assessment and was on track at the point of authorisation.”
During the authorisation assessment, Lendy provided information to the FCA which showed that it could meet the threshold conditions required by the regulator. Bailey added that the regulator was comfortable that Lendy’s financial position should have had some resilience in the event of increased arrears and/or defaults.
“At authorisation, the agreed focus was on loan recoveries and embedding a new governance structure and management team, with input from third party professionals and advisors,” he added. “In addition, although not formally closed to new business upon authorisation, no new development loans were offered reducing its ability to expand the business.
“However, additional tranches of existing development loans were available due to the potential impact on investors of such tranches not being filled and the performing loans were available for trading on the secondary market.
“The level of new investment, and re-investment, was very low.”
After granting full authorisation to the platform on 11 July 2018, the FCA continued to keep in “close and constant” contact with the firm, even visiting the Lendy offices at short notice.
Between July and November 2018, the FCA said that it “became concerned about new information received and actions taken by the firm post-authorisation. This included a charge being taken over the Provision Fund, slow progress in improving controls, a request to extend the deadline for completion of the remediation exercise and slow progress on recoveries.”
Bailey also clarified that Lendy’s investors would not be eligible be reimbursed for any shortfall in their capital.
“Our primary focus remains the protection of investors,” he said. “But I can confirm that the FCA will not be compensating lenders for any shortfall in the firm’s remediation plan.”