PEER-TO-PEER platforms appear unfazed by the Financial Conduct Authority’s (FCA) letter asking them to “act now” to clean up their practices.
The City watchdog’s seven-page letter, dated 20 September 2019, set out its view of the key risks which platforms might pose to retail investors and the markets in which they operate.
An article in The Times described the letter as a “written warning” to the P2P sector, but several platform executives have told Peer2Peer Finance News that they saw the letter as fairly routine and that the FCA’s comments were of no cause for concern.
The regulator wrote that some investors are taking on “considerably greater risk than they appreciate” after being attracted by “headline-grabbing returns in a low interest rate environment”.
The letter paid particular attention to the risks P2P investors are exposed to, noting that it may be difficult for investors “to recover money from the borrowers that they have lent to in the event that a platform fails, a disorderly wind-down ensues and the platform cannot effectively administer recoveries on their behalf.”
Cautioning on the risk that investors are taking in the P2P sector, John Cronin, financial analyst at Goodbody, commented that the industry could do with a “refresh”.
“P2P is a growing industry – one that is here to stay in our view – but we would welcome a refreshment of the landscape, wherein just the strong and sensible lenders survive,” said Cronin.
“Unfortunately, this means more pain for investors as well as more bad rap for the industry until things get better in our view – as more casualties surface, following in Lendy’s footsteps.”
A spokesperson for platform RateSetter echoed this view, stating: “We agree that the sector needs cleaning up – and the tighter regulation from the FCA will do this.”
One industry source, who wished to remain anonymous, said that the FCA’s letter is the City watchdog’s effort to show it is regulating the industry effectively, following criticism of its supervision of Lendy prior to its collapse.
“I think the FCA has acted far too late,” said the source. “I don’t think the FCA has done its job properly – it’s like closing the door after the horse has bolted.”
In June this year the FCA issued new regulations for the industry, due to come into force on 9 December. P2P lenders will have to introduce appropriateness tests and can only market their products to sophisticated, high-net-worth individuals or those who commit only to investing a maximum of 10 per cent of their assets.
“We will be proactively engaging with firms to monitor their progress on updating and strengthening their wind-down arrangements ahead of the implementation date of our new rules,” the FCA wrote in the letter.
“Firms need to act now and, where we find failings, these firms will be subject to supervisory intervention.”
The FCA authorised now-defunct P2P platform Lendy just 10 months before its collapse.
The FCA did not respond to a request to comment for this article.
“It is important to consider the recent ‘Dear CEO’ letter in the context of the good practice and high standards which are observed by a number of platforms across P2P lending sector,” said Robert Pettigrew, director of the Peer to Peer Finance Association.
“The FCA’s letter invites all platforms operating across the sector to consider the degree to which their individual businesses present various risks, and encourages them to take specific action to mitigate them: with the prospect of reactive supervisory work for those who fail adequately to meet those expectations.
“As the regulator acknowledges, for those platforms already observing the highest standards, the new regulatory regime – which is to be implemented from 9 December – represents little more than a formalisation of existing good practice; for those whose approach falls below those standards, it is proper that outstanding issues be addressed.
“Whilst the regulator’s supervisory activities should focus attention on improving the conduct and standards of those platforms who do not observe the highest standards, that should not overshadow the existence of high standards and good practice already observed by a number of firms in the market.
“The regulator has recognised the significant and positive impact which P2P lending has on the economy for lenders and borrowers, and it is appropriate that the high expectations of platforms operating in the market are explicit and remain at the forefront of the attention of those running P2P lending businesses.”