Peer-to-peer lenders that offer easy-access accounts have come under fire, with one industry figure calling for the Financial Conduct Authority (FCA) to ban these products due to their misleading representation of liquidity.
Industry consultant Theresa Burton, who previously held the chief executive role at now-closed P2P lender Trillion Fund, said platforms offering so-called access accounts – that advertise immediate or same day redemptions – are distorting the true non-liquid nature of the investment.
A number of P2P lenders offer customers the ability to withdraw invested funds early, such as Assetz Capital and Loanpad, either through an access account or via a secondary market.
In most cases this depends on demand from other investors to purchase loans but Burton warns there is a risk that this offer of easy access could conflate P2P with savings accounts.
“The FCA should have worked harder to protect consumers investing in P2P lending by ensuring clear messaging that this was a non-liquid investment which matched the maturity of the loan,” Burton, now an industry consultant, told Peer2Peer Finance News.
“Allowing firms to subtly soften this view with comparisons to savings accounts and offer so-called ‘access’ accounts which gave lenders the ability to withdraw funds if available, materially distorted the picture.
“The purpose of P2P investments was to give retail investors access to loans typically made by banks and institutional investors – creating an investment class that provided regular fixed interest payments at a lower risk than an equity investment but more risky than savings.
“As in all investments, the balance is risk vs reward – the interest earned on P2P was higher than savings given the higher risk. This disintermediation should also bring cost and fee savings. “
She called on the FCA to do more to stop the lines between P2P and savings accounts being blurred by banning access accounts.
“There has been great harm to consumers in the fallacy of comparing or subtly implying P2P lending to saving accounts and other liquid assets,” she said.
“The current economic downturn is now crystallising this and was entirely foreseeable.
“What could be a very suitable investment class to add to an appropriately balanced portfolio is now tarnished by the blurring of the lines.”
It comes after Assetz Capital last week warned investors that some loans in its access accounts may not be tradeable.