Report: UK’s Financial Conduct Authority is Reviewing P2P Lenders After High Profile Failures

UK’s financial regulator, the Financial Conduct Authority (FCA), is currently investigating the operations of several peer-to-peer (P2P) lenders after discovering various failures or instances of non-compliance ahead of the implementation of stricter regulations this year, according to a report in the FT.

Last week, the FCA issued a warning to lenders according to the report, noting that the agency would “intervene strongly and rapidly where we see evidence of non-compliance”. 

P2P lending services assist borrowers by matching their requests with third parties, including retail investors or institutions, who finance their loans. The P2P lending industry expanded rapidly during the financial crisis with support from regulatory authorities and politicians. However, the FCA is now increasing its oversight of the sector after the agency was criticized over how it handled the failure two high-profile companies.

Property finance dealer Lendy collapsed in May of this year following months of warnings regarding its increasing default levels and poor underwriting. The mismanagement of Lendy’s business could lead to investors losing millions of dollars. The company’s failure came after Collateral closed down in 2018 due to various problems including operating without the proper FCA licence.

At that time, the FCA announced:

“The Collateral Companies operated a peer-to-peer lending platform through a website (collateraluk.com) and Collateral UK Ltd purported to hold an interim permission from the FCA to carry on regulated activities. In fact, none of the Collateral Companies held any valid authorisation or permission to carry on regulated activities. When challenged by the FCA, the Collateral Companies agreed to cease their lending activities and, on 26 February 2018, the lending platform became inoperative.”

Stricter regulations to reduce marketing activities and improving governance are expected to be enforced in December of this year. However, the FCA noted in its letter that it has already begun conducting reviews of several failings. The agency cited concerns regarding property lending, where it is currently investigating the quality of services on several platforms.

The FCA noted that it’s “engaging” with several firms that had made significant changes to their business operations without notifying the agency. The regulator will also be reviewing “the adequacy of a number of firms’ financial resources.”

Paul Smee, chairman of the P2P Finance Association (P2PFA), which represents some of the UK’s largest lenders, noted the industry was an important part of the UK economy, as it provides funding to local startups and small businesses. 

Smee remarked:

“I think some of the comments of the regulator are as though we’re a one-size-fits-all sector when clearly we’re not . . . That’s not to say there aren’t issues that need to be addressed by some platforms . . . [but] I would certainly say that the sort of business our lenders are doing is sensible and very transparent.”

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