Out-Law News | 13 Mar 2019 | 12:07 pm | 2 min. read
In a letter to chief executives (4 page / 352KB PDF) sent last week, the FCA said a recent supervisory review of firms' current arrangements against current requirements "strongly suggests" some P2P firms were falling short of the standards required by its rules.
Financial services regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law.com, said firms needed to act now to look at their arrangements.
"Peer-to-peer crowdfunding firms will need to revisit any wind-down plans and funding arrangements they have in light of the FCA's 'Dear CEO' letter, as it is clear that the FCA thinks existing arrangements will not be sufficient to protect platform users," Barber said.
"While we are still awaiting the FCA's policy statement following a review of the regulation of crowdfunding it is clear that rules around the wind-down of a platform will be strengthened and firms should not delay addressing the issues identified in the FCA’s letter and its consultation," Barber said.
The letter follows a consultation into proposed new rules for the P2P sector, which launched in July and closed in October last year. A policy statement is expected in the coming months.
The FCA has identified three main areas which it says require urgent attention by firms to mitigate risks to investors and harm to consumers that may occur if a P2P platform stops operating.
These are the systems and controls relating to a wind-down; platform funding and remuneration models, and third-party permissions required for a wind-down.
The FCA said platforms' systems and controls would be firm-specific. Platforms needed to develop realistic scenarios in which their business would no longer be viable, and identify and monitor the triggers which would invoke an orderly wind-down.
It said it had found little evidence that firms were currently doing this, and it was "difficult to see how many platforms would know when to invoke their wind-down plans at the appropriate point".
The FCA added that robust technology systems were at the heart of P2P lending and not all platforms had considered system continuity during a wind-down.
P2P firms needed to consider how a wind-down would be funded, the FCA said. It added that it was concerned many P2P lenders were funded through fees and charges when loans were originated, making them reliant on new business and meaning administration was an unattractive proposition to insolvency practitioners.
The FCA said it would ask some firms to provide it with details of their revised wind-down plans, and would give specific feedback to those platforms it assessed as part of its supervisory review.
P2P platforms are required to notify lenders of any wind-down arrangements they have made, including if these involve another firm taking over the management and administration of P2P agreements.
The Financial Times reported on Monday that the FCA had placed P2P firm Lendy under special supervision (£) over concerns about its ability to meet regulatory standards. Sources told the newspaper that the company, creditors and the FCA were working to collect Lendy's overdue loans.