A seven-page letter seen by The Times sent by the FCA to 65 peer-to-peer firms highlighted weaknesses in disclosing information to clients, unclear charging structures and poor record keeping.
The chief executives of peer-to-peer (P2P) platforms were told to fix the issues and some lenders were accused of exposing investors to excessive risks.
Investors deposit their cash on peer-to-peer platforms which is then lent out to businesses, property developers or consumers who need to borrow money. Investors, who can be individual savers or large-scale institutions, are offered an attractive rate of interest on the money they lend out.
According to the report, the FCA said it was concerned that the lure of high returns in a low interest rate environment was encouraging investors to take on “considerably greater risk than they appreciate”.
The letters are part of the regulator’s supervisory approach whereby it lays out its expectations and priorities for firms to address and highlights the potential risks to investors.
P2P in the spotlight
The maildrop follows the FCA’s announcement in June that it was tightening rules that oversee the platforms.
P2P platforms that offer home finance were told to abide by the Mortgage and Home Finance Conduct of Business (MCOB) source book immediately. Further measures such as restrictions on marketing material and a cap on investments for savers new to the sector must be implemented by 9 December.
Platforms will also have to assess investors’ knowledge and experience of P2P investments if they have received no advice.
To attract investors to its platform, Lendy was offering returns of up to 12 per cent.
The platform received its full authorisation from the FCA on 11 July last year, after facilitating £400m in loans since its launch in 2012.
However, by October 2018 Lendy revealed more than £100m of its active loans were overdue.