The regulator said it introduced limits for peer-to-peer investors because it was seeing too many “absolutely tragic” stories coming from investors.
It was understood that the FCA had restricted Lendy’s activities in the months up until its failure, but not the severity of that action.
FCA chief executive Andrew Bailey (pictured) told the Treasury Select Committee how tightly the regulator had been monitoring Lendy.
“Those restrictions were so tight we were having to approve payments in and out of the firm,” he told MPs.
“I’m going to be careful about what I can say as we have enforcement going on in this field, but we had restrictions on the firm,” he added.
‘Absolutely tragic’ examples
Bailey also discussed why the regulator had chosen to come down tightly on peer-to-peer lending and warned that the sector would not come out of a financial downturn well.
“We felt, and this goes into the peer-to-peer world, that for the unsophisticated investor we had to put in a limit of the maximum part of their investable resources,” he said.
“Because there are just too many examples coming our way of what is absolutely tragic which is people saying I’ve put my life savings into this thing.
“We can’t leave people in that situation, so we’ve had strong push back from the industry, push back from other quarters as well, but in the end we’ve said no, we feel we have to do this.
“It leads to the sort of conversations we’re having this morning. It’s just not tolerable,” he added.
Not faced the consequences
When asked for his response to comments from the UK Crowdfunding Association trade body that there were low levels of complaints throughout the sector, Bailey was dismissive.
“Yes of course there’s low levels of complaints until something goes wrong,” he said.
Bailey highlighted that as a result of the response to the financial crisis, some of the riskier investments were moved out of the banking world and there had to be a clearer understanding of the risks that go with this.
“We’ve not experienced an economic downturn yet in this world. This industry has not faced-up to the consequences of an economic downturn,” he continued.
“I’m afraid to say, if we have an economic downturn we will have more conversations at this committee, it’s inevitable because the concentration of risk has moved into this world.”