The Financial Conduct Authority (FCA) has written a letter to the chief executive, or equivalent, of 65 firms who are active in the peer-to-peer (P2P) market. The letter runs to seven pages, suggesting that the regulator is genuinely concerned by some of the practices it sees when supervising firms in this sector.

The letter has been reported in the national press as being a ‘last warning’ for firms, and the document goes on to say there will be a “strong and rapid” response by the FCA if it does not see significant improvements.

Perhaps the FCA’s biggest concern relates to firms failing to make investors aware of the risks involved with P2P arrangements. Many firms still promise high returns in their promotional materials.

The letter then goes on to mention P2P firms who have carried out “significant changes to their business models without notifying us.” The FCA may consider firms who have failed to make a notification of this as having breached Principle 11 which refers to firms’ relationships with regulators and requires them to disclose anything that the regulator is likely to want to be aware of.

The regulator is also concerned about:

  • Poor standards when disclosing information to clients
  • Confusing charging structures
  • Inadequate record keeping
  • Firms who do not maintain sufficient financial resources, to the extent that there are fears some P2P platforms will be unable to survive if their equity investment backers were to withdraw their support

The letter suggests that the FCA is most concerned about firms who are active in the property market, but all P2P firms should consider the issues raised in the regulator’s letter and consider whether they need to make changes to their policies and practices.

Unlike previous Dear CEO letters, the FCA has not published the letter on its website, as of September 29. However, a number of reputable media outlets have reported in some detail the issues covered in the letter.

Noline Matemara, a partner and financial services regulation expert at law firm TLT LLP, said:

“The threat of a ‘strong and rapid’ crackdown marks quite a significant change in tone and approach, and there can be no doubt that those market operators continuing to demonstrate poor practice and expose investors to risk are firmly in the sights of the regulator.

“Those choosing not to address concerns over client information disclosure, charging structures and data management will now be under greater scrutiny than ever before.”

The P2P market continues to grow rapidly, with industry analytics firm Briscoe reporting that P2P investors have lent more than £22 billion in the last decade. Media reports also suggest 275,000 people currently hold investments in P2P platforms.

New rules for P2P firms will come into force in December 2019. The new requirements include limit on investments in P2P agreements for retail customers who are new to the sector – they will now be unable to place more than 10 per cent of their investable assets in a P2P arrangement.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article