08Mar

The Financial Conduct Authority (FCA) has written to the chief executive or equivalent of all loan-based crowdfunding firms (also known as peer-to-peer lending firms) to highlight one particular area of concern. The FCA believes that some firms operating in this area have been facilitating the acceptance of deposits by other firms which do not hold the required permissions.

The regulator’s letter says that if a lender borrows money via a loan-based crowdfunding platform, and then lends those funds to others, this may be regarded as meeting the definition of accepting deposits.

Although in this instance it would technically be the lender rather than the platform that had breached the law, the regulator believes that the P2P firm has responsibilities in this area as well. The FCA says that any loan-based crowdfunding platform which facilitates acceptance of deposits by a firm that does not have the necessary permissions to do so would still be in breach of FCA Principle 6 (Treating Customers Fairly), and possibly two of its threshold conditions as well: 2E (Suitability) and 2F (Business Model).

The letter, written by the FCA’s director of supervision and authorisations, Jonathan Davidson, calls on all loan-based crowdfunding firms to carry out the following steps:

• Establish whether they may have been involved in facilitating loans to lending firms who have lent those funds to others without having permission to accept deposits
• If applicable, cease dealing with these firms immediately
• Consider what steps it is appropriate to take in the future to prevent loans to these lending firms being transacted via their platform
• Consider what steps it is appropriate to take regarding any cases where they may have already been involved in unauthorised facilitation of deposits

Crowdfunding firms must reply to the FCA regarding the above issues by March 14 2017, even if they are confident that they have not been involved in facilitating the acceptance of deposits in any way. If a loan-based crowdfunding firm believes it has been involved in facilitating the unauthorised acceptance of deposits by lending firms, then details of those firms must be included in the response. The letter concludes by saying that, if this applies, the FCA will be in contact with the loan-based crowdfunding firm and with any affected borrowers.

This all means that peer-to-peer lending firms will now need to conduct some form of due diligence on everyone who borrows via their platform. Can the P2P firm be sure that the money lent is to be used for business purposes and not for lending to others?

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.