FCA scrutinising P2P platforms over breaching concerns
Peer-to-peer lending platforms that offer wholesale lending options may be in breach of regulations and should take rectifying action, the UK's Financial Conduct Authority has said. If a lending business borrows wholesale through a P2P provider and then lends that money to others, this may be classified as “accepting deposits”. Without regulatory permission, this would be a breach of the Financial Services and Markets Act (FSMA), and could incur legal repercussions for both the lending platform and potentially the P2P platform.
PEER-TO-PEER lending platforms that engage in wholesale lending may be breaching regulations and need to take action, the Financial Conduct Authority (FCA) has said.

The City watchdog is writing to the chief executives of all the platforms to highlight that if a lending business borrows through a P2P platform and lends that money to others, it may be “accepting deposits”. If the borrower does so without the correct regulatory permissions, this would involve a breach of the Financial Services and Markets Act (FSMA) and may be a criminal offence.

While in this incidence it would be the other lending platform in breach of the FSMA, it does have implications for the P2P platform, the FCA said.

“Where a loan-based crowdfunding platform facilitates the acceptance of deposits by a borrower that does not hold the correct permission, that platform would not be acting in a manner consistent with our expectations for regulated firms and may be in breach of certain regulatory requirements,” said the regulator in a letter dated 28 February 2017.

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P2P platforms could be in breach of rules regarding treating customers fairly, the FCA said.

Peer-to-Peer Finance News understands that the FCA has already witnessed cases where P2P platforms have lent to other lenders without the required deposits permission.

The watchdog is now calling on P2P lenders to take four actions: to establish whether they have been lending to lending businesses without the required deposits permission; to stop lending to them if so; to consider what action they will take if it is currently happening; and to consider how they will avoid it happening in future.

The FCA is requesting that platforms forward details of the actions they have taken by Tuesday 14 March 2017, including the details of the firms they have concluded are accepting deposits without the correct permission.

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“Once we receive this information we will review the actions your firm will be taking,” said the FCA. “We will be in further contact with your firm and any affected borrowers where appropriate.”

It had emerged in recent months that the watchdog had concerns about wholesale lending in the P2P sector, but it had not confirmed its position until now.

A number of P2P platforms have had wholesale lending operations in the past, including ‘big three’ lender RateSetter. A spokesperson previously told Peer-to-Peer Finance News that they sought clarification from the FCA in October 2016 over wholesale lending and decided to stop taking on new wholesale partners the following December.

Read more: P2P regulation: Uncertain times