On 15 January 2024, the FCA published a portfolio letter setting out its expectations for Loan-Based Peer-to-Peer Lending (P2P) platforms. The letter outlines the harms to consumers and markets most likely to arise from P2P business models and the FCA’s strategy to address those harms. It encourages firms to consider whether the risks of harm it sets out are present within their organisation and adopt strategies for mitigating them.

It also confirms that in future supervisory engagement, the FCA will consider whether Boards and Senior Managers have taken appropriate action to ensure that consumers and markets are adequately protected from these harms. 

Key areas of focus for P2P firms

In the letter, the FCA highlights the following key areas of focus:

Policy Statement PS22/10

PS22/10 outlined the FCA’s strengthening of financial rules for high-risk investments and firms approving financial promotions. The rules are intended to ensure that firms communicating and approving financial promotions do so to a high standard, to enable consumers to make effective, well informed investment decisions. The FCA notes in the letter that following a review, it found the level of compliance by P2P and Investment-based Crowdfunding firms was far below the standard it expects. It flags that it expects all firms to review its findings, including its good and poor practice examples, and make any changes needed to meet its expectations and improve consumer understanding and ensure good outcomes.

Wind-down plans, their triggers and liquidity monitoring

The FCA warns that, in the current economic environment, the risk of disorderly wind-down remains a prominent concern. It flags that it expects all firms to identify absolute minimum levels of liquid and capital resources which, if breached, will trigger a wind down.

Firms should, at least annually:

  • Complete an assessment of adequate liquid resources that would facilitate an orderly wind down.
  • Confirm that sufficient levels of liquid resources are held to implement a wind down, if necessary, and that these are held appropriately.
  • Conduct a review of the firm’s wind down plan for suitability, including an assessment of the triggers that could prompt a wind down and that these are still relevant.

The FCA is asking firms to complete a Self-Certification Attestation, which is a firm’s formal statement that it will take, or has taken, any action that the FCA requires. This should be signed by the most appropriate senior individual who has the necessary oversight to ensure the required actions are completed.

Consumer Duty

The letter reminds firms that the Consumer Duty came into effect in July 2023 and this will be a key focus for how the FCA will supervise firms in the P2P portfolio. It is expected that firms will have implemented the Consumer Duty in full. The FCA explains that its supervisory focus aligns with the Consumer Duty outcomes, for example:

  • Consumer understanding:

Firms need to ensure that investors fully understand all aspects of the investment they are making and are aware of the extent of due diligence undertaken by the platform. The FCA expects firms to do due diligence on the borrower, purpose of loan and any security and have assessed it as an appropriate investment for retail investors, and it also expects that the investors are provided with complete and correct information to make an informed decision.

  • Products and services

Firms need to apply an appropriate level of due diligence in relation to the loans they offer before marketing such loans to investors, to ensure an investor can select an investment or portfolio with a risk profile that is aligned to their needs and avoiding foreseeable harm.

  • Price and value

Platforms that are required to produce Outcomes Statements need them to be accessible, capable of being understood by their investors and clear about performance. Platforms that are exempt from this requirement still need to be very transparent about performance.

  • Consumer support

Firms need to provide support that meets their consumers’ needs, including those with characteristics of vulnerability, throughout the life of the product or service.

Next steps

The FCA plans to issue data requests to firms that will supplement its regulatory returns, helping it to better monitor firms’ behaviours and business models, identifying outliers and allowing it to make judgements on those that pose the greatest risk of harm.