Security & Fraud

FCA Warns P2P Lenders About Lending Money To Finance Firms

The Financial Conduct Authority (FCA), the U.K. regulatory body, has written a letter to all CEOs of peer-to-peer (p2p) lenders and loan-based crowdfunding platforms that provide funding to finance companies that borrow money to bankroll their own lending, warning the practice may run afoul of the law.

In the letter, the FCA said if borrowers engage in that act without getting regulatory permission to accept deposits, they would be in breach of the FSMA and may possibly incur a criminal offense. “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; in particular, Principle 6 (Treating Customers Fairly) and threshold conditions 2E (Suitability) and 2F (Business Model),” the FCA wrote in the letter.

Although it’s the financial firms that are engaging in the potentially law-breaking practice, the FCA addressed the p2p lenders because they are the ones who facilitate the lending and thus create the problem. Any p2p platform that lends money to a finance firm so it can in turn lend money “would not be acting in a manner consistent with our expectations for regulated firms and may be in breach of certain regulatory requirements.”

The FCA wants p2p lenders to check their businesses to see if they are lending to finance firms that don’t have a deposit license. If they have customers that fit the bill, the FCA wants the p2p lender to stop all activity and is calling on the p2p lenders to put processes in place to make sure they aren’t running afoul of the law.

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