FundingSecure British P2P Lender Faces Collapse

U.K.-based FundingSecure has called in administrators at CG Recovery as it becomes the second peer-to-peer (P2P) lender in the country to fold in six months.

The company, which specialized in loans against classic cars and paintings, has an outstanding loan book worth about £80 million (more than $103 million USD), with CG Recovery saying it’s too early to know how much money FundingSecure’s 3,500 investors might get back. In the meantime, the Financial Conduct Authority (FCA) revealed that any losses would not be covered by the Financial Services Compensation Scheme.

FundingSecure offered retail investors annual returns of up to 16 percent by funding property development and pawnbroking loans. Despite performing background checks, and “rigorous due diligence on ownership and title,” the company still ran into issues, including one high-profile case last year involving Matthew Green, an art dealer involved in a scam that led to the collapse of city broker Beaufort Securities.

Despite lending £6.7 billion over the past 12 months, the country’s P2P sector has been hit with a number of issues, including the collapse of Lendy and the withdrawal of BondMason. The market also became more hostile after the FCA established new rules to limit marketing, boost governance and credit underwriting, and force lenders to prepare for failure.

“This should not be viewed as a reflection of [P2P] as a whole, as it is a really important part of the alternative finance industry supporting the country’s need for finance,” said Stuart Law, CEO of Assetz Capital, according to the Financial Times.

In fact, some of Lendy’s rivals believe that tougher rules should reassure customers about the strength of the remaining lenders.

“We think what is going to emerge is a much stronger industry where there is less doubt — fewer players, but probably stronger players with a bright future,” said Rhydian Lewis, CEO of RateSetter, in June.