FCA has published its portfolio supervision letter to loan-based P2P crowdfunding platforms, sent to relevant firms in May. In that letter, it identified 4 potential areas of harm for investors (lenders):
- the secondary market for loans, and associated risk management obligations: it highlights that the pandemic caused more investors to want to sell their loans, which led to many firms closing their secondary markets as liquidity became a problem. FCA noted particular risks that firms may not have been able to comply with relevant COBS requirements on pricing of loans and may have been incentivised to transfer loans between clients at prices not reflective of the risk profile of the loan;
- wind-down plans, their triggers and liquidity monitoring: FCA has written to firms several times on this and again stresses the importance of liquidity monitoring. It is concerned that its supervisory work shows that all firms were assuming a voluntary wind down, with none properly identifying triggers to a solvent wind down. Firms should hold funds directly relating to the wind down in cash or other readily realisable form, and be immediately accessible. Firms were required to confirm to FCA within three weeks of the letter how much they intended to ringfence and why this amount was appropriate;
- disclosure of loan performance during periods of forbearance, and contingency funds: FCA stressed the importance of ongoing disclosures on performance of agreements, and the requirement to produce outcomes statements where a platform sets prices; and
- unclear platform fees, charges and priority over recoveries: FCA warned firms to be sure these disclosures and the way in which information is presented complies with the Principles and COBS requirements.