News of China ordering a lockdown of Beijing’s financial district on Monday (6 Aug) to prevent organised demonstrations by investors that lost money with bankrupt P2P lenders is the stuff of nightmares for the FCA.
The breakdown of more than 150 platforms in China since the beginning of the year is being blamed on regulatory failures, fraud, lending to weak borrowers and an overall decline in economic conditions.
Closer to home, the collapse into administration of pawnbroking and property platform Collateral in March this year was obviously grim news for the unfortunate investors involved, but so far there is no sign of anybody taking to the streets. However, the circumstances surrounding this particular failure have gifted the P2P industry’s detractors a stack of ammunition with which to frighten off investors of a nervous disposition; some other platforms have already reported money being withdrawn from them as a result of Collateral’s demise.
This whole sorry episode hasn’t been a good advertisement for the P2P project as a whole or, indeed, for the Regulator, who many feel should have acted sooner to bring Collateral to heel. After all, it transpires Collateral was operating without full authorisation in the first place.
But the story doesn’t end there. One of the bedrocks of P2P business lending has always been the belief that investors’ funds would be safe in the event of a platform failure because their money was ring-fenced. The worst that could happen – or so we all thought – was lenders might not receive all of the interest to which they were entitled. The Collateral saga has led to fears that this may not be the case after all.
One of the problems revolves around professional fees and who pays for the cost of the work involved in an administration. BDO, the replacement administrators of Collateral called in by the FCA to protect investors, has reportedly warned that lenders could be treated as unsecured creditors and rank equally with all other non-preferential creditors who are owed money. You can’t imagine firms like BDO not getting paid, so the mystery remains of who will end up paying the undertaker.
Following news that the FCA is to look at wind-down plans as just one facet of its overall review of crowdfunding – a term that, rightly or wrongly, the regulator uses to lump together equity crowdfunding with P2P loans – it seems certain that those platforms offering debt products should brace themselves for a whole bag of new measures, some of which will be decidedly less welcome than others.
Most of the industry’s big guns have been quick to say that they welcome the review – an exercise in good politics – but surely what really matters is that, despite the fears and predictions of gloom and doom, the UK’s P2P industry has a pretty good record so far. A few platforms have quietly disappeared beneath the waves, but there have been no major scandals where innocent consumers have lost their capital. Perhaps the point to remember is that no one sensible has ever suggested that P2P was risk free. Why would it be with returns available into double figures – and considerably more in the case of Collateral? Maybe it’s a simple case of ‘if it seems too good to be true, then it probably is’. Greed has the habit of blind-siding people to the reality of a situation.
While we wait for the FCA to make its final deliberations, marketers will have to keep on their toes – particularly if the FCA makes good its threat to limit P2P promotions to specified groups of ‘sophisticated’ investors and bearing in mind that pensioners and the young have already been identified as being off limits altogether.
Pensioners marching on the Square Mile – no thank you!