Tribunal reveals “confused” FCA approach to P2P regulation



An employment tribunal has led to the release of a number of emails which show that the City regulator was “confused” about how to regulate peer-to-peer lending.

The emails also demonstrate that as early as 2016, the Financial Conduct Authority (FCA) had concerns about property lender Lendy.

Despite this, Lendy would go on to become FCA authorised in July 2018. In May 2019 the platform went into administration and the administration process is ongoing.

In a document seen by the Mouseinthecourt blog, the FCA raised concerns privately with Lendy on 12 August 2016, stating that “the issues identified at the firm indicate to us that you may not be meeting the [FCA rules on client money – CASS] and we are concerned that you have not adequately considered the CASS rules and their application to your business.”

Separately, an April 2017 email from Jose Morago, head of enterprise risk at the FCA, said that the FCA’s approach towards regulating P2P platforms was “confused”.

“Overall, I would characterise where we are as confused as to what we are actually trying to achieve through the regulation of P2P platforms, with different parts of the FCA with quite different short-term objectives,” Morago wrote.

“I still am confused about the next steps and who really makes decisions on P2P.”

Morago’s comments would later be echoed by Dame Elizabeth Gloster in her independent review of the FCA’s handling of the London Capital & Finance case.

When the Gloster report was released in December 2020, it was highly critical of the lack of inter-departmental communication at the FCA.

The communications have come to light during the case of Walker Sigismund, who worked at the FCA as a risk manager before being made redundant in 2018. Sigismund claims that he was unfairly dismissed after attempting to blow the whistle on a number of problems at the organisation.

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He has been granted access to a number of relevant communications in the course of his case, some of which detail growing concerns about the regulator’s approach to P2P.

In an email sent to the FCA’s then-chief executive Andrew Bailey in June 2017, Barbara Frohn, director at the risk and compliance oversight division, wrote: “We are still concerned that consumers stepping in the PtP [sic] world do not know that they are potentially exposed to high risks and we believe that they cannot be expected to understand the risks even with enhanced disclosure.”

The FCA formally introduced P2P regulations in December 2019. Bailey has since left the FCA and was appointed governor of the Bank of England in 2020.

Read more: £7.9m returned to Lendy investors as RSM fees approach £5m