Dear CEO | Release Date: 7th March 2019

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has issued a directive to all CEOs of loan-based Peer-to-Peer (P2P) crowdfunding platforms, emphasising the importance of robust wind-down arrangements. This requirement ensures that P2P agreements are effectively managed and administered even if the platform ceases operations. The FCA stresses that these plans must be well-considered, tailored to the firm’s business model, adequately funded, and that any third party involved holds the necessary regulatory permissions.

The directive points out significant risks to consumers if a P2P platform inadequately manages wind-down processes, such as investors potentially not receiving loan repayments or having to directly engage with numerous borrowers, which is likely not economically viable. Furthermore, the FCA has observed shortcomings in current practices during a recent supervisory review, noting that some platforms have not met the required standards for effective wind-down planning.

Firms are instructed to review their wind-down arrangements critically and ensure they align with FCA regulations. This includes maintaining clear, funded plans that account for the operational and practical challenges of a wind-down scenario. The FCA expects platforms to develop realistic failure scenarios, identify specific business triggers for wind-down activation, and ensure comprehensive governance over these processes.

Additionally, platforms must conduct due diligence on any backup service providers involved in their wind-down plans and address any potential tax implications that could affect investors during a wind-down.

The key takeaway is that all P2P platforms must urgently review and, where necessary, enhance their wind-down arrangements to protect consumers effectively. Firms must confirm their compliance with these expectations and be prepared to demonstrate their wind-down strategies to the FCA. Failure to meet these standards may prompt regulatory actions, emphasising the importance of immediate and thorough compliance