Dear Board | Release Date: 15th January 2024
To read a longer summary of this Dear Board letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) outlines its expectations for Loan-based Peer-to-Peer (P2P) Lending platforms, now supervised by the Consumer Investments Directorate. The FCA emphasises the need for these platforms to assess and mitigate potential harms to consumers and markets.
Key Areas of Focus
- Compliance with PS22/10: P2P platforms must adhere to the standards set in PS22/10, which include strengthening risk warnings, banning investment inducements, and improving client categorisation and appropriateness testing. A review in December 2022 revealed that many firms were not fully compliant, particularly in risk warning standards.
- Wind-Down Plans and Liquidity Monitoring: Given the risk of disorderly wind-downs, the FCA stresses the importance of robust wind-down plans with effective triggers and adequate liquidity buffers. Regular reviews of these plans and liquidity levels are necessary, particularly under the current economic pressures.
- Consumer Duty Implementation: Since July 2023, the Consumer Duty requires P2P platforms to prioritise consumer needs and ensure good outcomes. This includes clear communication, appropriate due diligence, and transparent pricing.
FCA Actions and Expectations
The FCA will use data to monitor firm behaviours and business models, identifying high-risk platforms. The FCA expects P2P platforms to:
- Review and implement changes based on the findings of PS22/10.
- Ensure sufficient liquidity for orderly wind-downs.
- Fully implement the Consumer Duty, with a focus on consumer understanding and support.
Conclusion
Firms must take all necessary actions to meet these expectations, ensuring senior managers are accountable for compliance. The FCA’s focus on consumer protection and market integrity requires P2P lending platforms to proactively engage in fulfilling these regulatory requirements.
