FCA will consider P2P changes 'if necessary'

B&C has been told by the FCA it will consider making changes if necessary following last week's P2P provision fund controversy.

Last week, RateSetter set out its provision fund’s investment policy, which revealed it was using less than 10% of the money on a temporary basis to facilitate the delivery of larger loans.

RateSetter stated that the money used in this way was to be returned to the fund within six months.

A provision fund’s main use is to be readily available to reimburse investors if a borrower misses a payment or defaults on a loan.

Days after publishing its investment policy, RateSetter suspended the use of its provision fund to facilitate larger loans.

“We highly value the views of our investor community and, having listened carefully to them, have decided to suspend the use of the provision fund for this purpose with immediate effect,” RateSetter said.

“We have therefore also unwound the 0.6% of the provision fund balance that was being used this way. 

“We will update our investors with more information shortly.”

The FCA told B&C that peer-to-peer contingency funds are voluntarily and are not required under its rules.

“The regulations are new - we are keeping the market under review and will consider making changes if necessary,” a spokesperson from the FCA said.

“While defaults on peer-to-peer [loans] are currently low, it is important to recognise that they are riskier than deposit accounts and so we will keep the situation under review and we have committed to assessing how well the regime we put in place is working and whether the rules are delivering on our objectives,” the FCA explained.

The Peer-to-Peer Finance Association (P2PFA), of which RateSetter is a member, states in its Operating Principles that a P2P platform should include the operation of any ‘provision fund’ and the risks involved.

A table of P2PFA members and their provision funds:

P2PFA member	Provision fund	How provision funds are invested
RateSetter	Provision Fund	78% in bank, 12% invested, 10% to provide liquidity*
Zopa	Zopa Safeguard Fund	100% held in cash with RBS
LendInvest	No fund – LendInvest will repossess a property on a defaulted loan and, once recovered, will pass back to the investor	N/A
Landbay	Reserve Fund	100% of Reserve Fund is currently maintained at 0.6% of its loan book
Funding Circle	No fund – Funding Circle uses Funding Circle Trustee Limited, an in-house debt collection team, to attempt to recover any money	N/A
Lending Works	Lending Works Shield	100% held in Lending Shield which is insured
MarketInvoice	No fund – use a collection service to help recover defaulted funds	N/A
ThinCats	No fund – loans are secured and the security is its first point of call in the event of default	N/A

*RateSetter has immediately suspended the 10% of funds being used for liquidity.

LendInvest and Funding Circle declined to comment.

Lending Works, MarketInvoice and ThinCats did not respond by time of publication.

Peer-to-peer platform Zopa told B&C how it looks after the money it uses to protect investors’ funds.

“Zopa’s Safeguard Fund is held in trust and is administered by a separate company, P2PS,” a spokesperson for Zopa told B&C.

“All [of] the fund is held in cash with RBS.”

Landbay, meanwhile, operates a ‘Reserve Fund’, to help offset potential defaults.

“At Landbay, we take many steps to look after our investors’ funds,” said Clare Joy, Communications Officer at Landbay.

Landbay recently subjected its loan book to the Bank of England standard stress test which has led to its Reserve Fund being maintained at 0.6% of its loan book.  

“It is important to remember that the capital in these provisioning funds is finite and that allocation is generally discretionary,” added Clare.

“As such we would encourage consumers to look at all aspects of a P2P lender’s model before investing funds and not just to rely on the provisioning fund.”

The news comes after Lord Turner attacked the peer-to-peer industry saying he expected the losses on peer-to-peer lending over the next five years would make “the worst bankers look like lending geniuses”.

When contacted, the Peer-to-Peer Finance Association (P2PFA) said provision funds were not a requirement and it was up to each platform to make that decision.