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Insight into FCA requirements
Yesterday I received an email from a peer-to-peer lending platform concerning some changes to their lending model. The platform states that these changes have been requested by the FCA in order to make their lending model compliant with the relevant legislation under Article 36H of the Regulated Activities Order 2014.
Some of the notable points are below:
- Any security for loans will be taken through a trustee company who will hold security on trust for lenders.
- In the event of a default by a borrower the platform will enforce any security, although lenders will no longer vote on such matters.
- The platform will issue a Loan Facility Agreement to the borrower. This agreement is written so that when the auction fills up the loan is novated (transferred) to the individual lenders for their loan parts.
The platform stated that their legal team had advised that it was against Article 36H to give lenders voting rights when the borrower has defaulted. A few peer-to-peer platforms currently give lenders a vote, weighted on their loan amount, for further action when a borrower has defaulted. Could this change disenfranchise more hands-on lenders?
A number of platforms, such as Wellesley & Co, fund the loans directly, then sell loan parts to lenders through their peer-to-peer platform, rather than the lenders funding the loan directly. It will be interesting to see how these platforms adapt to the FCA requirements, or if they will be treated as a collective investment scheme.