Secondary market freezes could invite questions from the regulator
Platforms closing their secondary markets to protect investors should be prepared to justify this to the regulator after the pandemic, industry stakeholders have claimed.
Covid-19 has caused a substantial minority of investors to try and sell their P2P loans, creating liquidity issues across the industry.
Growth Street has restricted investor withdrawals, Octopus Choice has stopped all transactions, Funding Circle and JustUs have suspended their secondary markets and Lending Works last month paused all lending activities for at least 90 days.
“I think firms should be ready to answer questions from the Financial Conduct Authority (FCA),” said Mark Turner, managing director, regulatory consulting at Duff & Phelps.
“I think it’s important for any firm to learn from stress events but equally I don’t think every business needs to change their business model because of these events.”
If platforms can prove that they closed their secondary markets for the right reasons, having the best interest of customers in mind, the FCA is less likely to challenge those situations, he said.
A number of P2P firms have not frozen their secondary markets however, including asset-backed lender Ablrate. Chief executive David Bradley-Ward revealed to Peer2Peer Finance News that they have seen investors flock to use their secondary market because of a lack of liquidity on some other platforms.
Read more: Zopa revamps secondary market
“I think the regulator will, and probably should, look at liquidity issues after Covid-19,” he said. “I think in normal times the way platforms have worked is fine, but we’re now in exceptional circumstances which you can’t legislate and plan for. “I think when people start to look at their businesses after and throughout this time, they’ll realise they need more flexibility in their model.
“There are some tremendously clever people on these platforms, and they will adjust accordingly. “I’m not sure saying ‘under normal market conditions’ with regards to secondary markets will be good enough after this.”
Rebuildingsociety, Money&Co and CapitalRise have also kept their secondary markets open, as have RateSetter, Zopa and LandlordInvest.
