Assetz Capital chief executive Stuart Law has predicted that the Financial Conduct Authority (FCA) is likely to resurface plans to ban the marketing of peer-to-peer development loans this year.
The regulator mooted the ban in 2021 but it was removed from a later consultation paper and in February 2022, the regulator said it had shelved the plans after strong pushback from the industry, but it intended to “revisit this issue later in the year”.
Speaking to Peer2Peer Finance News this week, Law said: “I wouldn’t be surprised to see that question come back again this year. The FCA is most definitely interested in whether P2P should be involved in development funding. It has not gone away, it just got delayed. I expect that question to come back later this year.”
Law said it marked a “very dangerous” time for the industry, as many platforms have retail-backed development finance loans as a large part of their businesses.
“Generally, when things go into consultation papers, they don’t come out,” he said. “It was a huge amount of lobbying to get it delayed as a decision. However, the writing is on the wall. My personal belief is development funding will get severely restricted or cancelled as a valid form of lending for P2P.”
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Despite Assetz’ high-profile withdrawal from the retail lending market at the end of last year, Law said he had never agreed with the FCA’s view on the risk of retail-backed development finance.
“It’s been very important, and it wasn’t behind why we closed the platform at all,” he said. “But it was definitely a risk factor that sat on the table that the FCA may well make that decision and at that point, it would be forced on you. So, I do think that is still a valid risk for the industry and it was a close call last time.”
Asked why he thought the FCA had reservations, Law said: “If I had to hazard a guess, I’d say they would be interested in the risk and whether investors fully understand the risk of development funding.
“One question, I would say, is how many platforms fund development without having all of the future tranches that a developer needs covered by funding? So how many basically, can’t be certain they can fund all the future developments?”
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He said the Assetz platform has been structured to ensure all loans were covered. “In the pandemic we covered £100m of future drawdowns in cash because we managed the situation and always have managed the situation tightly,” he said.
“What would happen if a platform had a problem? What would happen to its borrowers? What would happen to the loan? What would happen to retail investors if it all hit the fan for a platform? We’ve done that twice, and we have a managed situation that is very robust and handles the situation well, but does everybody have that in place?”
The FCA has been contacted for comment.