U.K P2P Industry In Turmoil Amidst Shutdowns, Lenders Reject Retail Investors Money
17 Dec 2019
Approx Reading time: 3 minutes
- UK P2P Platforms Collapse
- Focus on Institutional Investors in P2P Lending
- Stringent P2P FCA Regulations
The once-booming U.K peer-to-peer-lending industry faces an uncertain future amidst high profile collapses and customer service problems. ThinCats is the latest high profile P2P platform to bar retail investors in its secondary market. The high profile P2P platform has also confirmed that it will no longer accept money from retail investors.
Dropping Retail Investors For Institutional Investors
ThinCats blocking retail investors bring to two the number of established peer-to-peer lenders that are no longer interested in casual investors. The platform has since followed lender Landbay in shunning retail investors to focus on institutional investors.
Landbay has already confirmed plans to refund its 3,700 retail investors up to £20 million, including interest, as it moves to focus on institutional investors. The shutdown is a big blow as the platform allowed casual investors to earn an average of 3.54% on fixed-rate investments for up to five years.
In its defense, ThinCats insists that lending money from casual investors was no longer viable; thus, the move to focus on institutional investors such as pension funds. Also, the firm insists that the loans funded from casual investors have fallen significantly in recent years; thus, the move to shut down that side of the business.
ThinCats has already carried two rounds of financing, with 70% of the funds coming from institutional investors. The peer-to-peer firm has also switched attention to medium-sized businesses, which it says are underserved by mainstream fantail institutions. By lending to medium-sized companies, the firm can accrue huge interests on the loans as most of the loans average £2 million.
Tough FCA Regulations
A move by ThinCats to bar retail investors might as well be a reaction to more stringent regulatory rules that have come into play in recent days. Under the new Financial Conduct Authority, peer-to-peer lending platforms are barred from allowing investors to put more than 10% of their assets in the sector.
The platforms are also required by law to ensure that all investors are knowledgeable and have experience when it comes to P2P investments.
The stringent FCA regulations targeting retail investors looking to earn interest on their money in the P2P business stems from the collapse of P2P property lender Lendy. The P2P lender had shutdown with more than £152 million in investors' capital.
While the chairman of the representative body Peer to Peer Finance Association has welcomed the new rules, small players are already crying foul. MoneyThing, one of the most modest P2P firms, has had to close business in an attempt to return a £92 million loan book on a lack of investor confidence.
ThinCat and Landbay blocking retail investors from lending their money in the platforms leave retail investors with just six platforms. It remains to be seen if the remaining platforms offering support to retail investors will also shut down to focus on institutional investors.