Lendy collapse: Who’s to blame?
THE collapse of peer-to-peer platform Lendy has left investors unable to access their funds and raises questions over how the platform was managed and regulated.
So, where should blame lie for Lendy’s downfall and what steps could have been taken to protect investors?
The platform
Lendy went into administration in May following months of concerns over the level of arrears and defaults.
The statement of affairs, published today (16 July) shows that the seeds of its problems were planted years ago.
Lendy was originally launched as a marine lender by founders Liam Brooke and Tim Gordon in 2012.
It gained interim P2P regulatory permissions in 2014 by offering bridging loans and tempted investors with high rates of 12 per cent and the promise of having property as a security.
It moved from bridging to development loans in 2016 and by 2017 was averaging £14m per month from investors, with its loanbook peaking at £228m.
During this period, the document reveals Lendy tried to secure institutional investment to “reduce the dependence, and associated vulnerability, of the company’s capital being wholly dependent on retail investment.
This failed despite engagement with multiple parties.
From early 2017 the level of non-performing loans steadily increased, the RSM document showed, which hit the brand and led to investor confidence declining and fewer loans getting funded.
This meant Lendy was unable to provide the development finance in accordance with agreed terms, resulting in several disputes with borrowers and many falling into arrears or defaulting, which hit investors.
The document says these disputes placed a strain Lendy’s financial resources.
This suggests that Lendy grew too fast, but continued to take investor money even when it was facing disputes from borrowers.
But the document also reveals some interesting actions from the Financial Conduct Authority (FCA).
Regulation
Lendy announced a rebrand in 2017 from its Saving Stream name, which it claimed would make the business more simple to understand.
But it didn’t mention at the time that the FCA was concerned that the Saving Stream name might lead investors to consider that the business was providing savings products.
Despite issues with borrower arrears dating back to early 2017, the FCA still gave Lendy full authorisation on July 11 2018. This would have given investors – who were unaware of what was going on with the business – the confidence to lend.
The document shows how the FCA subjected the company to increasing scrutiny and supervision from September 2018.
On 12 November 2018, the FCA imposed a voluntary restriction on payments with increased reporting requirements to the FCA and on 15 January 2019 it put Lendy on a supervision watchlist requiring weekly reports,
There were visits from FCA teams in April 2019 and further payment restrictions were imposed before the FCA notified Lendy that it intended to wind up the company at the end of May.
This raises questions regarding the regulator’s judgement. There were plenty of opportunities since September 2018 to warn investors and to stop Lendy taking further funds.
PR and press
Investors first began contacting Peer2Peer Finance News about concerns with Lendy in the middle of last year.
Rumours starting to emerge in September 2018 that the FCA had placed Lendy under regulatory scrutiny. This was strenuously denied by Lendy, which even put a whole blog on its website to criticise reports in the Financial Times at the time.
Peer2Peer Finance News also questioned at the end of last year why Brooke had taken a legal charge against Lendy.
This was fobbed off as a normal practice and that Brooke was showing his “continued commitment to Lendy and our community of investors.”
However, the statement of affairs actually shows Brooke made a secured loan to the Lendy group of around £800,000 in September 2018 to fund the costs of “litigious matters and associated disputes.”
Lendy’s public relations company up until the beginning of this year was Mattison. It is listed as a creditor of Lendy and is owed £30,000.
There is no suggestion that Mattison knew what was going on at the P2P lender and it may have also been misled.
But the regular ‘no comments’ and what have now been shown to be incorrect statements that were provided to the press do raise issues.
Mattison has been asked for comment.
Many investors would have also been better informed if Lendy had been more transparent with its information.
Most of the blame must sit with the P2P lender but the saga does raise issues for the role and responsibility of regulation and press officers who help to relay messages into the public sphere.
Hopefully this issue and incoming regulations will stop similar sagas in the future.