No one emerges with any credit from the collapse in May of Lendy, the P2P platform that specialised in property development loans. Irrespective of whether the criticisms are even applicable to other platform operators, it is no exaggeration to say that the entire P2P sector has been tainted.
Lord Myners, a former Financial Services Secretary, is using Parliamentary procedure to take the FCA to task for granting Lendy authorisation when it was already clear that the business model was fatally flawed. He may well be right to adopt this course of action. It is certainly healthy that, in asking for a judicial review, Lord Myners is ensuring the regulator is not in a position to ‘mark its own homework’.
But doesn’t the whole sorry saga serve to remind us that, first of all, we are all fallible and, second, we are also gullible – history shows that we are prone to fall for ‘too good to be true’ propositions time and again? If the price is right, we are all capable of seeing what we want to see and believing what we want to believe.
In typical style, the FT took a more forensic (and less emotive) boot to the Lendy failure, pointing out that many investors were prepared to overlook any misgivings they may have had in the pursuit of high returns. And one of the truths that we must accept is that, despite our national devotion to it, property is not the security that it is cracked up to be and that, furthermore, anything other than prime investment property is often illiquid, especially in a fire sale situation. The FT describes the Lendy failure as “a new take on an old story – one of mispriced risk, misleading marketing and complacent regulation”.
And therein lies the lesson we must all learn: high returns invariably mean high risk. To pretend otherwise is dishonest and leads to Lendy-type situations where the truth has been brought home in brutal fashion. Investors are likely to lose most, if not all, of their money.
It is surely incumbent on us all to make sure that some good comes out of Lendy’s demise – possibly through appropriate regulation or just by P2P platforms voluntarily adopting best practice in structure, processes and marketing.
In the meantime, let us hope that Andrew Bailey remains in his post and is given time to bring the FCA up to scratch.