Peer-to-peer websites ‘face closure’, leaving investors trapped

Peer- to- peer investors face having their cash trapped for years if platforms are forced to close by the City watchdog’s proposed advertising ban, experts have warned.

Savers were supposed to be able to beat the banks by using peer-to-peer as users could lend directly to businesses, cutting out the middlemen and boosting their returns. But after a string of platform failures and losses for investors the Financial Conduct Authority has turned its attention to the troubled sector.

The regulator said peerto- peer was supposed to be restricted to savers who were capable of understanding the risks. However, at present providers are able to advertise to all investors. The FCA is now examining whether a full advertising ban is necessary for the sector, similar to the ban on “mini-bonds”, another controversial investment.

Neil Faulkner of 4thWay, an analyst, warned that an advertising ban could force some platforms to close. “With each additional restriction it makes it harder for these businesses to continue,” he said. “Those that rely on smaller investors and can’t adapt would probably struggle.”

Peer-to-peer platforms are supposed to have a “wind down” procedure in place when they close. However, this would probably leave existing investors waiting years for their loans to be repaid. They would not be able to withdraw cash early, as they can today. It is a further blow to a once-lucrative sector that has been under strain during the pandemic. Last year some firms applied negative interest rates to existing customers’ accounts, effectively charging them for their portfolio, which caused concerned savers to withdraw millions of pounds every week.

Roger Gewolb of the Campaign for Fair Finance, a not- for- profit consumer group, warned that investors could be trapped even if platforms did not close to new customers, as an advertising ban would make it difficult to attract new investors. However, he said the sector needed further scrutiny. “Peer-topeer is the wild west,” he said. “There have been too many crashes and too much money lost.”