On 24 May 2019, Lendy Limited (‘Lendy’) entered administration, with Damian Webb, Phillip Sykes and Mark Wilson, all of RSM Restructuring Advisory LLP, appointed as joint administrators.
What type of peer to peer lending did Lendy offer?
Lendy offered bridging and property development loans, advertising high fixed yields of up to 12.0%. Unfortunately, the platform experienced very high default rates which impacted investor returns.
This highlights an important but often forgotten truth about peer-to-peer lending. That is, if a platform is offering fixed yields of 12.0%, then the borrower on the other side of the investment will be paying an even greater interest rate which inherently increases risk of default.
Were there any warning signs?
Yes, there were some clear warning signs that Lendy was in trouble, with the company being placed on an FCA watchlist in January 2019 following concerns over its ability to meet the standards required of regulated firms.
As a result of this special supervision, Lendy was required to provide the FCA with weekly reports on its cashflow and loan recovery efforts.
In April 2019, the FCA then restricted Lendy’s actions – “[the firm must not] in any way dispose of, deal with or diminish the value of any of its assets and must not in any way release client money without in either case the prior written consent of the authority“.
At the point of entering administration, Lendy had outstanding loans of £155 million, of which £90 million were in default.
What will happen to investors money?
The UK peer to peer lending industry is regulated by the Financial Conduct Authority (‘FCA’). The FCA regulatory framework is designed to provide additional investor/consumer protection and to ensure that firms have contingency arrangements in place in the event of platform failure.
As a result of these rules, the money that investors have loaned on the platform is ring-fenced from the assets of Lendy itself. However, given the proportion of loans in default, it is unknown what proportion of funds will be recovered.
The administrators have not released much information at present – we will seek to update this article when more information is made available.
What lessons can peer to peer investors learn from the collapse of Lendy?
This news once again reinforces the importance of monitoring the ongoing financial stability of peer to peer lending platforms. As most peer to peer lending companies are unlisted and still relatively early-stage, it can be difficult to determine which firms are financially secure. Further complicating matters, when firms are investing for growth (e.g. marketing costs to secure new borrower and lenders), they could be loss-making but with underlying profitability.