September 12, 2017 / 1:32 PM / in a year

RateSetter recovering after 'asteroid strike' bad loan discovery

LONDON (Reuters) - Britain’s peer-to-peer lending platform RateSetter has managed to retain most of its customers despite leaving the industry’s trade body last month after breaching its transparency rules, its Chief Executive Rhydian Lewis told Reuters in an interview.

Peer-to-peer platforms, which bring together individual borrowers and lenders without a bank being involved, have grown rapidly in Britain since 2015 but are starting to come under regulatory scrutiny.

The platforms offer investors better returns than high street bank accounts, in exchange for increased risks as the money is not protected by Britain’s Financial Services Compensation Scheme which guarantees ordinary bank deposits.

RateSetter, one of Britain’s three largest peer-to-peer lenders, withdrew from the Peer-to-Peer Finance Association(P2PFA) after revealing it had stepped in to bail out bad loans without disclosing the fact to its investors, contravening the trade body’s rules.

Dealing with that incident has, in turn, delayed the firm’s full authorisation from regulator the Financial Conduct Authority (FCA), leaving RateSetter as the last of its peers still operating on interim permissions.

Lewis said that while the platform has lost some business, it has retained 95 percent of its customers despite offering them the chance to sell out at no cost between July 18 and Aug. 31.

“The fact that an asteroid has hit us but we’re still standing makes us feel better,” Lewis told Reuters in an interview at the firm’s headquarters in London, adding that it had a 27 percent rise in investment inflows while it was offering investors the chance to sell out.

Lewis said that he expected authorisation from the FCA to be granted imminently.

RateSetter said in July that it had stepped in to buy stakes in three borrowers including an auto finance firm and an advertiser after they ran into financial trouble, ‘interventions’ which RateSetter said it should have disclosed earlier.

“As a result of one of our wholesale exposures, we failed to monitor the situation fully and then had to step in. The board took the view that the exposure was an exception and that it needs to be paid for by shareholders, not lenders,” Lewis told Reuters.

RateSetter has since withdrawn from so-called wholesale funding, in which it lent money to third parties which then on-lend those funds.

Peer-to-peer lenders have grown rapidly since they first appeared in Britain in 2005, lending more than 4 billion pounds ($5.30 billion) by 2015 and doubling that total to 8.5 billion pounds by the first quarter of 2017, according to P2PFA data.

RateSetter has lent around 2 billion pounds in total.

(This version of the story corrects fifth paragraph to read “Dealing with that incident...” instead of “Its withdrawal...”)

Reporting by Lawrence White, editing by Louise Heavens

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