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The challenge

A client in the peer-to-peer lending sector had been contacted by the Financial Conduct Authority (FCA) in connection with concerns arising from the market review the regulator carried out after introducing major regulatory changes in December 2019.

The FCA had initially requested that the firm produce a range of documents for review. This led to it identifying several areas in which it was unhappy with the firm’s current practices and procedures. It was at this point that the client turned to Thistle Initiatives’ specialist credit compliance team for help.

Having been instructed to suspend trading, pending resolution of the FCA’s concerns, the client was acutely aware of the need to move quickly, but equally of the need to get this existentially critical exercise right first time. Based on previous experience of working with Thistle Initiatives, it was confident our expert team could answer both requirements.

The solution

The first priority for Thistle Initiatives’ team was helping the client prepare and submit an appropriate initial response to the FCA’s communications in relation to shortcomings identified in its operations in areas including its risk management framework and its wind-down plans. It was then a case of working with the firm to address and resolve these issues.

The regulator was particularly concerned about the potential risk and harm investors could be exposed to flowing from insufficiently robust scrutiny around borrowers’ current and future ability to meet repayments, and the absence of an appropriate ongoing loan monitoring and management framework through to maturity and repayment.

To help the client assuage the FCA’s concerns, Thistle Initiatives initially undertook a broad-ranging document review to assess the scope of work required to put things on an even keel. Limitations imposed by Covid-19 meant that what would normally have been an on-site review had to be carried out remotely. The process played out smoothly, however, with the client submitting a comprehensive range of documents for off-site review by the Thistle Initiatives team.

On the back of this audit exercise, we confirmed the scope of Thistle Initiatives‘ engagement with the client. This ended up extending beyond the specific concerns highlighted by the FCA, with the aim of ensuring the client would be emerging from the process confident of operating in full compliance with the FCA’s updated regulatory requirements for the peer-to-peer lending sector.

We then proceeded to a detailed review of each of the areas identified as requiring attention. We carried out (remote) interviews with key individuals in the business, and with those with a specific involvement in relevant aspects of the firm’s activities. This ensured we fully understood the context around the documentation we saw.

The findings from this exercise fed into our audit review, in which we mapped the peer-to-peer lending business' current practice against the relevant rules and regulations and provided a practical roadmap for aligning the two. This methodology reflects Thistle Initiatives’ solutions-focused approach, which focuses, not simply on identifying shortcomings, but on flagging up precisely what actions will be required to help firms become, and remain, fully compliant.

The client was then able to present the FCA with an audit report confirming what actions it proposed undertaking to rectify a comprehensive inventory of issues identified. Having reviewed this, the FCA came back saying it was happy with our analysis of which areas needed attention and the actions proposed to address them. We then worked with the client to help put this action plan into practice.

Once that process was complete, Thistle Initiatives’ team carried out a new audit to assess whether all necessary steps had been taken to remedy all areas of concern. This document, too, was submitted to the FCA for review. The regulator came back with a few supplementary queries and comments, on which we were quickly able to provide satisfactory clarification and reassurance. Very shortly after this, the FCA granted permission for the firm to resume trading.

The result

The entire exercise had taken less than three months - including all the various interactions with the FCA. The client was hugely appreciative of Thistle Initiatives’ role in helping it turn around what could have been a very difficult situation. It subsequently retained our services on an ongoing basis, to help ensure that such a challenge will never again arise.

Thistle Initiatives’ detailed hands-on knowledge of what the FCA needs to see and hear to achieve the necessary degree of comfort around a firm’s ability to operate compliantly was instrumental in achieving such a rapid and successful outcome to this engagement.

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