What happened to this finance business?

The company was under investigation by the Financial Conduct Authority (FCA) who said the appointment of administrators was made following their intervention and that there was an ongoing investigation into the circumstances that have led to it.
Lendy was already on a yellow card with the financial oversight authorities after being placed on an FCA watchlist in January, less than a year after receiving its licence.  
There had been complaints from investors about the slow rate of repayments and further intrigue when its Chief Operating Officer and co-founder left the business to form their own payday lending company.  
It’s believed that Lendy had more than £160m in outstanding loans with £90m of that in default.
A note from administrators on the former Lendy website advised investors to contact them using a dedicated email or phone number although they stressed that they were in the early stages of the administration, their information was limited and due to the volume of enquiries they expect to receive they’ll only be able to respond to urgent queries.
The failure of Lendy will be one of the biggest in Europe’s nascent peer-to-peer lending sector which is already undergoing a tightening of its marketing rules as regulators warn that many customers did not understand the high risk nature of the products they were investing in.
The industry has already suffered blows to its reputation with the collapse of London Capital and Finance (LCF) earlier this year and hundreds of platforms disappearing in China leading some distraught investors to commit suicide.

All that glitters…

The FCA themselves are not above criticism, accused of being asleep at the wheel regarding LCF after being warned in 2015 that their glittering ROI rates of 6.5% to 8% were most certainly not gold.
So much so that they’ve agreed to an independent inquiry of their oversight, not only of LCF, but of the whole innovative finance market which includes peer-to-peer lending and other new financial vehicles such as “mini-bonds”.
A criticism of one particular product – the Innovative Finance Isa – is that while they are being promoted alongside regular cash Isas offered by banks and building societies, they function very differently. The Innovative Finance Isa is essentially a tax-free account for peer-to-peer lending and debt-based crowdfunding.
The FCA issued a statement which addressed this saying: “Investments held in Innovative Finance Isas are generally high-risk, with the money ultimately being invested in products like mini-bonds or peer-to-peer investments.
“These types of investments may not be protected by the Financial Service Compensation Scheme (FSCS), so customers may lose the money invested or find it hard to get back.”
This will be news to a lot of investors and the public. Most people understand that peer-to-peer lending (P2P) is a promising way of lending to individuals, businesses or good causes to earn a return on interest and supply them with funds that they’d otherwise would find it difficult to obtain from traditional lending sources.
What they might not grasp, and bears repeating, is that although some lenders sites operate their own loss fund to provide some restitution in the event of financial failure, they are not covered by the FSCS.
Investors are adults and can rightly make their own decisions, including if they want to invest in a risky fund to could earn a return of up to 10% – but it’s important that they understand these fundamental risks before they invest.

Even the principle of Caveat Emptor (let the buyer beware) has limits when being applied to complicated 21st century financial investment and lending vehicles.

In this increasingly complex, opaque and interconnected society that we live, work and invest in, there’s a moral that we keep returning to and which should be carved into the desk of any investor – If something seems too good to be true, then it probably is.