The city regulator breached the Freedom of Information Act after failing to provide a substantive reason for refusing to disclose files relating to the failed P2P lender Lendy.
“On 21 February 2022, the complainant wrote to the FCA and requested the following information…” begins paragraph five of a recently published ICO decision notice.
The complainant was me, Daniel Cloake, AKA the mouseinthecourt.
A particular focus of this blog is to look at the so-called peer-to-peer lending sector. A sector which facilitated the crowdfunding of investments by many thousands of members of the public – some of whom stand to face serious losses after the collapse of many of its big players.
The focus of my FOI request, a company called Lendy, was fully authorised by the FCA in 2018, having been up and running for several years. Its CEO Liam Brooke, said in comments reported by Bridging Loan Directory:
We’re very pleased to have been given full authorisation by the FCA.
Statement by Liam Brooke
It has been a long and sometimes challenging journey, which has involved a detailed review of our processes and policies and has helped us mature into a stronger and more robust business.
Lord Myners, the former City minister, is quoted in the FT as having said that the FCA’s authorisation of Lendy gave it:
a sense of regulatory approval and endorsement, which encouraged people to feel they had been vetted
Lord Myners, the former City minister
Quite how detailed the FCA ‘review’ was is subject to intense speculation following comments by one of Lendy’s Joint Administrators in court documents exclusively obtained by this blog. These reveal a rather damning summing-up of how this company was run:
It will be apparent … that Lendy was subject to serious mismanagement for a long period of time. The operations of Lendy were chaotic at the best of times, and investors’ funds were not properly protected or managed.
Indeed, it is surprising that Lendy managed to survive for as long as it did … the legal and contractual documentation relating to Lendy’s activities is also extremely confusing.
Written submission from the second witness statement of Damian Webb, of RSM Restructuring
In a progress report to creditors the Joint Administrators’ also revealed that:
The loan book has proved to be in a significantly worse state than was immediately ascertainable on our appointment
Progress Report to creditors dated December 2019
How could the affairs of Lendy be in such a mess? It is understood that in February 2018 Lendy instructed the financial consultancy firm Duff & Phelps, now known as Kroll, to undertake a review of 82 lending files which made up Lendy’s ‘live’ loan book in response to weaknesses identified by the FCA.
The contents of this report, issued several months before Lendy achieved full FCA authorisation, will be of particular interest to the 11,000 members of the public who invested in the platform and who stand to lose tens of millions of pounds following the firms collapse.
It is understood that 9-days after the report was completed, on 19th February 2018, two FCA managers, based at the FCA offices in Edinburgh attended the Lendy premises in Southsea in person to discuss what has been described to the mouseinthecourt as a “file remediation” excercise.
In “Did internal politics and a culture of confusion at the FCA fail P2P investors?” this site revealed internal e-mails from senior figures at the FCA which, as early as 2016, talked of “huge risk management weaknesses” within the sector.
What was known at the FCA, by whom and when is therefore a question of demonstratable public interest and one this blog is keen to answer.
The 28-page-report by Duff and Phelps would normally be classed as ‘confidential’ for the purposes of section 348 of the Financial Services and Markets Act 2000. In simple terms this means the FCA is prohibited from disclosing this information following a request under the Freedom of Information Act.
The mouseinthecourt asked the FCA in February 2022, using the Freedom of Information Act, for several documents referred to during a 4-day-trial held at the High Court in Birmingham. This included the Duff & Phelps report.
After initially relying on the confidential information provision the FCA conceded in September 2022 that “it appears that all the documents were read in open court, meaning that they have been made available to the public and as such do not meet the definition of confidential information“. [Interested legal boffins can read our reliance on para 16-19 and the conclusion in para 52 in the case of Barings v Lybrand].
Despite the concession the Authority then sought to rely upon Section 30 as a means to block any disclosure. This section broadly comes into play when data is held for the purpose of an investigation. [Again, legal boffins can read the ICO guidance for the full picture].
We took a complaint to the Information Commissioner on the basis that the FCA had failed to carry out a so-called public interest test on the disclosure.
In the decision notice the Commissioner instead noted “that the FCA refused to specify which subsection of section 30 it was relying on“. Suggesting that the FCA had ‘misinterpreted’ the relevant rule the Commissioner…
“…would point out to the FCA that it is required to specify the relevant subsection when it is relying on an exemption from Part II FOIA.
It is not sufficient to state that the information would be exempt under section 30 FOIA, the FCA needs to confirm which specific subsection from the section 30 exemption is being relied upon in line with the Commissioner’s guidance.“
The FCA have now been given 35 calendar days to reveal the subsection relied upon. It is not known if the FCA intends to appeal the decision.
The finding represents a small win but as the request enters its 13th month the question of when, if ever, the information will come to light remains.
The FCA have been approached for comment.
Mouse in the Court 