Some UK peer-to-peer lenders are buying each other’s loans and the watchdog is worried

Bailey flagged the platform cross-selling risk as one of the regulator’s key concerns. The FCA said in Friday’s paper that one of the new rules it was proposing for the industry is “additional requirements or restrictions on cross-platform investment.”

P2P lending, also known as marketplace lending, was invented by British company Zopa in 2005. At its simplest, it is people using online platforms to lend directly to either other people or businesses, cutting out banks who normally sit in the middle. Investors get good rates of return and borrowers get quick access to cash.

Over £8.7 billion has been lent by P2P platforms in the UK since inception, according to AltFi data, with £3.4 billion of that in this year alone. Britain’s three biggest platforms — Zopa, Funding Circle, and RateSetter — have all lent over £1 billion each. But business models have become increasingly complex as the industry has evolved and the FCA is concerned that consumers are no longer fully aware of all the potential risks.

Disclosure has become a major issue in the industry after the CEO of LendingClub, Renaud Laplanche, was forced out in May, in part due to failure to properly flag his own investments in the platform.

Laplanche failed to disclose a personal interest in a fund that LendingClub was considering investing in and The Wall Street Journal reported he had invested millions in that fund so it could buy LendingClub’s loans, effectively to boost demand. The vehicle, which Bloomberg named as Cirrix Capital, bought $114.5 million worth of LendingClub loans in the first quarter of the year, according to a company filing.

Bailey told Business Insider in an interview on Friday that the “fast-moving, evolving” peer-to-peer lending industry poses “some quite big challenges in terms of transparency and fairness.”

You can read the full interview here.