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CONC 5.5 Creditworthiness assessment: P2P agreements

[Note: Until the end of 30 September 2014, transitional provisions apply to CONC 5.5: see CONC TP 4.2]

Application

CONC 5.5.1R

This section applies to a firm with respect to operating an electronic system in relation to lending in relation to a prospective borrower under a P2P agreement.

CONC 5.5.2G
  1. (1)

    This section contains rules that apply to the person operating the electronic system that facilitates persons becoming lenders and borrowers under P2P agreements, in contrast to CONC 5.2 which applies to the lender.

  2. (2)

    A P2P agreement may also be a credit agreement or a regulated credit agreement in which case applicable provisions of the CCA or CONC will apply to such agreements. The extent to which CCA provisions apply to a lender will depend largely on whether the lender makes the credit agreement in the course of carrying on a business.

Creditworthiness assessment

CONC 5.5.3R
  1. (1)

    Before a P2P agreement is made, a firm must undertake an assessment of the creditworthiness of the prospective borrower.

  2. (2)

    A firm carrying out the assessment in (1) must consider:

    1. (a)

      the potential for the commitments under the P2P agreement to adversely impact the prospective borrower's financial situation, taking into account the information of which the firm is aware at the time the P2P agreement is to be made; and

    2. (b)

      the ability of the prospective borrower to make repayments as they fall due over the life of the P2P agreement, or for such an agreement which is an open-end agreement, to make repayments within a reasonable period.

  3. (3)

    A creditworthiness assessment must be based on sufficient information obtained from:

    1. (a)

      a prospective borrower, where appropriate; and

    2. (b)

      a credit reference agency, where necessary.

  4. (4)

    This rule does not apply to an agreement under which a person takes an article in pawn.

CONC 5.5.4R

Where CONC 5.5.3 R applies to a firm, the firm must comply with CONC 5.3.2 R, CONC 5.3.4 R, CONC 5.3.5 R, CONC 5.3.6 R and CONC 5.3.7 R to the same extent as if it were the lender under an agreement to which those rules apply and should take into account the guidance in CONC 5.3 to the same extent, and should also take into account CONC 5.2.3 G and CONC 5.2.4 G treating them as guidance on CONC 5.5.3 R.

CONC 5.5.5R

A firm must consider sufficient information to enable it to make a reasonable assessment required by CONC 5.5.3 R.

[Note: paragraph 4.21 of ILG]

CONC 5.5.6R

Before a P2P agreement is entered into under which a person takes an article in pawn, the firm must:

  1. (1)

    undertake the assessment referred to in CONC 5.2.2R (1) of the prospective borrower; and

  2. (2)

    comply with CONC 5.3.2 R, CONC 5.3.4 R, CONC 5.3.5 R, CONC 5.3.6 R and CONC 5.3.7 R to the same extent as if it were the lender under an agreement to which those rules apply, and should also take into account the guidance in CONC 5.2.3 G and CONC 5.2.4 G and CONC 5.3 to the same extent.

Creditworthiness assessment where there is a guarantor etc

CONC 5.5.7R
  1. (1)

    1This rule applies if, in relation to a P2P agreement:

    1. (a)

      the prospective borrower is an individual;

    2. (b)

      an individual other than the borrower (in this rule referred to as “the guarantor”) is to provide a guarantee or an indemnity (or both); and

    3. (c)

      the firm is required to undertake an assessment of the prospective borrower under CONC 5.5.3R.

  2. (2)

    Before the P2P agreement is made, the firm must undertake an assessment of the potential for the guarantor’s commitments in respect of the P2P agreement to adversely impact the guarantor’s financial situation.

  3. (3)

    A firm must consider sufficient information to enable it to make a reasonable assessment under this rule, taking into account the information of which the firm is aware at the time the P2P agreement is to be made.

  4. (4)

    For the purposes of (2), CONC 5.2.3G, CONC 5.2.4G and CONC 5.3.1G to CONC 5.3.8G apply as if:

    1. (a)

      references to the customer were references to the guarantor;

    2. (b)

      references to CONC 5.2.2R(1) were references to CONC 5.5.7R(2); and

    3. (c)

      references to the regulated credit agreement were references to the P2P agreement.

  5. (5)

    For the purposes of this rule, a guarantee does not include a legal or equitable mortgage or a pledge.

CONC 5.5.8G
  1. (1)

    1The assessment of the guarantor does not need to be identical to the assessment undertaken in respect of the borrower, but should be sufficient in depth and scope having regard to the potential obligations which might fall on the guarantor.

  2. (2)

    The provision of the guarantee or indemnity (or both), and the assessment of the guarantor under CONC 5.5.7R, does not remove or reduce the obligation on the firm to carry out an assessment of the borrower under CONC 5.5.3R. Firms are reminded of the rule in CONC 5.3.4R that the assessment of the borrower must not be based primarily or solely on the value of any security provided by the borrower.