Rumor of a P2P Lender Failure? Does it Matter?

Car Crash Police Car WreckWriting for the EveningStandard, Anthony Hilton states there are rumblings that a UK peer to peer lending firm may soon go under.  Hilton calls the alleged event a possible “crash” and a “mess”. While Hilton poses his statement as a question, it is certainly a valid query;

“Though no public statements have been made, the industry is buzzing with rumours that there is a peer-to-peer company in trouble. The sums are not large in the greater scheme of things because it is one of the smaller of the 100 or so firms in the business and operating under Financial Conduct Authority regulation that is in trouble, but it is a test nevertheless.”

P2PHilton explains that some industry factions advocate rescuing a failing firm, allowing another stronger platform to swoop in as a white knight.  Another group believes the FCA should play a prominent role and will indicate a sign of maturity and proper regulations.

There are presently 119 companies who have applied for FCA approval to operate as a peer to peer lending platform.  Some are operating provisionally and may not receive a license and thus be compelled to give up the ship.  Within the industry as a whole, there have been other direct lending platforms that have decided to close shop as more established players continue to push forward.

Investors are required to understand the risks associated with investing in P2P assets.  There is no Financial Compensation Scheme available for direct lenders. Alternatively some platforms have created a “provision fund” – to mitigate loss in case of borrower default.  All members of the  Peer-to-Peer Finance Association (P2PFA), are required to ensure there is a process in place should a platform fail. As the agreement is between investor and borrower – this is an important aspect of the industry.  According to the P2PFA:

Orderly wind-down. Members must make arrangements to ensure the orderly administration of the business and run-off of its customers’ contracts in the event the member or the member’s platform ceases to operate. Such arrangements should be in line with regulatory requirements and either a suitably-governed entity established by the firm to run down the loan book or a reputable third party that has

  • sufficient manpower to administer the contracts in run off;
  • a suitable collection and payment process for repayments;
  • a suitable disbursement process for net proceeds due to lenders; – the ability for customers to communicate with the operator;
  • maintenance of requisite licence approvals;
  • compliance with applicable law, regulations; and
  • allowance for office and sundry expenses.

Now not all P2P lenders are members of the UK P2PFA. For non-members the FCA has outlined guidance for a firm that needs to “wind down”.

The UK peer to peer industry has largely embraced the FCA approach.  Leading platform Zopa has stated in the past;

“The regulation of peer-to-peer lending is a defining moment and a crucial step in ensuring the industry is a credible and governed activity. It is important that  as an industry we adhere to a common set of rules and operating standards in order to protect consumers.”

The industry continues to grow rapidly providing a very valuable service for borrowers and an important alternative for investors.

So is it a big deal if a smaller lender calls it a day?  Probably not.  Does it matter? Yes. If the established rules provide an effective process to manage a “wind down” this is further proof that the industry is evolving correctly.  Companies fail. All of the time.  Peer to peer lending will experience its fair share of mergers, failures and other changes going forward.  But – the more competitive operators will continue to thrive.

 



Sponsored Links by DQ Promote

 

 

Send this to a friend