Around 335,000 Loans Were Funded, Equivalent to €60.3M via Mintos

Mintos notes in its Mintos Insight update that for certain investment products, regulation happens from the get-go, but for others, they might “not fall into a regulatory framework straight away.”

While sharing other key takeaways from the Mintos Insight report, the team noted that new products can “gain popularity before a service provider has even started work toward regulation meaning investors don’t benefit from the protection mechanisms of a regulated setup.”

And after a product becomes mainstream, “getting regulated simply becomes the next step – it’s just the time in which this process happens that varies between service providers.”

When Mintos chose the path of regulation, “it opted for the well-established MiFID framework and created Notes, which are unique asset-backed securities.”

Now, investors on Mintos benefit “from all the investor protection mechanisms that come with investing in a regulated environment.”

In terms of Mintos activity in May, investors “earned around €2.6 million in interest at an average rate of 11.3%.” The average net return for 2022 “so far is 3%, and the average portfolio value last month was around €2.4k.”

Mintos further noted in the extensive update that as retail investing evolves, investment products and new ways of offering them “continue to emerge.”

Some products “become regulated straight away to align with established market practices, but others may not initially fall into any regulatory framework.” And for the latter, millions of investors can “jump on board before work towards regulation has even begun.”

One of the key downsides of an unregulated investment product (and service provider) “is that investor protection mechanisms don’t apply.”

These mechanisms “ensure that investors’ assets are safeguarded, that investors are protected if something goes wrong with the service provider, and that investors don’t take on excessive levels of risk.”

With regulation, investors can also “rely on high levels of transparency and receive a vast amount of information before they make investment decisions.”

There are disclosures “about the service provider and how it works and transparent information on the product itself.”

There are, of course, service providers “who proactively, without any regulatory requirement, work very transparently and do their best to provide whatever investor protection they can. But there are limitations to what they can do proactively.”

For example, the safeguarding of assets and an investor protection scheme “are out of reach for an unregulated market.”

As explained by Martins Valters, CFO and Co-Founder of Mintos:

“When an offering becomes mainstream, getting regulated simply becomes the next step. So for anyone offering financial products, there comes a fork in the road. They either start working in a regulated way or continue working without oversight for as long as possible. But for those who continue on the unregulated path, it’s often a matter of time until regulation has to be caught up with.”

Inese Lazdovska, Head of Legal at Mintos, goes on to say:

“No financial product gets to skip regulation. It’s just the time in which this process happens that varies from product to product. For some service providers, it’s clear from the beginning if a product is captured by regulation. But for others, it may take longer for them to figure out how their product fits into an existing framework (or create a new framework entirely).”

A fork in the road also “comes for the investors of these products where regulation is just being introduced.”

They can “choose a regulated player with significantly less risk of operational failures, although there are more requirements such as Suitability & Appropriateness assessments or stricter customer identification.”

Or, they can “stick with an unregulated player where they continue investing uninterrupted but have an increased risk that if one day the service provider just goes out of business, their funds are stuck or just disappear altogether.”

But as explained by Martins, “there’s nothing wrong with investors staying with unregulated players as long as they fully understand the risks of investing in those products.”

Once Mintos chose the path of regulation, they were required “to work with a given set of rules as we opted for our product to fall under the well-established MiFID framework.”

They took the best of it, “dropped as much complexity as possible, and made it work for retail investors.”

As noted in the update:

“Notes are unique, and there aren’t many asset-backed securities out there that have such small issue amounts and are backed by such small loan amounts. Because of this, Notes are widely accessible to investors, especially those wanting only to invest small amounts. Plus, Notes don’t have all the complexity of tranching.”

The Mintos team further noted

“Ideally, we would have liked each Set of Notes to be backed by only one loan, but this setup is inefficient and impractical given the information requirements for base prospectuses. If this regulation were to change one day, though, we might get to offer Notes in this way.”

Martins says:

“In terms of Notes, we created the best possible product given the regulatory limitations. And along with us being a licensed investment firm, we’re offering a much better investment proposition than before. Our team worked incredibly hard to create this new product for investors and fought for every inch possible.”

Although the transition to a regulated setup on Mintos has “meant a few process changes for investors, we genuinely believe that bringing the level of safety, protection, and transparency up to the standard of other mainstream securities will be worth it in the long run.”

Outside of Mintos, they’re seeing “more investment products catching the attention of regulators.”

Be it crowdfunding platforms (with the new crowdfunding regulation framework) or specific cryptocurrencies such as stablecoin, Mintos expects “to see more shifts towards regulation in the near future.”

In May, around 335 000 loans “were funded, equivalent to €60.3 million, and investors on Mintos earned around €2.6 million in interest at an average rate of 11.3%.”

The top 3 markets “for investments in loans were: Latvia, Spain and Poland.”

Peteris Mikelsons, Account Management Team Lead at Mintos, says:

“At the end of May, several lending companies were launched in the new regulated setup offering Notes. With the war in Ukraine and uncertainty still ongoing globally, the demand side on Mintos stayed somewhat flat during May. Outstanding investments slightly decreased to €368 million. But as the supply of loans continued to outpace the demand, the average interest rate continued to increase, reaching 13% (EUR).”

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