james
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Post by james on Apr 18, 2014 16:58:46 GMT
I agree "100% fund" is a bit rash and might attract the attention of the FCA, but so might "every lender, every penny". "3% fund" (the current fund as a % of loans outstanding) doesn't have the quite same ring Yes, every lender, every penny alone and without context would also imply 100% protection and be a problem without the FSCS. Of course RS and the fund have done a great job so far and in non-extreme situations are likely to just motor on doing the same great job. But it's the nasty contingencies where the strongest guarantees matter and 100% just isn't deliverable by a business without FSCS protection. In some cases not even with FSCS protection in the global systemic risk size category, for which other ways of providing deposit protection are in place (splitting out operating companies from holding companies so the deposits in the operating companies are safe while the share and bond holders of the holding company take the losses).
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jimbo
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Post by jimbo on Apr 19, 2014 3:31:49 GMT
To be honest, when it comes to the global systemic risk category, the FSCS is in itself a bit of a sham. In the event of the simultaneous failure of major banks who are counterparties in derivative chains, the scale of the problem would likely dwarf UK Annual GDP and the ability of the UK government to contain the situation. In such an event, the digital printing presses at the Bank of England would, I have no doubt, be powered up into overdrive. The FSCS would then be paying back affected depositors in devalued £s.
Given how close the Western Financial system came to collapse in 2008, and the debt problem ( too darn much of it) is morphing from being a private sector to a sovereign debt issue, any further crises in the financial system are likely to be beyond the scale of government to control.
Just my tuppence worth at the end of the day...
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Post by westonkevRS on Apr 19, 2014 11:11:08 GMT
James,
Our CMO Ian Cruickshank has provided the following message;
"Thankyou for your message highlighting your questions. We take FCA compliance very seriously and set out from launch to communicate to our customers in a fair, clear and not misleading manner. Any communication that is considered unclear we are keen to resolve straight away.
The 100% Fund name simply acknowledges its performance to date. There are no future guarantees and we will review all the wording to make it absolutely clear all claims relate to the funds historical track record."
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Post by elljay on Apr 19, 2014 11:15:55 GMT
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Post by westonkevRS on Apr 20, 2014 7:39:19 GMT
A more enthusiastic piece, but a good summary and I like the piece on 99% positive recommend actions from the Review Center: blog.p2pmoney.co.uk/ratesetter-100-percent-fundCustomer service is a top priority for us (hence the time given to this forum, compared the disdain it would be treatedd to by bigger organizations)
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Post by aloanatlast on Apr 20, 2014 11:59:33 GMT
I suppose there's also the risk that Rhydian is Bernie Madoff's evil twin and the whole thing is a big scam.
These are the kinds of risks that can trash a pension fund and leave pensioners penniless. We know it can happen, but we don't really expect them to advertise it.
I think it's clear that lenders have no legal claim to compensation, so the Fund has no actual creditors or obligations. I don't think that stops them advertising their aims and achievements. It's like investment trusts and endowment funds advertising their strategies and performance. It doesn't amount to a guarantee. Capital-protected structured products commonly advertise 100% return of capital, but are still subject to counterparty risks.
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james
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Post by james on Apr 20, 2014 16:15:12 GMT
Yesterday I was thinking that there seems to be an unhealthy trend developing in P2x: emphasis of safety claims as a key marketing approach. It shouldn't be hard to see why making undeliverably high safety claims is a problem, it can cause consumers to lose money when they didn't think it was possible. I was thinking that even if RateSetter takes care of its advertising, there are a few providers now who have done this sort of thing and that a complaint to the FCA's misleading promotions team suggesting that they take action to investigate and remind all providers in the sector may be useful.
I hadn't previously read it but now that I have, RateSetter's press release has increased my concerns in this area. Particularly these two pieces of text from it:
"RateSetter believes the focus of the burgeoning peer-to-peer (P2P) industry post-regulation should be on ensuring no saver ever loses money, even if borrower defaults increase in a souring economy" - because there are other ways to lose money than defaults and this improperly emphasises only one of them.
"Let customer protection be the lynchpin of our industry at this crucial time in our development. Everyday savers will ask for nothing less and we must rise to the challenge" - because I read this as a declaration of war on proper risk warnings that cover all of the risks and a declaration that RateSetter intends to try to drive excessive promotion of safety itself and try to compel others to do the same via its marketing efforts.
Yet "We need to provide an adequate level of safe, easily accessible funds if the sector is to attract the same numbers of savers as borrowers" is entirely sensible, calling for an adequate level, not the sort of level that would be required to genuinely provide 100% protection. 100% protection, truly delivered, would heavy such high costs that it would seriously harm the unsecured part of the sector, because to deliver it would take heavy insurance costs and possibly 100% funding of protection funds.
Yet RateSetter appear to be saying that its model and the level of protection it wants to offer is the only one that is acceptable, without also leaving room for those who make different judgements about the proper degree of protection - and cost of protection - that their products should be delivering to investors.
My view on this is very simple: the sector, particularly the unsecured part, does not and cannot deliver 100% protection at any rational cost and if major providers in the sector attempt to say that their products deliver 100% safety this will be severely detrimental to consumers who are already being presented with misleading claims about safety that are not deliverable the FCA must intervene early to prevent marketing from all providers in the sector heading in this direction and further misleading consumers.
There are at least two providers, one of them RS - that are both major and, I believe, making misleading claims in their financial promotions about the degree of protection that their products deliver. My view at present, after reading the RateSetter press release, is now that the FCA should act and impose penalties on both to protect consumers by preventing further moves in the direction of excessive and undeliverable safety claims.
None of this is intended as criticism of the superb level of protection that RateSetter has delivered so far, of course. The team has done a great job on the protection front for the segment of investors who want products delivering the lower levels of the risk range within the unsecured part of lending-based P2x. Not as low as the potential of asset-backed products that can come significantly closer to delivering 100% protection at practical cost if the security backing the loan is good, but still a superb job in the unsecured segment.
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james
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Post by james on Apr 20, 2014 16:26:59 GMT
I think it's clear that lenders have no legal claim to compensation, so the Fund has no actual creditors or obligations. I don't think that stops them advertising their aims and achievements. RateSetter is establishing a firm basis for a claim for redress (not compensation, which is about more than 100% recovery of losses) from RateSetter itself by making a 100% protection claim and making it so prominent in its promotions. Consumers can be expected to believe that claim and both the FOS and FSA have a track record of compelling firms to honour such claims. It's very clear: RS has now claimed that it delivers 100% protection and RS and its owners are going to be required to deliver on that. Whether RS intended to put 100% of the company assets up behind its claim or not, it has now done so. I doubt that RS really intended that so I hope that they do a good and comprehensive job of removing that expectation in their revised promotions. Capital-protected structured products commonly advertise 100% return of capital, but are still subject to counterparty risks. On structured products there are two main types: structured deposits and others. Structured deposits can have FSCS protection and be 100% protected. For the rest - capital-"protected" - I think that the FSA and presumably now the FCA has been working to get rid of claims of guarantees because of the counterparty risk that means the guarantee isn't what a consumer would normally expect the word to mean. That's why the word "protected" is used, in fact: it's a replacement for the stronger wording that used to be used because protected doesn't mean guaranteed. Such products used to use the word guaranteed in their promotions. Accurate risk descriptions are a significant concern for the FSA and now the FCA because incorrect risk descriptions have caused people to be placed into or to use themselves inappropriate products that had a greater degree of risk than they expected. Bit like P2x lending: lots of focus on the natural borrower default risk but there are many other risks.
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james
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Post by james on Apr 20, 2014 17:03:23 GMT
Most of my focus in this discussion has been about true advertising but I'd like to digress into competition for this post, partly because my own work is mainly technical but because there I also have to be aware of what the competition is doing and how to respond to get or keep ahead of them. Some key facts:
1. RateSetter has amongst its competitors secured lending product providers. 2. RateSetter cannot deliver the same level of protection as can be delivered by a well secured loan.
Now, RS clearly knows this and in its press release has placed some emphasis on the speed of payout compared to the time it takes to sell the security for a loan. But the fact remains, that security can provide protection even against quite extreme loss situations that the amount of money in a practical protection pot just can't deliver.
What that means to me is simple enough: if RateSetter tries to compete on pure protection with its current product, it's going to lose to one or more of its very well backed secured competitors.
Competing based on its superb track record is good but customer service and such are key differentiators and on those, RS can compete, even if ultimately it has to lose if the competition is only about safety and it doesn't have a secured product.
Naturally RS will try a range of techniques to deal with this but ultimately it's worth remembering that pure protection is a losing battle for RS vs some in the sector so some care needs to be taken lest RS marketing ends up helping instead of hindering its competition.
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bugs4me
Member of DD Central
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Post by bugs4me on Apr 20, 2014 21:24:35 GMT
Structured deposits can have FSCS protection and be 100% protected. Accurate risk descriptions are a significant concern for the FSA and now the FCA because incorrect risk descriptions have caused people to be placed into or to use themselves inappropriate products that had a greater degree of risk than they expected. Bit like P2x lending: lots of focus on the natural borrower default risk but there are many other risks. FSCS of course is capped at £85,000. IIRC, during 2008 the word on the streets was to not keep more than that amount with one bank. Effectively spread it around and make sure the deposit taker was licensed by the FSA in their own right and not operating as an umbrella organisation. I'm sure though the FCA would be more than interested in any misleading claims being made especially as the P2P market has just fallen into their lap.
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Post by aloanatlast on Apr 21, 2014 17:17:18 GMT
RateSetter is establishing a firm basis for a claim for redress (not compensation, which is about more than 100% recovery of losses) from RateSetter itself by making a 100% protection claim But what exactly is protected? If my loans go south at 5% per annum and the Provision Fund only covers 90% of that, I'm on 99.5% "capital repayment" and the interest will cover the odd half per cent, with still a respectable return left over, so I'm not out of pocket. The distinction between capital and interest is largely artificial. Of course RateSetter's boast is that every lender has received every penny of both capital and expected interest, but since there's no free lunch, this can only ever be achieved by managing interest expectations. However, if their advertising doesn't promise any particular interest rate or return, it's hard to see how it can be misleading, unless they fail to achieve even repayment of bare capital. But that would be fatal anyway, so the lawsuit would be neither here nor there.
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Post by westonkevRS on May 8, 2014 6:55:09 GMT
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Post by elljay on May 8, 2014 20:16:21 GMT
That's better! Snitch - isn't that something from Harry Potter...
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james
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Post by james on May 8, 2014 22:07:55 GMT
Thanks. I'll take a look. The initial impression is much better! I'll definitely snitch when I think that's appropriate, but only after giving a place like yours a chance to do a double-take.
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oldgrumpy
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Post by oldgrumpy on May 8, 2014 22:33:27 GMT
That's better! Snitch - isn't that something from Harry Potter... Unsustainable claims as to 100% security for the future do tend to make my quids itch!! Well something itches anyway!
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