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Post by valueinvestor123 on Nov 3, 2016 17:48:25 GMT
I understand that most loan contracts are made between individuals and businesses and part of the service that a platform provides is loan recovery (a very useful service at that!). However if a platform doesn't survive, are the investors then responsible to recover loans themselves? (This sounds very tiring...) Perhaps another platform may buy up loans and deal with them however if this doesn't happen, what happens then?
Sorry if this has been asked before.
vi123
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SteveT
Member of DD Central
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Post by SteveT on Nov 4, 2016 8:18:48 GMT
A condition of FCA authorisation is that platforms demonstrate they have a realistic "living will" in place
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Post by andrewholgate on Nov 4, 2016 8:30:35 GMT
SteveT is correct. Requirement is to have a back up servicing company in place in case of platform failure. They would handle the loans.
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Post by valueinvestor123 on Nov 4, 2016 8:31:23 GMT
What does this mean?
I have never inherited debt before...
But seriously, the small investor doesn't have the financial means to go after each bad loan through courts! And I cannot see other platforms too keen to buy up bad loans except perhaps for a 80-90% markdown.
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SteveT
Member of DD Central
Posts: 6,873
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Post by SteveT on Nov 4, 2016 8:40:31 GMT
What does this mean? I have never inherited debt before... But seriously, the small investor doesn't have the financial means to go after each bad loan through courts! And I cannot see other platforms too keen to buy up bad loans except perhaps for a 80-90% markdown. See AH post above. (ps. I wish I too was in a position to have "a few hundred k" invested in a platform like AC and not have considered this previously  )
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Post by valueinvestor123 on Nov 4, 2016 9:43:26 GMT
I have considered this. AC forms a little over 5% of my portfolio and the risk of loosing half of it is acceptable.
"Requirement is to have a back up servicing company in place in case of platform failure. They would handle the loans."
Who will fund the servicing company if the parent company is in administration and has debts to pay?
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Post by valueinvestor123 on Nov 4, 2016 10:11:29 GMT
If you hold a portfolio of stocks and the broker goes down, there is an actual market for the securities.
Am I right to think that with peer2peer finance, the platform is also acting as a market maker? If the market maker goes, you are stuck with a bunch of securities.
Perhaps it might be an idea for all peer2peer companies to pay into a fund (independent from the companies) in order to facilitate loan recovery in cases of default. There will be a cost of course and it will feed through into the rates I guess.
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Post by easteregg on Nov 4, 2016 10:14:47 GMT
I have considered this. AC forms a little over 5% of my portfolio and the risk of loosing half of it is acceptable. "Requirement is to have a back up servicing company in place in case of platform failure. They would handle the loans." Who will fund the servicing company if the parent company is in administration and has debts to pay? The P2P platform is required to maintain some capital for this purpose, and on most platforms the loans themselves generate some revenue in the form of a monthly fee which is the margin between what the borrower pays and what the lender receives. However this may not be sufficient for the 3rd party to maintain the controlled rundown of the loan book and lenders may hypothetically face additional costs. However assuming that the platform is not one of the big 3, I would also theorise that one or more of the bigger companies may step in and takeover the company as the cost of this may be less than the reputational cost that the sector may face.
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Post by valueinvestor123 on Nov 4, 2016 10:21:36 GMT
I have considered this. AC forms a little over 5% of my portfolio and the risk of loosing half of it is acceptable. "Requirement is to have a back up servicing company in place in case of platform failure. They would handle the loans." Who will fund the servicing company if the parent company is in administration and has debts to pay? The P2P platform is required to maintain some capital for this purpose, and on most platforms the loans themselves generate some revenue in the form of a monthly fee which is the margin between what the borrower pays and what the lender receives. However this may not be sufficient for the 3rd party to maintain the controlled rundown of the loan book and lenders may hypothetically face additional costs. However assuming that the platform is not one of the big 3, I would also theorise that one or more of the bigger companies may step in and takeover the company as the cost of this may be less than the reputational cost that the sector may face. Thanks, this makes sense. However is this capital in some ways shielded from company's debt obligations during administration process? 99% of the time, it is the debt that is responsible for a company's demise and if there are other debt obligations, I am not clear how this pot of capital will be handled by the appointed administrators.
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Post by valueinvestor123 on Nov 4, 2016 10:32:44 GMT
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Post by valueinvestor123 on Nov 4, 2016 11:03:42 GMT
I found this info: "In the worst case, were a platform to fail, FCA rules mean that all outstanding loans would continue to be administered in a seamless way by a competent, independent party." From: www.cityam.com/226864/head-of-p2p-finance-association-why-investors-shouldnt-worry-about-platforms-failing-Any idea who this party is? (does it have a name?) And at what cost would this be to the lender? My hunch is that in worst case, investors will be able to pool their resources together through forums to run the books down but only if there the loans are of a meaningful size. I have some experience in this from the banking boards on motley fool site: investors managed to win some court cases there (myself included) with regards to some bank bonds (albeit on the back of larger institutional investors/hedge funds). The deal sizes there were significantly larger than most loans in the peer2peer loan books that I know of however. |
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Post by mrclondon on Nov 4, 2016 11:35:26 GMT
See our Trust Buddy thread p2pindependentforum.com/thread/3552/trustbuddyWhilst Trust Buddy were believed to have had FCA interim authorisation by virtue of a UK company they bought at one point (IIRC), they never operated in the UK, and its unlikely that many UK citizens were affected (certainly no forum member has ever indicated they were lenders). Whilst its a reminder that fraud can, and does happen at a platform level, this story has IMO minimal relevance for UK p2p.
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Post by valueinvestor123 on Nov 4, 2016 11:38:32 GMT
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Post by mrclondon on Nov 4, 2016 11:54:27 GMT
With regard to "living wills" and the running down of loan books following the demise of a platform by a third party, there is one important thing to bear in mind. The third party will carry out their contractural obligations professionally, including administering the recovery of defaulted loans, however it is implausible that they would "go the extra mile" to obtain the absolutue maximum recovery. Every platform that I've observed administering the recovery of defaulted loans has on some occaisons put its own resources in the line of fire beyond what its T&C oblige it to. For example paying for bankcrupty proceedings (e.g. AC), moving secured assets onto its own balance sheet to get better value at a later date (e.g. FS), covering lender losses for proven cases of fraud (e.g FC) have all been done by the platform to minimize reputational damage to the platform Such considerations are of course immaterial if the platform has failed, and hence the level of recovery of defaulted loans under a living will arrangement intuitively will be less than under an operational platform.
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Post by mrclondon on Nov 4, 2016 11:59:36 GMT
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