How do you do risk assessment for your Investment platform?

In fairness we don't know that, because we don't know if BM were investing similar amounts in COL compared to other platforms, for all we know they could also have been limiting investment (although yeah I'd like to think that if I were investing other peoples money I'd have a rather more binary view).

And why were records not available? I wouldn't assume anything at this point, I'm afraid I wouldn't be at all surprised if the loans weren't as good as you think. If they led us to believe they had interim permissions and an application for full was ongoing, then it seems likely to me that sooner or later something even stinkier would have become apparent and the wheels would have fallen off. Mind you the administration timing sucked from my perspective - if it hadn't happened then at worst I'd only have a couple of stuck loans by now as I was on my way out (because my gut had never been entirely happy with them, so I only invested a limited amount and stopped as soon as liquidity started drying up).So in that respect for me it would likely have been resolved by now! 


So yeah, diversify loads there's plenty to choose from (I must have tried well over 30 by now, and there's only 6 I really had concerns about), trust no-one (more than you can afford to), and if in doubt, don't.

When I typed that yesterday, I was unaware that the application by Mintos (an unregulated Latvian company) for FCA authorisation in the UK had been refused ... it's worth a read of the FCA's decision notice linked to in this thread so see the importance that the FCA attaches to where the key management of a UK subsidiary have to be based ( ... in the UK).

To offer our view generally, and to make some observations on COL:

Generally

We have now reviewed 125+ lending partners and P2P platforms, meeting 100+ face to face (we only meet with those face to face that pass our initial review). We invest through 32 lending partners, the vast majority are specialist property bridge lenders, mostly outside of P2P, which provide refurbishment and redevelopment capital. Although we do work with some P2P lenders still.

We have a detailed assessment, but if I was to summarise the top 3 criteria, we are looking for lending partners that:

1. Have experience and expertise; and are able to source good opportunities; ideally not just through the broker community (and not from aggressive marketing or offering low rates).

2. Are well aligned: invest alongside and have their own capital at risk (as we do ourselves)

3. Provide good risk-adjusted opportunities - (i) the rate of return is commensurate with the risk; and not significantly different to what the borrower is paying (ii) LTV is sensible (and valuation is credible, and based on current realisable value) (iii) typically first lien (iv) clear exit.

Once approved, we start small, and may slowly consider increasing our exposure. We invest a maximum of 15% with any one provider (our current portfolio has a maximum of about 10%) and have no more than 1% against any one borrower.  We have invested in 1 in 3 loans from our approved lending partners, seeking to stay at the more conservative end of the market.

We have invested £50M across 2,000+ property loans, and have lost a total of £65k to date (<15bp) - and lost nothing on our Property lending; whilst clients have earned £2M+ of interest and an average net return of 6% pa in each year since 2015.  Every month we have delivered a positive return, without exception. We are pleased with this performance.


COL

Much has been written about COL. At the time of our review, they met the criteria set out above for some of their property loans - and we 'dipped our toe' into a few. Our total exposure to COL is c.2% of our book, and (pursuant to some announcements about our service later this month) we expect the impact to be negligible-to-nil for our clients from our exposure to COL.

Obviously, we were very disappointed at the COL situation. But I think it is important to point out that the situation arose because of a particular set of regulatory circumstances; not because of demise in the loans we were exposed to.  It would be very difficult to see how these circumstances could repeat with any other of our approved lending partners (I don't see a systemic risk for us).


Looking ahead

We expect choppy waters in P2P lending land - there are still a handful of good operators - but we expect more loan books to go the way of LfSS; FC etc. So we definitely suggest staying well diversified (particularly if you can't conduct your own platform-level DD), being cautious, and being vigilant.

Back in 2015/16 we were chastised somewhat by some for not offering the 12% 'returns' available elsewhere. Hopefully, our cautious approach is now being more widely accepted as a good one - we still consider 5-6% pa net to be achievable in 2019, a good risk-adjusted return - and we look forward to continuing to work hard for the benefit of investors in this asset class.  

We conducted desktop research which confirmed the status that the COL directors had given us: namely, they were operating under Interim Permissions (as were many other platforms at that time).

If you ask the FCA directly - as we have done with some other platforms - they will not comment on individual operators, and will only point to already public information - eg the FCA register.