registerme
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Post by registerme on Jun 8, 2019 0:43:47 GMT
What I mean is "... and what do you conclude from that..."?
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cwah
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Post by cwah on Jun 8, 2019 0:52:56 GMT
What I mean is "... and what do you conclude from that..."? That this is a clumsy regulation. One that is supposed to help investors but in reality does the opposite. Skin in the game is one of the strongest way to push commitment. And in the stock market it's seen as a good thing if the people working for the company have skin in the game with stock ownership. It would be completely crazy to forbid that. Yet, that is what's happening with this ill conceived rule. And one of the many way to avoid conflict of interest is to have what was suggested (ie. The platform get their money back after investors)
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registerme
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Post by registerme on Jun 8, 2019 1:04:24 GMT
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rocky1
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Post by rocky1 on Jun 8, 2019 7:26:30 GMT
Might have helped if the bloody borrowers had a bit of skin in the game instead of hiding behind SPVs etc especially set up for the 1 big killing and then folding covering their tracks along the way.bit to late now
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Post by billy169 on Jun 8, 2019 7:57:13 GMT
They were sold to us with PG's..they need to be pulled in.
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adrianc
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Post by adrianc on Jun 8, 2019 8:03:28 GMT
They were sold to us with PG's..they need to be pulled in. You make it sound so simple... The PG is not a primary repayment mechanism - it's a backstop to cover any shortfall after the security has been enforced. Then if the guarantor puts up a fight, it needs to go through a court claim. Assuming the claim succeeds, there may be a long period for them to actually pay. There's an example over on LC - a specialist clothing retailer which went under. There were PGs from three family members. They've all gone into IVA, with five year repayment programmes recently agreed - estimates of repayment vary between 68% and 91%. And it's taken 2.5yrs from the loan going south to get this far... p2pindependentforum.com/thread/6813/
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Post by billy169 on Jun 8, 2019 8:11:17 GMT
If a PG has any value it needs to be used.
I CAN WAIT.!
It is simple.. borrow money..pay it back...one way or another..91% would be a bad deal for us..but that's the risk...it would do..
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adrianc
Member of DD Central
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Post by adrianc on Jun 8, 2019 8:19:35 GMT
If a PG has any value it needs to be used. I CAN WAIT.! It is simple.. borrow money..pay it back...one way or another. Can I refer you to the example of Mr S*****t D*y?
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Post by billy169 on Jun 8, 2019 8:25:07 GMT
Some would go wrong..but very few IF the legals (DD) were correct.
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Post by billy169 on Jun 8, 2019 8:38:35 GMT
Yes..Mr D*y is bad....mates rates.
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Post by samford71 on Jun 8, 2019 8:45:35 GMT
That this is a clumsy regulation. One that is supposed to help investors but in reality does the opposite. Skin in the game is one of the strongest way to push commitment. And in the stock market it's seen as a good thing if the people working for the company have skin in the game with stock ownership. It would be completely crazy to forbid that. Yet, that is what's happening with this ill conceived rule. And one of the many way to avoid conflict of interest is to have what was suggested (ie. The platform get their money back after investors) The problem is really the nature of plaforms that originate speculative property loans. They take much of their income upfront and are incentivized to increase origination volumes and damn the quality ("pump and dump"). As time passes, the level of NPLs increases and the costs associated with recovery eat into profit margins. This further incentivizes raising origination volumes. In year T+1, your orginate more than in year T. The new fees pay for the costs on managing old loans, it dilutes the perceived NPLs as a percentage of the book, it keeps the illusion of secondary market liquidity, you roll old defaulted bridge loans into development loans ("extend and pretend"). This is, of course, just a pyramid scheme. Once origination volumes fall, it quickly becomes exposed and then collapses.
Nonetheless, forcing platforms to co-invest would be a bad idea. Most of these P2P platforms are exceedingly poorly capitalized. FCA capital adequacy regs for P2P platforms are pathetically low. The last thing you want a platform to do is tie capital up in illiquid defaulted loans. It increases the risk of platform failure and that leads inevitably to higher default rates and suppressed recovery values.
My view has always been that the platform's directors and senior employees need to be aligned with investors' interests without undermining the platform's balance sheet. That requires directors to have a substantial amount of their personal wealth at risk in the loan portfolio on a FILO basis (first in, last out) as many private equity and hedge funds require. In addition, as with banks and funds, a proportion of remuneration should be deferred into the loan portfolio for a multi-year period, with claw-back provisions. This is hardly a panacea (employees were holders of Lehman stock and it didn't help) but it might reduce short-termism. At the platform level, you could separate the incentive structure into management fees (for providing the intermediation service) and performance fees (which are paid to the platform only when a loan successfully redeems) i.e. to reorientate focus from origination volume to successful exits.
This will never occur because P2P is carefully marketed to be part of the "FinTech revolution". Most of the directors see themselves as "technology entrepreneurs". The level of experience in credit risk management is often incredibly low. Many director's were just marketers or in IT in their prior career. The've never had to deal with owning the risk, the fallout from losses or achieving the best recovery. So until the regulatory framework changes from treating P2P as somehow "special" and deserving of "light touch" regulation to what it actually is, which is just another part of financial servies, nothing will change.
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Jun 8, 2019 8:49:52 GMT
IMO, the FCA's new regulations should have focused on two distinct principles: 1. Alignment of platform interests with those of investors (eg platforms should have 'skin in the game' from which they do not derive profit until obligations to investors are met) 2. Common industry standards to make it easier for investors to compare between platforms (eg consistent terminology and measurement - especially with regard to defaults) My concern is the new regulations as currently drafted will add an extra layer of bureaucracy and just add to platform cost (which has to be paid for by someone) Funny you mention skin in the game, because the FCA specially has forbidden this to happen because of the risk of conflict of interest.... Do you have any evidence to support that assumption? While the FCA do not like skin in the game or balance sheet lending AIUI it is because it exposes the platform to greater risk of failure though bad loans, a risk the FCA deems inappropriate in the P2P model where the platform is supposed to be agent not principal. That is why INPL was stopped because it left Lendy holding significant chunks of loans when people didn't pay. Some platforms have circumvented the FCA strictures by holding the 'skin in the game' through sister entities with common ownership, Octopus, Kufflink, so while interests are not fully aligned they are considerably closer than elsewhere.
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cwah
Member of DD Central
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Post by cwah on Jun 8, 2019 9:30:34 GMT
Funny you mention skin in the game, because the FCA specially has forbidden this to happen because of the risk of conflict of interest.... Do you have any evidence to support that assumption? While the FCA do not like skin in the game or balance sheet lending AIUI it is because it exposes the platform to greater risk of failure though bad loans, a risk the FCA deems inappropriate in the P2P model where the platform is supposed to be agent not principal. That is why INPL was stopped because it left Lendy holding significant chunks of loans when people didn't pay. Some platforms have circumvented the FCA strictures by holding the 'skin in the game' through sister entities with common ownership, Octopus, Kufflink, so while interests are not fully aligned they are considerably closer than elsewhere. It's in the latest fca p2p lending document. I shared it in the forum before. Other european platform such as mintos lender do it. I can't see why not here
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sydb
Member of DD Central
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Post by sydb on Jun 8, 2019 10:33:02 GMT
That this is a clumsy regulation. One that is supposed to help investors but in reality does the opposite. Skin in the game is one of the strongest way to push commitment. And in the stock market it's seen as a good thing if the people working for the company have skin in the game with stock ownership. It would be completely crazy to forbid that. Yet, that is what's happening with this ill conceived rule. And one of the many way to avoid conflict of interest is to have what was suggested (ie. The platform get their money back after investors) The problem is really the nature of plaforms that originate speculative property loans. They take much of their income upfront and are incentivized to increase origination volumes and damn the quality ("pump and dump"). As time passes, the level of NPLs increases and the costs associated with recovery eat into profit margins. This further incentivizes raising origination volumes. In year T+1, your orginate more than in year T. The new fees pay for the costs on managing old loans, it dilutes the perceived NPLs as a percentage of the book, it keeps the illusion of secondary market liquidity, you roll old defaulted bridge loans into development loans ("extend and pretend"). This is, of course, just a pyramid scheme. Once origination volumes fall, it quickly becomes exposed and then collapses.
Nonetheless, forcing platforms to co-invest would be a bad idea. Most of these P2P platforms are exceedingly poorly capitalized. FCA capital adequacy regs for P2P platforms are pathetically low. The last thing you want a platform to do is tie capital up in illiquid defaulted loans. It increases the risk of platform failure and that leads inevitably to higher default rates and suppressed recovery values.
My view has always been that the platform's directors and senior employees need to be aligned with investors' interests without undermining the platform's balance sheet. That requires directors to have a substantial amount of their personal wealth at risk in the loan portfolio on a FILO basis (first in, last out) as many private equity and hedge funds require. In addition, as with banks and funds, a proportion of remuneration should be deferred into the loan portfolio for a multi-year period, with claw-back provisions. This is hardly a panacea (employees were holders of Lehman stock and it didn't help) but it might reduce short-termism. At the platform level, you could separate the incentive structure into management fees (for providing the intermediation service) and performance fees (which are paid to the platform only when a loan successfully redeems) i.e. to reorientate focus from origination volume to successful exits.
This will never occur because P2P is carefully marketed to be part of the "FinTech revolution". Most of the directors see themselves as "technology entrepreneurs". The level of experience in credit risk management is often incredibly low. Many director's were just marketers or in IT in their prior career. The've never had to deal with owning the risk, the fallout from losses or achieving the best recovery. So until the regulatory framework changes from treating P2P as somehow "special" and deserving of "light touch" regulation to what it actually is, which is just another part of financial servies, nothing will change.
Quality post.
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adrianc
Member of DD Central
Posts: 10,026
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Post by adrianc on Jun 9, 2019 7:32:38 GMT
They were sold to us with PG's..they need to be pulled in. You make it sound so simple... The PG is not a primary repayment mechanism - it's a backstop to cover any shortfall after the security has been enforced. Then if the guarantor puts up a fight, it needs to go through a court claim. Assuming the claim succeeds, there may be a long period for them to actually pay. There's an example over on LC - a specialist clothing retailer which went under. There were PGs from three family members. They've all gone into IVA, with five year repayment programmes recently agreed - estimates of repayment vary between 68% and 91%. And it's taken 2.5yrs from the loan going south to get this far... p2pindependentforum.com/thread/6813/Another fine example of legal timescales for enforcing security etc, when things get a bit legally sticky... p2pindependentforum.com/post/33263607-06-2019 Order by Judge - Order Order by Mr Justice B******. (Case management conference, not final outcome - still ongoing)23-10-2018 Order by Judge - Order Approved Order by Mrs Justice M****** 15-01-2018 Filing - Defence Defence 18-12-2017 Filing - Claim Form (Part 7) Claim Form (Part 7) & Particulars of Claim attached This is for a loan which last paid a monthly in March 2016.
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