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Post by stuartassetzcapital on Aug 25, 2020 11:43:48 GMT
Without saying anything new and not already in the email but to respond to some of the comments made that don't align with that email...there is a probability that some non fully ringfenced loans exist shortly, and for a period. This is due to the live reassessment of forward looking loan risk in the COVID period and the fair loan pricing as required FCA regulations versus the very much today-only provision fund cash balance that we disclose due to the requirement to ignore all future contributions into the PF.
We know of no reason today why those PF contributions will not be made in the future but because they are not guaranteed to top up the PF in the future we ignore them 100% under the regulations. On the other hand we very much look for issues with loans and react to those to ensure a fairly priced trading on those loans. The relative difference in timing of when loan suspensions happen and when any further PF money was potentially received is also quite significant.
It is also worth noting another fairly obvious but important point. If for a period there are some loans that do not have their perceived risk covered by ringfenced cash in the PF then we would need to suspend the whole of those loans from trading whilst that happened, under the past terms of the PF and the AAs. That might be because just £100 of risk was not covered in cash by the PF on a loan and we would then actually suspend trading on a say £1m loan as a result. Any suspended loan values are not the same thing as the potential loss on those loans, quite an important point to make and indeed all our loans are secured.
There are also no suspended loans at present, this email is to explain it is likely to happen shortly and for a period and it also flags that if/when the PF grows further it could catch up with the non-ringfenced risk again. We are exploring more elegant potential solutions than suspensions as per the email.
It is interesting to see the market implied expectation on discounts as being around 10% temporarily today as that suggests people are expecting £22m of Access Account losses on top of both the existing provision fund cash and also on top of future PF contributions. Is that what people intended to imply I wonder? No advice provided of course but we remind you that the fair pricing of loans means that capital discounts (that create ringfencing requirements) are up to date on the loan book with facts we have received to date. Of course those facts can evolve over time but we still today have a £0 excess of loan risk versus the PF cash balance held today. We also have no data today regarding any expected change to Access Accounts target rates either, otherwise we would be suggesting changing them. Equally the current target rates are set at a level that is designed to permit those rates to be delivered, including any losses and hence including any provision fund contributions and they continue at a healthy monthly level.
Overall it is quite probable that ringfencing requirements get ahead of provision fund cash holdings at the bottom of economic cycles, particularly in this scale of cycle. But the key question is that over time, does that account continue to pay healthy interest and does any provision fund shortfall catch up again in the future by the time loan recoveries are in. We provide the loan data to judge that for yourselves and make your decisions but as a business we seek that outcome in the way target rates are set, loan risk assessed on new lending and how much provision fund funding is grown versus the target rates paid out. If we do deliver that then our plan has worked well, and vice versa. We obviously want that plan to work as a sustainable business.
I hope that helps.
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IFISAcava
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Post by IFISAcava on Aug 25, 2020 11:49:13 GMT
Without saying anything new and not already in the email but to respond to some of the comments made that don't align with that email...there is a probability that some non fully ringfenced loans exist shortly, and for a period. This is due to the live reassessment of forward looking loan risk in the COVID period and the fair loan pricing as required FCA regulations versus the very much today-only provision fund cash balance that we disclose due to the requirement to ignore all future contributions into the PF. We know of no reason today why those PF contributions will not be made in the future but because they are not guaranteed to top up the PF in the future we ignore them 100% under the regulations. On the other hand we very much look for issues with loans and react to those to ensure a fairly priced trading on those loans. The relative difference in timing of when loan suspensions happen and when any further PF money was potentially received is also quite significant. It is also worth noting another fairly obvious but important point. If for a period there are some loans that do not have their perceived risk covered by ringfenced cash in the PF then we would need to suspend the whole of those loans from trading whilst that happened, under the past terms of the PF and the AAs. That might be because just £100 of risk was not covered in cash by the PF on a loan and we would then actually suspend trading on a say £1m loan as a result. Any suspended loan values are not the same thing as the potential loss on those loans, quite an important point to make and indeed all our loans are secured. There are also no suspended loans at present, this email is to explain it is likely to happen shortly and for a period and it also flags that if/when the PF grows further it could catch up with the non-ringfenced risk again. We are exploring more elegant potential solutions than suspensions as per the email. It is interesting to see the market implied expectation on discounts as being around 10% temporarily today as that suggests people are expecting £22m of Access Account losses on top of both the existing provision fund cash and also on top of future PF contributions. Is that what people intended to imply I wonder? No advice provided of course but we remind you that the fair pricing of loans means that capital discounts (that create ringfencing requirements) are up to date on the loan book with facts we have received to date. Of course those facts can evolve over time but we still today have a £0 excess of loan risk versus the PF cash balance held today. We also have no data today regarding any expected change to Access Accounts target rates either, otherwise we would be suggesting changing them. Overall it is quite probable that ringfencing requirements get ahead of provision fund cash holdings at the bottom of economic cycles, particularly in this scale of cycle. But the key question is that over time, does that account continue to pay healthy interest and does any provision fund shortfall catch up again in the future by the time loan recoveries are in. We provide the loan data to judge that for yourselves and make your decisions but as a business we seek that outcome in the way target rates are set, loan risk assessed on new lending and how much provision fund funding is grown versus the target rates paid out. If we do deliver that then our plan has worked well, and vice versa. We obviously want that plan to work as a sustainable business. I hope that helps. I think the discounts also reflect the changed liquidity of the accounts so I don't think it is just the eventual loss expectations.
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Post by bradley02 on Aug 25, 2020 12:01:56 GMT
true, but isn't 7-10 years a "reasonable worst case scenario", to use the current terminology? normal market conditions and a full quasi-liquid account might return sooner, but so might a complete lock like the GBBA. I take your point. There are so many future unknowns . One could read today's email as a warning of an upcoming investment catastrophe and time to sell out or, see it as prudent precautionary planning. Due to government financial support we are still in the eye of the financial storm caused by the pandemic. There is going to be financial turmoil and no one knows today how the next few years will effect the businesses that we are invested in, so for AC to plan for the worse case scenario and manage their business and our investments accordingly rather than a fingers crossed approach, and taking no action or precautions until a possible crisis is real is in my opinion a good thing.
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r00lish67
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Post by r00lish67 on Aug 25, 2020 12:02:37 GMT
We know of no reason today why those PF contributions will not be made in the future but because they are not guaranteed to top up the PF in the future we ignore them 100% under the regulations. On the other hand we very much look for issues with loans and react to those to ensure a fairly priced trading on those loans. The relative difference in timing of when loan suspensions happen and when any further PF money was potentially received is also quite significant. This seems to highlight an interesting discrepancy between platforms' interpretation of regulations. If we apply the same logic to Ratesetter, then as I understand it we would dismiss their expected provision fund inflows because "they are not guaranteed to top up the PF". This would mean that the RS PF would be severely underwater (if only temporarily) because it would only exist as a small cash balance and a huge forecast liability, and therefore Ratesetter should be making part of their products untradeable too. Yet, Ratesetter seem to be able to allow existing investors to buy into the full loan pool still and sellers to sell at par (where possible) Surely one of these should be "wrong" in the FCA's eyes if we're all looking at the same rules?
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jlend
Member of DD Central
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Post by jlend on Aug 25, 2020 12:03:49 GMT
Without saying anything new and not already in the email but to respond to some of the comments made that don't align with that email...there is a probability that some non fully ringfenced loans exist shortly, and for a period. This is due to the live reassessment of forward looking loan risk in the COVID period and the fair loan pricing as required FCA regulations versus the very much today-only provision fund cash balance that we disclose due to the requirement to ignore all future contributions into the PF. We know of no reason today why those PF contributions will not be made in the future but because they are not guaranteed to top up the PF in the future we ignore them 100% under the regulations. On the other hand we very much look for issues with loans and react to those to ensure a fairly priced trading on those loans. The relative difference in timing of when loan suspensions happen and when any further PF money was potentially received is also quite significant. It is also worth noting another fairly obvious but important point. If for a period there are some loans that do not have their perceived risk covered by ringfenced cash in the PF then we would need to suspend the whole of those loans from trading whilst that happened, under the past terms of the PF and the AAs. That might be because just £100 of risk was not covered in cash by the PF on a loan and we would then actually suspend trading on a say £1m loan as a result. Any suspended loan values are not the same thing as the potential loss on those loans, quite an important point to make and indeed all our loans are secured. There are also no suspended loans at present, this email is to explain it is likely to happen shortly and for a period and it also flags that if/when the PF grows further it could catch up with the non-ringfenced risk again. We are exploring more elegant potential solutions than suspensions as per the email. It is interesting to see the market implied expectation on discounts as being around 10% temporarily today as that suggests people are expecting £22m of Access Account losses on top of both the existing provision fund cash and also on top of future PF contributions. Is that what people intended to imply I wonder? No advice provided of course but we remind you that the fair pricing of loans means that capital discounts (that create ringfencing requirements) are up to date on the loan book with facts we have received to date. Of course those facts can evolve over time but we still today have a £0 excess of loan risk versus the PF cash balance held today. We also have no data today regarding any expected change to Access Accounts target rates either, otherwise we would be suggesting changing them. Equally the current target rates are set at a level that is designed to permit those rates to be delivered, including any losses and hence including any provision fund contributions and they continue at a healthy monthly level. Overall it is quite probable that ringfencing requirements get ahead of provision fund cash holdings at the bottom of economic cycles, particularly in this scale of cycle. But the key question is that over time, does that account continue to pay healthy interest and does any provision fund shortfall catch up again in the future by the time loan recoveries are in. We provide the loan data to judge that for yourselves and make your decisions but as a business we seek that outcome in the way target rates are set, loan risk assessed on new lending and how much provision fund funding is grown versus the target rates paid out. If we do deliver that then our plan has worked well, and vice versa. We obviously want that plan to work as a sustainable business. I hope that helps. Is there any possibility we could have the PF stats updated more frequently? It is almost impossible to know the current state of the accounts at any point in time. Would it also be possible for lenders to be able to see how much has been ring fenced for each loan? Again it is almost impossible to know what loans have been ring fenced and by how much. Right now it feels like we are almost flying blind which I think is part of the reason for the high discount rate. Many thanks
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james21
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Post by james21 on Aug 25, 2020 12:23:55 GMT
Stuart has it been considered to slightly lower interest rates to allow the more money to go into the PF with the result that more of the at risk loans will be covered, which in turn would allow more to be withdrawn should lenders wish?
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dead-money
Rocket to the Moon
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Post by dead-money on Aug 25, 2020 12:27:41 GMT
£1,000 buy / sell
Thu 20/08/20 9am 5.7% / 6.0%
5pm 5.8% / 6.0%
Fri 21/08/20 9am 5.8% / 5.9% 5pm 5.8% / 5.9%
Sat 22/08/20 9am 5.6% / 5.9%
5pm 5.7% / 5.9%
Sun 23/08/20 9am 5.8% / 5.9% 5pm 5.80% / 5.96%
Mon 24/08/20 9am 5.80% / 5.96%
5pm 5.60% / 5.74% (5.7% to sell £500, 5.8% to sell £5000)
Tue 25/08/20 10am 6% / 11%, 12%, 13%
1pm 10.00% / 10.90%
4pm 7.47% / 9.27% 9pm . % / . % Wed 26/08/20
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Post by stuartassetzcapital on Aug 25, 2020 12:31:09 GMT
true, but isn't 7-10 years a "reasonable worst case scenario", to use the current terminology? normal market conditions and a full quasi-liquid account might return sooner, but so might a complete lock like the GBBA. I take your point. There are so many future unknowns . One could read today's email as a warning of an upcoming investment catastrophe and time to sell out or, see it as prudent precautionary planning. Due to government financial support we are still in the eye of the financial storm caused by the pandemic. There is going to be financial turmoil and no one knows today how the next few years will effect the businesses that we are invested in, so for AC to plan for the worse case scenario and manage their business and our investments accordingly rather than a fingers crossed approach, and taking no action or precautions until a possible crisis is real is in my opinion a good thing. We are indeed being prudent, following the disclosed operation of the provision fund if this situation arose for a while and also following FCA regulations.
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Post by stuartassetzcapital on Aug 25, 2020 12:45:12 GMT
Stuart has it been considered to slightly lower interest rates to allow the more money to go into the PF with the result that more of the at risk loans will be covered, which in turn would allow more to be withdrawn should lenders wish? Yes we already factored that into the recent rate reduction as that lower rate leads to far higher PF contributions for a while which look potentially necessary. If we thought today that the PF contributions would not be enough to maintain target rates net of expected losses then we would have to (under the recent regulations) lower the rates again to ensure target rates after any losses were indeed thought to be achievable. We have no plan today to lower rates again as a result of that analysis as it is not thought required at present. In reality the question on the desk today is when and how can rates rise again in the future as opposed to lowering them again and we will continue to review that situation to ensure target rates are fairly expected to be achieved.
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jlend
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Post by jlend on Aug 25, 2020 13:11:24 GMT
Stuart has it been considered to slightly lower interest rates to allow the more money to go into the PF with the result that more of the at risk loans will be covered, which in turn would allow more to be withdrawn should lenders wish? Yes we already factored that into the recent rate reduction as that lower rate leads to far higher PF contributions for a while which look potentially necessary. If we thought today that the PF contributions would not be enough to maintain target rates net of expected losses then we would have to (under the recent regulations) lower the rates again to ensure target rates after any losses were indeed thought to be achievable. We have no plan today to lower rates again as a result of that analysis as it is not thought required at present. In reality the question on the desk today is when and how can rates rise again in the future as opposed to lowering them again and we will continue to review that situation to ensure target rates are fairly expected to be achieved. Could you not reduce the rates in the short term to reduce the risk of lenders getting locked into loans short term? I honestly don't know but this may have been better received?
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blender
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Post by blender on Aug 25, 2020 13:43:56 GMT
Without saying anything new and not already in the email ... It is interesting to see the market implied expectation on discounts as being around 10% temporarily today as that suggests people are expecting £22m of Access Account losses on top of both the existing provision fund cash and also on top of future PF contributions. Is that what people intended to imply I wonder? I think the discounts also reflect the changed liquidity of the accounts so I don't think it is just the eventual loss expectations. I very much agree with IFISAcava. Pricing to liquidity rather than risk has always been a feature/defect of p2p, especially with trading involved. I remember back in 2013 when FC's reverse auction led to rates bid of under 5%, even with a 1% servicing fee and 0.25% trading fee. Due to too much money chasing too few loans, lenders who did not understand risk, and traders who pushed the rate down to where they could just make a few points on an easy trade with no risk. They brought in minimum bids, which caused a howls of anguish from all the flippers whose stocks were devalued, and they pulled the changes. The 10% has nothing to do with an implied loss, imo, but rather a panic about liquidity. All surprises are treated as nasty at first.
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r00lish67
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Post by r00lish67 on Aug 25, 2020 14:11:09 GMT
stuartassetzcapital Is there any possibility we could have the PF stats updated more frequently? It is almost impossible to know the current state of the accounts at any point in time. Would it also be possible for lenders to be able to see how much has been ring fenced for each loan? Again it is almost impossible to know what loans have been ring fenced and by how much. Many thanks Building on this, when you say "But the key question is that over time, does that account continue to pay healthy interest and does any provision fund shortfall catch up again in the future by the time loan recoveries are in".. I think that's the view we need too. Over on RS, they present their view of expected PF inflows, outflows and a net projected position. There's still discretion/uncertainty there and debate to be had, but Lenders then have something tangible we can take a view on. As it stands, it's very difficult if not impossible to marry the confidence you want us to have with what we can see on the platform, which is a mass of continually shifting individual loans. What net amount do you see currently leaving the PF's, what net amount do you see returning to it? That would be a very helpful view, even if only on a monthly basis, say.
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cb25
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Post by cb25 on Aug 25, 2020 15:46:22 GMT
Rates for immediate buy/sell down to 7.1%/7.8% resp.
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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 Aug 25, 2020 15:48:17 GMT
We know of no reason today why those PF contributions will not be made in the future but because they are not guaranteed to top up the PF in the future we ignore them 100% under the regulations. On the other hand we very much look for issues with loans and react to those to ensure a fairly priced trading on those loans. The relative difference in timing of when loan suspensions happen and when any further PF money was potentially received is also quite significant. This seems to highlight an interesting discrepancy between platforms' interpretation of regulations. If we apply the same logic to Ratesetter, then as I understand it we would dismiss their expected provision fund inflows because "they are not guaranteed to top up the PF". This would mean that the RS PF would be severely underwater (if only temporarily) because it would only exist as a small cash balance and a huge forecast liability, and therefore Ratesetter should be making part of their products untradeable too. Yet, Ratesetter seem to be able to allow existing investors to buy into the full loan pool still and sellers to sell at par (where possible) Surely one of these should be "wrong" in the FCA's eyes if we're all looking at the same rules? AC interpretation seems more in line Contingency funds: information about how the fund is performing COBS 18.12.38R 09/12/2019 A firm which offers a contingency fund must make public on a quarterly basis the following facts about how the fund is performing: (1) the size of the fund compared to total amounts outstanding on P2P agreements relevant to the contingency fund; (2) what proportion of outstanding borrowing under P2P agreements has been paid using the contingency fund; and (3) a firm must:
(a) only include the actual amount of money held in the contingency fund at the relevant time, net of any liabilities or pay outs agreed but not yet paid; and
(b) not include any amounts due to be paid into the contingency fund that have not yet been paid into it.
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ian
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Post by ian on Aug 25, 2020 15:53:04 GMT
Rates for immediate buy/sell down to 7.1%/7.8% resp. Are you going to publish a lust of loans covered by the provision fund. Additionally will you stop reinvesting investors redeemed capital in those no longer covered by the provision fund ??
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