Assetz Capital and FOS

Freedom of Information: Right to know request



Thank you for your letter, concerning the announcement by Assetz SME Capital Limited (724996) that ‘The Assetz Capital platform is no longer open to investment from individual investors’, and that they ‘…have notified the Financial Conduct Authority of our intentions before taking this action.’

In relation to this, you asked as follows:

1. Did Assetz Capital inform the FCA that they were taking these actions?

2. Did the FCA approve the actions?

In our original response dated 01 March 2023 we responded providing you with the information you requested.

Internal review

I have now had an opportunity to review our response of 01 March 2023. I have also considered your subsequent letter requesting an internal review, in which you highlight that your question related “specifically to the imposition of a new fee structure and the effective freezing of investors cash for a period of up to five years and to whether these changes were presented to the FCA.” You also indicated that you believe “that the implementation of the changes on Assetz retail investors is in contravention of FCA rules regarding ‘treating customers fairly.”



The outcome of my review is that I consider we have appropriately responded to the questions asked.



Other considerations

While I am satisfied, we have responded appropriately to your questions, I will endeavour to address some of the points you have made in your internal review request.

In your internal review request you make references to ‘the imposition of a new fee structure and the effective freezing of investors cash for a period of up to five years’ – but do not ask specific questions on these points.

Were you to ask specific questions on these points, there may be limitations on what we can or cannot disclose under Section 44 (prohibitions on disclosure) of the FOIA. As such, we could not express an opinion on the firm’s actions. It may however, be possible to provide some additional publicly available information of how P2P platforms operate (& actions taken by Assetz) that may help your understanding of the current position. You may find the following information may be relevant:

Early exit

P2P loans are a form of high-risk investment rather than a savings product and therefore do not operate in the same way as a savings account at a bank or other deposit taking institution. Some platforms operate a ‘secondary market’ that can facilitate an early exit by selling loan parts to another investor. The presence of a secondary market does not guarantee an early exit and investors may have to wait for loans they have been matched with to repay before they can withdraw their capital and interest. The illiquid context of a P2P agreement means there is a risk that an investor may be unable to exit a P2P agreement before maturity, even where a platform operates a secondary market.

Where a platform does operate a secondary market they must do so in line with rules in our handbook (in particular COBS 18.12.16 – COBS 18.12.20). The FCA wrote to all platforms in May 2021 to remind them that if they could not comply with rules on pricing for secondary markets the activity must be suspended.

www.fca.org.uk/publication/corre...tforms.pdf

If a platform decides to exit the retail market (either by running off the loan book or by invoking their wind-down plan) they can only operate a secondary market by continuing to meet the relevant handbook rules on secondary market activity. There have been instances where a platform has chosen to continue operating a secondary market while completing their exit from the market and in other instances platforms have chosen to close the secondary market. In addition to meeting the relevant rules, there are many factors a platform may take into account when deciding whether to keep a secondary market open. This includes cost & resources needed to operate and any additional risks that investors may become exposed to, such as increased concentration risk as a result of existing investors in a loan purchasing additional loan parts.



Fee Structure

Assetz Capital informed investors of the reasons for the amended fee structure, this included:

“What is the Lender Fee?

During this period of run off, we have taken the decision that we must now apply a Lender Fee, permitted in the Terms and Conditions of the platform. The rate that is to apply initially, and is expected to apply in the future is as follows:

• Through to end of June 2023 - 2.9% pa of performing loans

• July to December 2023 - 1.4% pa of performing loans

• January 2024 onward - 0.9% pa of performing loans

(This equates to an average fee level of 2.15% for the first 12 months and a 5 year effective fee of 1.15% pa)



These are estimated fees and subject to review over time. They would be applied to interest received by investors (i.e. on performing loans only) and no charge is applied on a loan if no interest is being paid by borrowers.

Why do you need to charge a Lender Fee?



The ceasing of new retail lending means that we no longer have any loan origination income as a part of our income for the retail part of the business. In response to this, and to ensure that the loan book run off process and required team is properly funded, we will look to reduce overheads and simplify our processes to reasonably control costs. However, alongside that it is also necessary to charge a lender fee to ensure the run off of the retail investment loan book is funded to the appropriate service levels. Initially, costs of preparing for the run off are expected to be higher and that is why the fee is higher at the beginning but over time costs fall and the fee will fall as well. We will seek to minimise the fee whilst ensuring that the run off process is fully funded for the work required within a continuing regulatory environment, but also to seek the best outcome for investors. This can only be achieved with a strong and experienced team.



How did Assetz Capital arrive at the percentages and front loading of the Lender Fee?

The derivation of the fee quantum and calculations used are commercially sensitive and, as such, will not be made public.

That said, if the Assetz Capital Board had not been able to demonstrate a viable financial model for the run off of the Retail Loan Book they would have been obliged, under FCA regulations, to trigger the Wind Down plan which would involve the inclusion of 3rd parties and additional costs as well as the potential cessation of funding of inflight Development Loans. This was something that we feel would have had greater detriment to Investors.



New loan origination income, previously used to subsidise the costs of the operation of the Retail Platform stopped fully on 15/12/2022, but operational overhead has continued at historic levels and will do so in the short term during H1 2023. This is due to the costs of consultations, reviews of the business model, restructuring and staff and 3rd party provider contractual notice periods.



The income needed to maintain the Retail Run Off needs to be front loaded, hence the lender Fee being higher initially and tapering over time. This is because income produced by the loan book will diminish over time, as loans repay, but sufficient funds need to be available to cover the expected run off period.



The Lender Fee expected to be generated over the first year is less than previously derived from new loan origination fees but equally, there are expected to be reduced costs. We expect the Lender Fee generated to be sufficient to safely support the operation of the Retail Platform, on its lower cost basis, and in the absence of loan origination income.”

Full details of information issued to investors by Assetz Capital can be found here: retail.assetzcapital.co.uk/blog/...tz-capital



Assetz Capital has stated the fee is permitted under their Terms and Conditions. It may be that you believe this is an unfair contract term, but a FOIA request may not be the appropriate route to answer this. It may be helpful to point you to information on our website on how to report an unfair contract term www.fca.org.uk/consumers/unfair-...tract-term

It is important to emphasise that while the FCA can challenge a contract term, only the courts can ultimately decide if a term is unfair or unclear.



We remain engaged with Assetz Capital to monitor progress with recoveries and plans for distributing funds to the investors that funded loans.

There is also general information on P2P regulation in Policy Statement PS 19/14 www.fca.org.uk/news/press-releas...-platforms and also in Andrew Bailey’s letter to Lord Myners: www.fca.org.uk/publication/corre...-lendy-ltd.