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Post by tybalt on Oct 12, 2015 13:51:09 GMT
" I still think cross border lending is an interesting field of p2p lending and a market that will grow. "
I still cannot believe the alacrity with which people loan across borders and into regimes where they have little idea of the practicalities of debt collection. Despite good commercial French and having lived there for six years I am still sufficiently far behind my general commercial knowledge to not consider investing there.
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james
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Post by james on Oct 12, 2015 14:06:21 GMT
I believe that this will scare investors inside and outside Sweden. That would be desirable. But more desirable would be scaring P2P companies into finding some way to get people with a fiduciary responsibility to investors to audit them for risk issues.
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Post by gmaxkenny on Oct 12, 2015 14:16:42 GMT
I love the part where the new management had to inform the Swedish FSA about the apparent fraud. Yet again the regulators (and auditors) missed the goings on and the investors will pay. Now that the horse has bolted the Swedish FSA will no doubt spring into action to try and make themselves look relevant.
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Post by yorkshireman on Oct 12, 2015 14:52:31 GMT
Out of curiosity, where is the connection between the following quotes on this thread: “it is one of the smaller of the 100 or so firms ... operating under the FCA regulation.” “The irony here is that the journalist in question was a paid for spokesman of a P2P firm that launched in a blaze of expensive publicity.” “Twelve and three quarters. Just run at the wall Harry!” and “It's platform NINE and three quarters.” And Trustbuddy? I was also trying to find a link between Trustbuddy and the FCA. If they are not regulated by the FCA then presumably Trustbuddy are not the firm referred to in Anthony Hilton's article. Exactly!
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Post by chris on Oct 12, 2015 15:35:22 GMT
I was also trying to find a link between Trustbuddy and the FCA. If they are not regulated by the FCA then presumably Trustbuddy are not the firm referred to in Anthony Hilton's article. Exactly! I'm speculating but TrustBuddy were looking at the UK market and had a base of operations over here so it's not out of the question that they were trying to gain FCA approval.
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Post by wiseclerk on Oct 12, 2015 15:56:58 GMT
There are 120 P2P lenders in the UK (based on the FCA thread). Nearly all of them are SMEs (except the top three possibly) and most would be considered start-ups (based on staff, turnover, total lack of profit). Over 50% of start-ups fail within 5 years. So for a typical set of 120 start-ups, 60 will fail over 5 years (or about one per month). So the fact that one has gone down (for whatever reason) is not really a surprise. The real surprise is that more aren't failing and the question is whether that is because P2P start-ups do better than other start-ups or just that we're overdue a slew of failures. I'd say they will take longer than the 'average' startup to fail, as most p2p lending startups are able to raise substantial funding pretty early and could live on that some time if necessary. And in the first years it might be hard to gauge how well they are doing overall (sure they will make losses in the first year, but that's expected; and they might miss a few self-set milestones, but that too is nothing too unusual in start up environment). So the only major warning signal would be if they fail to raise follow-on financing in this positive environment.
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Post by easteregg on Oct 12, 2015 16:07:42 GMT
I'm speculating but TrustBuddy were looking at the UK market and had a base of operations over here so it's not out of the question that they were trying to gain FCA approval. I would agree with this. I had spoken to them several times as they were keen to grow their UK operation. This does highlighted the usually unquantifiable "platform risk" which clearly isn't zero.
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Post by chris on Oct 12, 2015 16:44:27 GMT
I'm speculating but TrustBuddy were looking at the UK market and had a base of operations over here so it's not out of the question that they were trying to gain FCA approval. I would agree with this. I had spoken to them several times as they were keen to grow their UK operation. This does highlighted the usually unquantifiable "platform risk" which clearly isn't zero.
I think this goes beyond platform risk as it's not the platform itself failing from a financial point of view, which is the aspect most seem to associate with that phrase, but is a complete failure of their technical platform. There's two discrepancies mentioned, one is 44 MSEK that has been lent or used without permission and the other is 37 MSEK of loans that have been extended to borrowers without being assigned to a lender. Neither of which should be possible, let alone systemic, if you are compliant with the FCA's client money regulations. I suspect each platform's client money solution is going to come under increased scrutiny from the FCA, and that can only be a good thing for consumers and the long term health of the industry.
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james
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Post by james on Oct 12, 2015 18:59:00 GMT
There's two discrepancies mentioned, one is 44 MSEK that has been lent or used without permission and the other is 37 MSEK of loans that have been extended to borrowers without being assigned to a lender. Neither of which should be possible, let alone systemic, if you are compliant with the FCA's client money regulations. At present I'm not assuming that real borrowers for those loans exist. Lending to fake borrowers is one of the ways to steal money from a platform and it's conceivable that all 37MSEK is a fraud loss, perhaps explaining the referral to the police. Or not, of course, we just don't know at present and there could be innocent reasons.
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james
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Post by james on Oct 12, 2015 19:06:18 GMT
I suspect each platform's client money solution is going to come under increased scrutiny from the FCA Undoubtedly. It would be very wise for platforms to look at the huge fines that the FCA has imposed on fully cooperating firms with long term client money failings even when no money was lost by consumers. That daily reconciliation and ensuring that the right amount of money is in the client accounts matters. And playing games like withdrawing money during the day and returning it at night has also garnered a huge fine for at least one firm. For anyone who doesn't know the significance, the money in the client accounts is separate from the firm's own money. If the money isn't in a client account it's potentially vulnerable to actions by creditors, including in bankruptcy. And the processes to ensure that this happens should help to prevent a range of other problems, provided those who are doing it are intent on acting legally.
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Post by chris on Oct 12, 2015 19:08:00 GMT
There's two discrepancies mentioned, one is 44 MSEK that has been lent or used without permission and the other is 37 MSEK of loans that have been extended to borrowers without being assigned to a lender. Neither of which should be possible, let alone systemic, if you are compliant with the FCA's client money regulations. At present I'm not assuming that real borrowers for those loans exist. Lending to fake borrowers is one of the ways to steal money from a platform and it's conceivable that all 37MSEK is a fraud loss, perhaps explaining the referral to the police. Or not, of course, we just don't know at present and there could be innocent reasons. The fake borrowers is one possible explanation. Another would be that they were using idle funds in the client account to make other loans for the platforms benefit, without permission from the lenders. The description said 37 MSEK of their loan book was not assigned to lenders, rather than there being a problem with the borrowers. But as you say we are speculating, it could be cock up instead of malice, or something else entirely.
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james
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Post by james on Oct 12, 2015 19:13:32 GMT
The fake borrowers is one possible explanation. Another would be that they were using idle funds in the client account to make other loans for the platforms benefit, without permission from the lenders. Indeed and the specific wording used initially caused me to think of that reason. And since it's misuse of investor money - fraud, I assume - then that would also merit the police referral. And of course either is potential temptation for those in a platform that is facing financial difficulties, which is why paying attention to the financial health of platforms matters to lenders.
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Post by chris on Oct 12, 2015 19:36:09 GMT
I suspect each platform's client money solution is going to come under increased scrutiny from the FCA Undoubtedly. It would be very wise for platforms to look at the huge fines that the FCA has imposed on fully cooperating firms with long term client money failings even when no money was lost by consumers. That daily reconciliation and ensuring that the right amount of money is in the client accounts matters. And playing games like withdrawing money during the day and returning it at night has also garnered a huge fine for at least one firm. For anyone who doesn't know the significance, the money in the client accounts is separate from the firm's own money. If the money isn't in a client account it's potentially vulnerable to actions by creditors, including in bankruptcy. And the processes to ensure that this happens should help to prevent a range of other problems, provided those who are doing it are intent on acting legally. The client money regulations are very stringent and explicitly task platforms with making sure that we never take money from Peter to give to Paul, and you're not allowed to leave your own (platform) money in the client money account, for example where fees are charged. That's why we can only deal with cleared funds in the client money account. Take a debit card deposit, for example, and whilst you get instant confirmation that funds should be taken from the lender's account and deposited into the client money account that's not guaranteed. It could be stopped due to fraud or other chargeback for example. So the rules say you shouldn't allow lenders to access money that has not been physically received if there is any chance that anyone else could then take those funds out of the client money account. A prime example of something forbidden would be if someone used a debit card to deposit funds, bought a loan unit on the aftermarket, the seller withdrew those funds, and then the debit card transaction was reversed. We've taken those rules very seriously and literally hence only allowing bank transfers into the platform with cleared funds being imported automatically via our integration into the bank and various checks and measure on withdrawals. Others may have more creative interpretations of those regulations.
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james
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Post by james on Oct 12, 2015 20:10:53 GMT
So the rules say you shouldn't allow lenders to access money that has not been physically received if there is any chance that anyone else could then take those funds out of the client money account. A prime example of something forbidden would be if someone used a debit card to deposit funds, bought a loan unit on the aftermarket, the seller withdrew those funds, and then the debit card transaction was reversed. Yes, some good examples there, though I assume that just enforcing a delay in withdrawing until the card funds have cleared would handle that specific example. You can be sure that without controls in that particular area, card fraud would be a significant problem.
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Post by chris on Oct 12, 2015 20:17:30 GMT
So the rules say you shouldn't allow lenders to access money that has not been physically received if there is any chance that anyone else could then take those funds out of the client money account. A prime example of something forbidden would be if someone used a debit card to deposit funds, bought a loan unit on the aftermarket, the seller withdrew those funds, and then the debit card transaction was reversed. Yes, some good examples there, though I assume that just enforcing a delay in withdrawing until the card funds have cleared would handle that specific example. You can be sure that without controls in that particular area, card fraud would be a significant problem. You'd then have to enforce the delay of where the funds end up. So in my example it's delay of the seller's withdrawal that needs to be delayed, and the tracking of when individual blocks of funds clear is a difficult problem. Otherwise if that seller withdraws the proceeds of their sale but the card gets declined then the seller has withdrawn physical cash that should technically belong to another lender who happened to have idle funds, as the funds they were supposed to be withdrawing never materialised.
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