jonah
Member of DD Central
Posts: 2,031
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Post by jonah on Jan 23, 2016 19:47:33 GMT
...slug it out for this coveted prize. There is a prize?  The idea of a like from me being coveted is, ummmm, interesting. 
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Post by chris on Jan 23, 2016 19:49:07 GMT
...slug it out for this coveted prize. There is a prize? The idea of a like from me being coveted is, ummmm, interesting. Okay, okay. It's personal pride.
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Post by meledor on Jan 23, 2016 19:57:58 GMT
Your comment above which I have highlighted is correct. Saving Stream have stated that its lawyers as well as Grant Thornton have confirmed that its loan contracts are 36H compliant. . I think the point chris was trying to make was that AC's advice told them they can't pay interest to their investors before they're receiving interest from their borrowers. And that's what SS are doing when they pay interest before drawdown, presumably because they received different advice. Aren't legal advisers fun! 
The loan contracts are in effect prior to drawdown, they must be because at the point a lender agrees to a loan and it goes live:
-the lender enters into a loan contract with the borrower -the lender agrees to fund the amount within the specified time period (if not already funded) -the money is transferred from the Saving Stream account of the lender to the Saving Stream account of the borrower.
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Post by chris on Jan 23, 2016 20:10:06 GMT
SS's loan agreements may be 36H compliant, but surely they aren't actually in effect until a loan draws down. I think the point chris was trying to make was that AC's advice told them they can't pay interest to their investors before they're receiving interest from their borrowers. And that's what SS are doing when they pay interest before drawdown, presumably because they received different advice. Aren't legal advisers fun!
The loan contracts are in effect prior to drawdown, they must be because at the point a lender agrees to a loan and it goes live:
-the lender enters into a loan contract with the borrower -the lender agrees to fund the amount within the specified time period (if not already funded) -the money is transferred from the Saving Stream account of the lender to the Saving Stream account of the borrower. It would be unusual if the final documents weren't signed at the point of draw down, with everything enacted by the two party's lawyers "simultaneously". That is when lender funds are actually transferred from the client money account to the borrower's real account, security is legally taken, etc. If interest is paid prior to that point it is prior to the loan agreement being signed by the borrower. Everything up to that point will be decisions in principle and promises to fund things by the lenders.
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Post by meledor on Jan 23, 2016 20:37:24 GMT
The loan contracts are in effect prior to drawdown, they must be because at the point a lender agrees to a loan and it goes live:
-the lender enters into a loan contract with the borrower -the lender agrees to fund the amount within the specified time period (if not already funded) -the money is transferred from the Saving Stream account of the lender to the Saving Stream account of the borrower. It would be unusual if the final documents weren't signed at the point of draw down, with everything enacted by the two party's lawyers "simultaneously". That is when lender funds are actually transferred from the client money account to the borrower's real account, security is legally taken, etc. If interest is paid prior to that point it is prior to the loan agreement being signed by the borrower. Everything up to that point will be decisions in principle and promises to fund things by the lenders.
That's not what Saving Stream's terms and conditions suggest. I guess there are different ways of organising finance and it seems AC is doing it one way and Saving Stream another, the implication for the latter is that the agreement is in place when it goes live and that drawdown takes effect when conditions precedent are met.
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Post by chris on Jan 23, 2016 20:56:02 GMT
It would be unusual if the final documents weren't signed at the point of draw down, with everything enacted by the two party's lawyers "simultaneously". That is when lender funds are actually transferred from the client money account to the borrower's real account, security is legally taken, etc. If interest is paid prior to that point it is prior to the loan agreement being signed by the borrower. Everything up to that point will be decisions in principle and promises to fund things by the lenders.
That's not what Saving Stream's terms and conditions suggest. I guess there are different ways of organising finance and it seems AC is doing it one way and Saving Stream another, the implication for the latter is that the agreement is in place when it goes live and that drawdown takes effect when conditions precedent are met.
As I say I'm not familiar enough with the detail of SS's setup, but time will tell and we'll see what the FCA make of it (which was my original point). I'll run it past my fellow directors as if that is how SS manage things and they start charging the borrower interest before conditions are met for draw down then that could be a competitive advantage for us. It could also be that SS charge the borrowers a commitment fee, which is common practice, and they use that to fund the interest which would IMHO be questionable under the regulations.
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Post by bracknellboy on Jan 23, 2016 21:39:58 GMT
Not on SS so can't comment on what they are actually doing. But could it be that the connundrum and its solution lies in your own post. You have used the terms 'earn interest' and 'pay interest' as if they are interchangeable. The requlations simply (not would be simple of course' actually result in a bar in paying interest, but not in earning / accruing ? Possibly if lenders are not paid those funds if the loan doesn't go ahead and draw down, and it's in the loan agreement that the borrower will pay them to the lenders. As it's labeled interest SS have to be careful as they cannot pay interest on deposits only Article 36H loan agreements. I must stop posting from an iPad. It seems to regularly lead to my putting up unintelligible replies due to mangling, and I have no idea why.
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ablender
Member of DD Central
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Post by ablender on Jan 24, 2016 0:00:02 GMT
It would be interesting if savingstream had to defend their turf a bit. |
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james
Posts: 2,205
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Post by james on Jan 24, 2016 2:04:57 GMT
the following scenario: lender A deposits £50k, buys loan units, holds them for a while, then sells them; lender B says they'll fund their account with £50k, buys those loan units, lender A is then free to withdraw those funds, but lender B never deposits their £50k. The £50k that lender A had withdrawn would actually belong to other lenders who had deposited cash and were the company wound up and the accounts frozen then the other lenders would lose that money. That scenario does not appear to require clients losing money. Firms are supposed to keep the balances in client money accounts correct and in the scenario you have described Lendy would have had to use company funds to provide the £50k of client (no longer firm) money in the client money account until lender B makes the deposit. This means that the correct mount of money would be in the client accounts and available to pay investors. Of course it is possible that in your scenario a firm would also not reconcile the money so that there was always sufficient to prevent loss to investors. At least as I understand the rules, not as a pro, and per the FCA decisions that I've read in this area where firms either didn't reconcile (for example, a pension provider targeting the advised-only large pot market that didn't reconcile at all for several years) or where they deliberately had systems that didn't have matching funds during the day but did during the evening (for example, the bank-operated investment business that systematically did this to use client money during the day to make it money). Neither firm actually lost client money but the fines were in the millions. Somehow firms have persuaded the IFA to accept deferred payment for investments, including payments of interest, because it is commonplace for pension firms to take client payments and invest the money including tax relief even though HMRC has not yet paid them the tax relief and would not normally do so until some weeks after the original client deposit. Not all firms do this, of course, some make the investor wait until the firm has received the money from HMRC. Another case where the FCA accepts investing of funds not yet with a provider is debit card payments, though there may be issues around what is or isn't guaranteed under merchant agreements that could allow this where the card issuer or payments processor accepts the risk. I'm not sufficiently familiar with this area to know how it's justified, just that it's done. There is a risk to the solvency of the business in using business money to keep client account balances correct, since the loss if A and B were really criminal conspirators would fall on the company.
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JamesFrance
Member of DD Central
Port Grimaud 1974
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Post by JamesFrance on Jan 24, 2016 7:59:35 GMT
It would be interesting if savingstream had to defend their turf a bit. I doubt that they would wish to share their expensively acquired legal opinions with all their competitors on an open forum.
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Post by chris on Jan 24, 2016 8:07:38 GMT
Another case where the FCA accepts investing of funds not yet with a provider is debit card payments, though there may be issues around what is or isn't guaranteed under merchant agreements that could allow this where the card issuer or payments processor accepts the risk. I'm not sufficiently familiar with this area to know how it's justified, just that it's done. Firstly I want to say of course it should be obvious that I'm not accusing SS of having lost anyone's money to date, I am just curious how their solution remains within the client money rules if indeed it does. They would have to be funding every transfer themselves, which given the size of some of their loans and the prevalence of this deferred deposit system being used would end up requiring a lot of money being sat there to fund it. With debit cards it's not 100% clear how the FCA will impose their rules. A liberal reading of the rules would permit debit card deposits, whereas a strict reading of the rules would either require a delay until funds are actually received from the merchant services / payment gateway or would require a similar solution involving moving company funds around. Our compliance officer has advised us to follow the strict interpretation which is why we currently don't allow debit cards however as other platforms become regulated that allow debit card deposits we'll become more adventurous. With the FCA regulation it's rarely black and white what you can and cannot do and there is a history of retrospective decisions and large fines, something we'd like to steer clear of. I would hope things will become clearer over the next few months.
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ablender
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Post by ablender on Jan 24, 2016 20:03:41 GMT
Another case where the FCA accepts investing of funds not yet with a provider is debit card payments, though there may be issues around what is or isn't guaranteed under merchant agreements that could allow this where the card issuer or payments processor accepts the risk. I'm not sufficiently familiar with this area to know how it's justified, just that it's done. Firstly I want to say of course it should be obvious that I'm not accusing SS of having lost anyone's money to date, I am just curious how their solution remains within the client money rules if indeed it does. They would have to be funding every transfer themselves, which given the size of some of their loans and the prevalence of this deferred deposit system being used would end up requiring a lot of money being sat there to fund it. With debit cards it's not 100% clear how the FCA will impose their rules. A liberal reading of the rules would permit debit card deposits, whereas a strict reading of the rules would either require a delay until funds are actually received from the merchant services / payment gateway or would require a similar solution involving moving company funds around. Our compliance officer has advised us to follow the strict interpretation which is why we currently don't allow debit cards however as other platforms become regulated that allow debit card deposits we'll become more adventurous. With the FCA regulation it's rarely black and white what you can and cannot do and there is a history of retrospective decisions and large fines, something we'd like to steer clear of. I would hope things will become clearer over the next few months. Retrospective decisions and fines based on such decisions sounds like fraud to me. FCA should either make things clear, or if they clarify something it should be effective from that time onwards with a possible adjustment period if required.
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The idea of a like from me being coveted is, ummmm, interesting. 
