shimself
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Post by shimself on Mar 17, 2016 12:14:51 GMT
A rebs discussion generated the assertion today that platforms must not invest in their own loans.
Is this true?
Is there any sense at all in this (providing that they must maintain their investment until repayment)? For me forcing platforms to invest in loans would be the number one improvement that the FCA could make.
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registerme
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Post by registerme on Mar 17, 2016 12:25:44 GMT
That would surprise me.
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bigfoot12
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Post by bigfoot12 on Mar 17, 2016 12:51:52 GMT
It might lead to more cashback on FC if they can't fill the last bit of some of their loans.
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mikeb
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Post by mikeb on Mar 17, 2016 17:57:02 GMT
... plus the sudden tsunami of loan parts being unloaded that FC have already bought! Think of the children! secondary market!
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shimself
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Post by shimself on Mar 18, 2016 18:59:52 GMT
REBS have just confirmed they are unable to lend on the platform "Rebs does not currently lend on the platform due to regulatory restrictions." It might be to do with how they did it (ie able to sell on the SM). I have asked for chapter and verse.
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oldgrumpy
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Post by oldgrumpy on Mar 18, 2016 20:12:40 GMT
That rule may be a smack on the bum for Wellesley - "skin in the game" is a fundamental part of their USP.
(and Broadoak/MT for that matter)
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registerme
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Post by registerme on Mar 18, 2016 20:54:45 GMT
I'm astonished.
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ablender
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Post by ablender on Mar 18, 2016 23:24:45 GMT
I trust more a platform which is ready to risk their own money. Why should FCA ban such a thing? On MT, BroadOak take the first loss if I remember well. There might be other examples too.
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Post by ablrateandy on Mar 18, 2016 23:30:05 GMT
There are three possible interpretations :
1. Don't use client funds that are effectively deposits to invest in loans [this should surely be common sense for any platform?!]
2. Don't use the firm's own cash/equity to invest in loans
3. Don't use the funds of any related company to invest in loans
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james
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Post by james on Mar 19, 2016 3:18:13 GMT
A rebs discussion generated the assertion today that platforms must not invest in their own loans. ... Is this true? Is there any sense at all in this (providing that they must maintain their investment until repayment)? For me forcing platforms to invest in loans would be the number one improvement that the FCA could make. A potential reason would be concerns about the solvency of the platform and concerns that it might fail and cause the failure-related recovery processes to be needed. Another potential concern would be platforms that invest money intended to protect investors in loans on the platform, for example the recent RateSetter events where the protection fund did so to help big loans get filled as well as to make interest on them. A prohibition on money intended to protect investors from leveraging up the risk by investing in the same platform seems like a sensible move. Another potential reason might be anti-competitive moves by some platforms, to harm platforms that do this as a routine part of loan funding work by getting regulation that harms the upcoming competition. Some do the initial funding themselves then resell to ultimate lenders. SavingStream and MoneyThing are two examples that could be harmed. Another potential reason might be anti-competitive moves by some platforms to harm platforms that use their own funding of parts of loans as part of the protection of investors who use the platform, with the platform taking first loss. Wellesley, for example, is structured in this way. Simply desiring to undermine alternative ways of protecting investors can be a sufficient reason to want harmful rules to be imposed. Lest anyone think that it might be anything to do with the P2PFA, note that its rules do permit members to lend money on their own platforms, provided that conflicts of interest are effectively managed. For anti-competitive above also just substitute regulators who may not be aware of the breadth of ways that platforms operate and might not even have known that it could harm some of the most promising up and coming platforms. No need for conspiracy when ignorance can do the job, though it is worth being aware that regulation and law are tools used in competitive environments. Some skin in the game is desirable and is being seen for example in rules for US mortgage lending that will ban selling 100% of a mortgage, so that the loan originators will suffer a loss if they do not propose sensible borrowers. This as a partial remedy for the irresponsible lending issues that contributed very substantially to the events in 2008. I look at say Bondora and wonder just how their moves into new markets would have been affected if they, not just lenders, were suffering directly from the extreme default rates encountered in new markets and how that may have prompted them to modify how they did this before investors had suffered so much. So yes, I agree that it is desirable for platforms to have a non-trivial amount in the loans, as well as remuneration of senior management linked to loan performance for lenders. However, it's really for whoever made that assertion in the Rebs discussion to explain the basis for it.
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ablender
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Post by ablender on Mar 19, 2016 14:02:10 GMT
Currently rebsrep have a number of loans who are going south. It would help us, lenders if ReBS were loosing out there own money as we do. In that way they would feel the pinch and start being more selective in the loans they propose on their platform. The other option that comes to mind is that they might not have enough capital themselves and therefore want to stop other platforms that do have a capital to invest.
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shimself
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Post by shimself on Mar 19, 2016 19:10:50 GMT
I've asked REBS two different ways now for clarification, let's see
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Post by rebsrep on Mar 21, 2016 13:46:00 GMT
Currently rebsrep have a number of loans who are going south. It would help us, lenders if ReBS were loosing out there own money as we do. In that way they would feel the pinch and start being more selective in the loans they propose on their platform. The other option that comes to mind is that they might not have enough capital themselves and therefore want to stop other platforms that do have a capital to invest. Although for regulatory reasons as previously said we had to stop our Catalyst programme (i.e. putting £1k in every loan) nearly all our staff in varying degrees of magnitude (depending on their own personal wealth and their role) do have 'skin in the game' and yes it does hurt when we lose our own money and hence we are working hard to ensure the run of bad debts stop and that we are hitting those borrowers that take liberities with our lenders money hard and fast where warranted.
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Post by rebsrep on Mar 21, 2016 13:46:40 GMT
I've asked REBS two different ways now for clarification, let's see I will get Chapter and Verse on why we had to stop our Catalyst scheme and post it here.
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Post by Deleted on Mar 21, 2016 16:41:29 GMT
Also depends on certain company structure as to whether platforms lend off their own balance sheet. E.g. EIS-qualified companies cannot lend off their own balance sheet. I'm sure there are other examples and reasons.
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