FCA bans skin in the game

What part of the FCA's "the operator of the electronic system in relation to lending which facilitates the agreement does not provide credit" do you believe is ambiguous about whether it is or isn't allowed by the FCA in the 36H case?

We have seen platforms changing model - SavingStream, for example - and we will presumably see more in relation to this, the bad debt rules and the ISA rules as the platforms seek to both comply and offer more attractive propositions to investors.

It's probably NOT a good idea to permit a platform or its directors to trade in selected loans, because of the danger of insider trading (or accusations therof), most particularly to sell them on the SM before they are repaid.

What counts for interests to be aligned is that the platform (or directors thereof) to be in all loans until repayment - in AC's case you do have the collective products (the 7% ones can't recall the name).

Thanks for the input.

I don't understand point 1, unless they are investing a large proportion of the total fund

As for point 2, well yes, if loans go bad the platform's owners suffer - so they don't want them to go bad - where is the conflict there (which outweighs the benefit)?

We have a full log of all sale orders and trades and the date and time they were put into place and an internal policy that they need to be signed off by a board director before they can be put on the system.  This is in the process of being formalised with the system itself preventing activation of sale orders before the appropriate director has approved them.

I think that Directors or connected parties participating in an auction-style system is a bit shaky. Obviously where information has come to light re a loan then there shouldn't be trading anyway by insiders... But to be honest if anything comes to light lenders should be told straight away and trading stopped until there is equality of information.

Please look a few posts earlier for the specific rule relating to P2P that I have quoted.

Given that it is regarded as desirable in other lending contexts, like mortgage origination in the US where lack of such a tie proved problematic, it seems desirable to reconsider.

That mortgage origination situation was where a "lender" could make loans and sell them on without retaining any of the loan liability, just taking the profit from the original sale then being off the hook. It has been credited as being one of the weaknesses in the system that allowed the growth of poor lending standards by originators.

One challenge particularly in the P2P space is that the amount of capital required to operate could significantly increase and that it might put pressure on margins requiring less good rates to borrowers lenders or both.

Rupert Taylor does get things pretty wrong with this assertion: "The evolving market in these loans makes it extremely clear that investors favour the alignment created by disclosure over the alignment created by capital. "

Nope. I don't favor the disclosure, that I have seen repeatedly being found to be flawed. I just don't have suitable competing returns available from platforms that have skin in the game so I accept the increased risk that I see from the platform not having money invested that would be lost if its disclosures were inadequate or outright false. 

"disclosure, is already functioning extremely well."

ROFL. Like the platform that said it would lend only to young professionals who were under 25 and proceeded to lend to fitters, plumbers, bank clerks and checkout people who usually hadn't even completed secondary school? Or the one that didn't bother to mention that its loan to value was based on planning permission that hadn't been granted and that by the way the borrower wasn't the individual it identified but a limited company in which it was taking a 10% ownership interest?

And by the way, it seems to be accepted practice in financial services for intermediaries to disclose their remuneration. Where can I find how much a platform is getting from each loan I make on the platform?

"The leading platforms in this sector now deliver a near-complete level of disclosure."

ROFL. They provide little other than summary per-loan performance after the fact. Just ask the two leaders to let you lend only to individuals or not businesses or to only individual within a certain age range and by the way you want to check the credit scores and income and expenses before lending and watch the stream of "we don't allow you to do that" replies.

The lack of transparency is part of why skin in the game matters.

"His most obvious challenge will be encouraging all platforms to match the standards of disclosure that are upheld by the market leaders."

No thanks. I want standards to be raised, not lowered to the level of some of the leaders.