mosaic
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Post by mosaic on Jul 5, 2016 17:57:44 GMT
Fair enough, I see your particular point now, though I would have thought that investor A's money would be ring fenced completely and that the issue would be how is B's payment funded, such that the process complies with FCA rules?
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jonah
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Post by jonah on Jul 5, 2016 18:00:09 GMT
This will presumably also affect another place (Fumbling Circus) where debit card payment allows immediate funding and purchase of loan parts. I had naively pondered this before, having noticed that I could purchase immediately, but the money didn't seem to exit my bank account for a day or so. And ratesetter and Ablrate....
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Post by lb on Jul 5, 2016 18:06:41 GMT
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Post by andrewholgate on Jul 6, 2016 8:52:34 GMT
This will presumably also affect another place (Fumbling Circus) where debit card payment allows immediate funding and purchase of loan parts. I had naively pondered this before, having noticed that I could purchase immediately, but the money didn't seem to exit my bank account for a day or so. Although the money doesn't appear to exit your bank, if you check your available balance it immediately drops by the amount spent. It just takes a couple of days for the debit card transaction details to appear on your statement.. A debit card is not cash. Just because the bank says the funds are available and you can process your sale doesn't mean you have the cash in your account. Most banks settle these transactions overnight, which means you have the cash the next day. If the transaction is late on a Friday night, it can be tuesday before you have the funds. If it is your debit card, the bank quite rightly reduces what you have available because you have made a commitment to spend that money. It doesn't mean the bank has released your cash to the place you want it to go to. Client money rules state that only cleared funds can be used. There are some amendments in that latest release by the FCA in June that may change this and we are looking at them.
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Post by andrewholgate on Jul 6, 2016 9:10:29 GMT
I have just re-read the Client Money Guidance. Section 7.11.14 does make some small allowance for funds in transit taking 1 business day and that can be disregarded from the wider rules. This would in theory allow for debit cards, however the firm receiving the money has to take the risk themselves. Client money rules are clear that you cannot use another clients funds to subsidise a different client. There is a clarification in the rules that if the transaction goes over 3 days, the carve out no longer applies. The platform would have to take the risk on their own book to cover the funds.
It's a calculated risk, but at AC until there are cleared funds in the account you cannot invest. It may sound draconian and playing strictly to the rules, but to be honest I don't want to be taking any risk with your money in our client accounts. I'd rather err on the side of caution.
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sl75
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Post by sl75 on Jul 6, 2016 10:44:44 GMT
To begin with: A has £1,000 of cash in the client money account but no loan parts. B has £0 of cash in the client money account but £100 of loan parts. The cash component of the loan parts has already left the client money account to go to the borrower. C has £0 of cash and no loan parts. There is £1,000 of cash in the client money account. B sells his £100 to C who has not yet paid and B withdraws their £100. A has £1,000 of cash in the client money account according to the system. B has £0 of cash, due to their withdrawal, and no loan parts. C has £0 of cash and £100 of loan parts but hasn't yet paid for them. Or you can consider the £100 of loan parts unallocated if they are taken back by the platform. There is £900 of cash in the client money account as B has withdrawn £100. So there is a £100 shortfall in the client money account between what is in there as cash and the amount currently allocated to A in the system. Were everything frozen at this point in time lender A would be £100 out of pocket as they, in effect, funded B's cash withdrawal. Most of these perceived problems go away if you assume at least one client who maintains a cash float and allows any other member to borrow those funds in order to pay for loan parts. I'll call that client 'U', and assume they've got a £200 cash float in the account at the start of your scenario. To begin with: A has £1,000 of cash in the client money account but no loan parts. B has £0 of cash in the client money account but £100 of loan parts. The cash component of the loan parts has already left the client money account to go to the borrower. C has £0 of cash and no loan parts. U has £200 of cash in the client account and no loan parts. There is £1,200 of cash in the client money account. B sells his £100 to C who has not yet paid and B withdraws their £100. A has £1,000 of cash in the client money account according to the system. B has £0 of cash, due to their withdrawal, and no loan parts. C has £0 of cash and £100 of loan parts but hasn't yet paid for them. U has £100 of cash, but will receive £100 of loan parts from C (and presumably also the interest on them) if C doesn't pay for them, or the first £100 of any money C adds. There is £1,100 of cash in the client money account as B has withdrawn £100. There is no shortfall, as the only party "out of pocket" is U who has an separate agreement to allow this. As this is a private agreement between SS and U, the other clients, A, B, and C do not need to know the detail of this separate agreement, nor even the identity of U. An auditor of the FCA certainly would though! There also seems to be a separate agreement that if/when U sells on their loan parts, that they take a lower priority than "normal" clients. U also seems to be allocated the entire balance of new loans, presumably on the condition that they'll make up any shortfall if drawdown needs to occur before all loan parts have been paid for. My guess would be that U is either SS itself (or a sister/subsidiary such as "the provision fund", or whatever entity holds the monies that the borrower does not receive between drawdown and payment of interest), or someone that SS is paying a fee to provide that service.
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Post by andrewholgate on Jul 6, 2016 11:10:09 GMT
There is nothing to stop person U beingbrought in to cover that risk. At AC it is much more complicated.
In the QAA we have seen upwards of £500k coming into the account per day, but normally this is around £100k. Assume half of that is debit cards and worst case 4 days to clear. That would be a £200k liability for person U. On busy days that could be a few million. In order to have that sort of money on call, an underwriter would want a hefty return.
As I said, at AC we will only act on cleared funds and have no intention of bringing in debit cards in the near future.
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Liz
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Post by Liz on Jul 6, 2016 11:59:42 GMT
Surely "person U" can be the platform itself. We see that Savingstream does use its own funds to underwrite loans. PBL 6 for example, was drawndown with Savingstream underwriting and committing over £500K of its own funds.
There are also cases where members has reneged on loan purchases, and SS is left holding the loan part, and is at the back of the queue to sell those loan parts.
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Post by andrewholgate on Jul 6, 2016 12:56:55 GMT
I can't comment on how other platforms may or may not do things.
Under article 36H, the FCA rules on P2P lending, the operator of the platform cannot provide credit to a borrower. This means it cannot lend its own money alongside other lenders. Now, that doesn't mean that a related vehicle can't take that risk, but the platform itself cannot lend money. If the platform funded the payment gap between approval and cash, they they own the risk and as such are lending. This is the view we have taken at AC and we know we could set up a separate vehicle to do this. Due to the risks, costs and mechanics involved, we have decided not to. As I say, other platforms take their own views and advice and will be guided by the FCA as part of their permissions application.
The exact wording is below and I have put in bold the part that says the platform can't lend.
(a) (in relation to a borrower) in accordance with article 36H of the Regulated Activities Order, an agreement by which one person provides another person with credit (within the meaning of article 60L of the Regulated Activities Order) and in relation to which:
(i) the operator of the electronic system in relation to lending which facilitates the agreement does not provide credit (within that meaning), assume the rights (by assignment or operation of law) of a person who provided credit, or receive credit under the agreement;
(ii) the borrower is an individual; and
(iii) either condition (A) or (B) is satisfied:
(A) the lender provides credit (within that meaning) of less than or equal to £25,000; or
(B) the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.
(b) (in relation to a lender) in accordance with article 36H of the Regulated Activities Order, an agreement by which one person provides another person with credit (within the meaning of article 60L of the Regulated Activities Order) and in relation to which either:
(i) the lender is an individual or was an individual at the time the agreement was entered into; or
(ii) if the lender is not an individual or was not an individual at the time the agreement was entered into, either condition (A) or (B) is satisfied, or was satisfied at the time the agreement was entered into:
(A) the lender provides credit (within that meaning) of less than or equal to £25,000; or
(B) the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;
provided, in either case, that the operator of the electronic system in relation to lending which facilitates the agreement does not provide credit (within that meaning), assume the rights (by assignment or operation of law) of a person who provided credit, or receive credit under the agreement.
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sl75
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Post by sl75 on Jul 6, 2016 14:40:35 GMT
If the platform funded the payment gap between approval and cash, they they own the risk and as such are lending. This is the view we have taken at AC and we know we could set up a separate vehicle to do this. Due to the risks, costs and mechanics involved, we have decided not to. As I understand it, AC do have such a vehicle, called the "Quick Access Account".
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james
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Post by james on Jul 6, 2016 20:34:21 GMT
The exact wording is below and I have put in bold the part that says the platform can't lend. There is also this bolded by me text: " (a) (in relation to a borrower) in accordance with article 36H of the Regulated Activities Order, an agreement by which one person provides another person with credit (within the meaning of article 60L of the Regulated Activities Order) and in relation to which:
(i) the operator of the electronic system in relation to lending which facilitates the agreement does not provide credit (within that meaning), assume the rights (by assignment or operation of law) of a person who provided credit, or receive credit under the agreement;
(ii) the borrower is an individual; and
(iii) either condition (A) or (B) is satisfied:
(A) the lender provides credit (within that meaning) of less than or equal to £25,000; or
(B) the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.
(b) (in relation to a lender) in accordance with article 36H of the Regulated Activities Order, an agreement by which one person provides another person with credit (within the meaning of article 60L of the Regulated Activities Order) and in relation to which either:
(i) the lender is an individual or was an individual at the time the agreement was entered into; or
(ii) if the lender is not an individual or was not an individual at the time the agreement was entered into, either condition (A) or (B) is satisfied, or was satisfied at the time the agreement was entered into:
(A) the lender provides credit (within that meaning) of less than or equal to £25,000; or
(B) the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;
provided, in either case, that the operator of the electronic system in relation to lending which facilitates the agreement does not provide credit (within that meaning), assume the rights (by assignment or operation of law) of a person who provided credit, or receive credit under the agreement." All that means is that if the platform is providing the credit it can't be with a 36H agreement. It doesn't go beyond that and say that a platform is prohibited from offering credit under non-36H agreements in advance of the 36H agreements being made, by way of what can be effectively a bridging loan to the ultimate borrower while the 36H funding that will replace it is being put in place. Naturally the platform would need to have the relevant permissions to do that other lending. Of course you have legal and regulatory guidance and I don't, but when plain words saying that terms only apply to the 36H agreements are being treated as meaningless so that the other terms also apply to any non-36H agreements that a platform might make, that does not seem like a correct interpretation to me.
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cooling_dude
Bye Bye's for the PPI
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Post by cooling_dude on Jul 6, 2016 20:40:50 GMT
NOTE TO MODS...
This thread may have been intended to be for SS investors, but considering the OP was referring to an e-mail from a different platform and discussion has since drifted with other platform reps discussing the subject, maybe it is best to move the thread to General Discussion?
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agent69
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Post by agent69 on Jul 6, 2016 20:51:25 GMT
NOTE TO MODS... This thread may have been intended to be for SS investors, but considering the OP was referring to an e-mail from a different platform and discussion has since drifted with other platform reps discussing the subject, maybe it is best to move the thread to General Discussion? I've already been relocated once this week!
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Post by andrewholgate on Jul 7, 2016 9:26:16 GMT
If the platform funded the payment gap between approval and cash, they they own the risk and as such are lending. This is the view we have taken at AC and we know we could set up a separate vehicle to do this. Due to the risks, costs and mechanics involved, we have decided not to. As I understand it, AC do have such a vehicle, called the "Quick Access Account". Which is all segregated as per the terms of client monies. You cannot invest in the account without having cleared funds on the platform and the QAA is not AC's cash, it is our lenders cash. We can account for every penny as to who holds what in that account. That account is not used to bridge payment gaps between someone saying they have sent money to actually having the cash. I think you are confusing the issue.
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Post by andrewholgate on Jul 7, 2016 9:35:21 GMT
james What it is saying is that the platform cannot give credit or receive credit (this would entail you lending to the platform, the platform lending the money out but the platform takes the credit risk on the borrower, not you as you are only taking risk on the platform who you lent money to) in order for it to be classed as a 36H agreement. The platform can only be the conduit between the borrower and the lender where the risk of loss sits with the lender and not the platform. If it does sit with the platform, this is not a 36H and is not a P2P loan and would come under CIS rules. 36H in itself is not CIS as guided by Treasury. In simple terms, the platform cannot provide credit nor take credit to fulfil a 36H loan. It can only be the agent in the middle.
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