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Post by dualinvestor on Aug 18, 2016 15:21:20 GMT
The statutory order referred to in that blog, The Financial Services and Markets Act 2000 (FSMA) Order, does not exist, see legislation.gov.uk and search for it. But assuming that is just an typographical error I do not think your, or their interpretation, is correct. Yes the normal operation of P2P is exempt but it does not allow for the pooling of debts which, be definition, is not P2P.
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Post by lb on Aug 18, 2016 15:33:55 GMT
The statutory order referred to in that blog, The Financial Services and Markets Act 2000 (FSMA) Order, does not exist, see legislation.gov.uk and search for it. But assuming that is just an typographical error I do not think your, or their interpretation, is correct. Yes the normal operation of P2P is exempt but it does not allow for the pooling of debts which, be definition, is not P2P. There is no legal definition of P2P The order is very clear. If you have A36 permission you are not a CIS for such permitted activities.
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Post by propman on Aug 18, 2016 15:37:08 GMT
AIUI the whole basis of P2P is that you have a contract with the borrower, i.e. behind RS contract no C******** is a Mr Z, and he owes you £x. If he fails to pay then, subject to the Provision Fund making up the difference, there is a potential loss. If it were any other way, e.g. the same contract to a portfolio of borrowers, you would be taking part in a pooled invetment or "collective investment Scheme." As none of the P2P platforms are suthorised to operate such a scheme I doubt it is the latter. In fact I believe some of the platforms changed their terms and conditions fairly recently to take that into account. None of the platforms, as far as I am aware, is a Licensed Deposit Taker so the borrowers funds are always separate from the platform, whether represented by loans or cash. Edit Although by some of their behaviour, particulary in the case of early redemptions by the lender, RS does behave as though it is operating a "collective investment scheme" Sorry, I don't follow. RS manages the administration of the loan and lenders agree to allow RS to authorise early repayments on the lenders behalf. I see the distinction as being dependent on whether the lender is the lender legally as well as beneficially. they will be bound to pass on repayments to the lenders (except for the fee due to them), but whether this is from the loan agreement or a separate arrangement with RS is less clear. If the latter, it is possible that a liquidator would treat these amounts as debts of RS rather than all the funds belonging to the lenders throughout and so making the liquidator liable to pay them in full.
The client handling rules definitely apply to deposits unlent and amounts allocated to the lenders from repayments, the issue is between receipt and allocation.
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Post by propman on Aug 18, 2016 15:38:17 GMT
What do you mean? If you mean they are not CIS then I agree provided they operate as P2P, but I don't think they are allowed to operate one, if a site is approved by the FCA as an electronic lending platform then by definition it isn’t operating a CIS Agreed, but none of the major P2X operations has yet been so approved!
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Post by dualinvestor on Aug 18, 2016 15:43:42 GMT
AIUI the whole basis of P2P is that you have a contract with the borrower, i.e. behind RS contract no C******** is a Mr Z, and he owes you £x. If he fails to pay then, subject to the Provision Fund making up the difference, there is a potential loss. If it were any other way, e.g. the same contract to a portfolio of borrowers, you would be taking part in a pooled invetment or "collective investment Scheme." As none of the P2P platforms are suthorised to operate such a scheme I doubt it is the latter. In fact I believe some of the platforms changed their terms and conditions fairly recently to take that into account. None of the platforms, as far as I am aware, is a Licensed Deposit Taker so the borrowers funds are always separate from the platform, whether represented by loans or cash. Edit Although by some of their behaviour, particulary in the case of early redemptions by the lender, RS does behave as though it is operating a "collective investment scheme" Sorry, I don't follow. RS manages the administration of the loan and lenders agree to allow RS to authorise early repayments on the lenders behalf. I see the distinction as being dependent on whether the lender is the lender legally as well as beneficially. they will be bound to pass on repayments to the lenders (except for the fee due to them), but whether this is from the loan agreement or a separate arrangement with RS is less clear. If the latter, it is possible that a liquidator would treat these amounts as debts of RS rather than all the funds belonging to the lenders throughout and so making the liquidator liable to pay them in full.
The client handling rules definitely apply to deposits unlent and amounts allocated to the lenders from repayments, the issue is between receipt and allocation.
To comply with the Client Money Handling rules the money should be paid by the borrower into the client account (or more likely taken by direct debit) and RS should be paid their fees from that. The monies will always be due to the lender.
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jlend
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Post by jlend on Aug 19, 2016 5:57:24 GMT
I think there should be legislation around the costs of the sellout processes.
There should be no claw back of interest. This should facilitate a free market in buying and selling loan parts.
I can trade bonds on the London stock exchange ORB market. It would seem to make some sense to be able to trade loan parts on the ratesetter exchange.
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locutus
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Post by locutus on Aug 19, 2016 7:06:17 GMT
I think there should be legislation around the costs of the sellout processes. There should be no claw back of interest. This should facilitate a free market in buying and selling loan parts. I can trade bonds on the London stock exchange ORB market. It would seem to make some sense to be able to trade loan parts on the ratesetter exchange. Make sure to tell the FCA. They only require a short email.
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Post by Deleted on Aug 19, 2016 11:54:33 GMT
Indeed, a product with a clawback clause on interest already paid would be considered a pretty non-standard or 'exotic' product if it was being traded by Wall Street banks.
And yet it is being marketed to unsophisticated retail investors. Definitely think the FCA needs to look into it.
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Post by lb on Aug 19, 2016 12:24:53 GMT
Indeed, a product with a clawback clause on interest already paid would be considered a pretty non-standard or 'exotic' product if it was being traded by Wall Street banks. And yet it is being marketed to unsophisticated retail investors. Definitely think the FCA needs to look into it. Interest paid is never "clawed back". There is simply a fee if you wish to exit "early" - and this fee is calculated partly by reference to interest earned. No one is forced to sell early (they merely have the option to do so for a fee) so interest is not randomly clawed back. So the alternatives are (1) no sell out option and no fees to talk about or (2) only sophisticated people can sell out 
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Post by Deleted on Aug 19, 2016 12:29:30 GMT
and this fee is calculated partly by reference to interest earned Semantics. The net financial impact is the same.
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Post by Deleted on Aug 19, 2016 12:35:46 GMT
For the vast majority of fixed income/credit products, interest already paid is purely historical, and has no bearing on any calculations going forward.
Deviation from this would be considered 'non-standard' if it was being traded by a Wall St bank, so why should P2P be any different?
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Greenwood2
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Post by Greenwood2 on Aug 19, 2016 12:36:24 GMT
Many fixed term products have a 'penalty' for withdrawing early of x months interest. NS&I for one.
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locutus
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Post by locutus on Aug 19, 2016 12:50:15 GMT
Many fixed term products have a 'penalty' for withdrawing early of x months interest. NS&I for one. Faulty comparison. The sell out feature allows you to sell your contract to another willing buyer in the market. If there is no buyer, you cannot sell out. NS&I has no market and performs a buyback for which they should be compensated. Besides, P2P is a democratisation of lending and should aspire to be better than traditional forms of finance. In P2P, if there is a willing buyer for a contract, why should the seller be penalised at all? It leads to perverse outcomes which have been well documented on here already.
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Post by Deleted on Aug 19, 2016 12:54:07 GMT
It leads to perverse outcomes which have been well documented on here already. Indeed. This is another one of the 'unexpected complexities' that has taken me by surprise in the P2P world. Even taking into account the 'non-standard' nature of the charge, its turned out to be much more complex in practice than I expected, when you look at the range of possible scenarios triggering the charge.
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Post by Deleted on Aug 19, 2016 13:06:25 GMT
In fact, I should say charge(s), because there are a variety of sellout charges, not just the interest-related one.
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