duck
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Post by duck on Feb 10, 2017 7:52:26 GMT
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dandy
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Post by dandy on Feb 10, 2017 9:26:07 GMT
Sounds like a terrible plan
Might be ok if platforms could opt in/out but if all platforms are forced in then rates would dwindle to barely above base rate
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rick24
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Post by rick24 on Feb 10, 2017 10:26:20 GMT
One of the basic ideas behind p2p is that the risk should be directly to the lender, with no risk on the balance sheet of the platform. The risk to the lender is mitigated by diversification. Some platforms pool the risk through a protection fund. This is not a guarantee against loss: there can be cuts to the interest received and to the capital. If there is to be an absolute guarantee by the taxpayer, then the protection fund will also have to be beefed up to provide 100% protection. This will increase costs and therefore reduce yields.
As I understand it, the need arises more acutely because of the practice of maturity transformation by some platforms: borrowing short and lending long. This gives rise to the need for a capital buffer. Half way on the road to becoming a bank?
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shimself
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Post by shimself on Feb 10, 2017 10:29:04 GMT
One of the basic ideas behind p2p is that the risk should be directly to the lender, with no risk on the balance sheet of the platform. ... I'd always prefer the platform to participate in the risk. Skin in game.
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rick24
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Post by rick24 on Feb 10, 2017 10:34:48 GMT
One of the basic ideas behind p2p is that the risk should be directly to the lender, with no risk on the balance sheet of the platform. ... I'd always prefer the platform to participate in the risk. Skin in game. Yes, I was forgetting that variant. There is something comforting about lending alongside a bigger player that stands to lose, although I guess those who take a first-loss position will also take a higher interest rate on that tranche, leaving less for the 'punters'. We don't get to know what they are earning in most cases, if I am not mistaken. I also like the idea of the platform being backed by an established player, as opposed to a stand-alone. Someone to prop them up if they wobble or fall over
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Post by easteregg on Feb 10, 2017 12:00:04 GMT
This is something I would strongly welcome. Just to be clear, we are taking about platform failure, rather than loan default. When the FCA published their original rules they stated that P2P would be outside of the FSCS.
blog.p2pmoney.co.uk/fca-publishes-rules-for-p2p
One of the biggest risks a lender faces is the risk of platform default. If the platform fails, who will allocate payments between borrower and lender? Would the borrower even know who their lenders are? Do lenders even know who their borrowers are? It wouldn't be cost effective for lenders to individually chase any small loan chunks. An administrator could simply sell off all loans to a 3rd party and use that to repay lenders proportionally rather than spend 5 years running down the loan book. My point is that lenders will find it difficult to quantify this risk.
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SteveT
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Post by SteveT on Feb 10, 2017 12:20:09 GMT
This is something I would strongly welcome. Just to be clear, we are taking about platform failure, rather than loan default.
That doesn't quite tally with the quote from the FCA: " If we extended FSCS coverage to loan-based crowdfunding, investors might also be able to make a claim where a firm had misrepresented the risk of a loan, causing the investor to make an investment they would not have made without that misrepresentation". That would open a massive can of worms! Has anyone managed to find a link to the consultation itself? Found it: www.fca.org.uk/publications/consultation-papers/cp16-42-reviewing-funding-financial-services-compensation-scheme
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mason
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Post by mason on Feb 10, 2017 12:25:34 GMT
This is something I would strongly welcome. Just to be clear, we are taking about platform failure, rather than loan default.
That doesn't quite tally with the quote from the FCA: " If we extended FSCS coverage to loan-based crowdfunding, investors might also be able to make a claim where a firm had misrepresented the risk of a loan, causing the investor to make an investment they would not have made without that misrepresentation". That would open a massive can of worms! As I understand it, in that situation investors would already have a claim, but through the FOS rather than the FSCS. FSCS is not designed to cover things such as mis-selling. Those types of complaints are normally brought before the FOS.
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shimself
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Post by shimself on Feb 10, 2017 12:42:07 GMT
One of the biggest risks a lender faces is the risk of platform default. If the platform fails, who will allocate payments between borrower and lender? Would the borrower even know who their lenders are? Do lenders even know who their borrowers are? It wouldn't be cost effective for lenders to individually chase any small loan chunks. An administrator could simply sell off all loans to a 3rd party and use that to repay lenders proportionally rather than spend 5 years running down the loan book. My point is that lenders will find it difficult to quantify this risk. using words on AC's website, but words to the same effect are found on (every?) platform THE FCA state all platforms must have resolution plans in place designed to effect an orderly run off of their loan book if the platform should fail. In theory at least, this means that your invested funds – money actually lent out to borrowers – should be “safe” even without the platform there and the loan repayments should continue to flow to you.
In order to have even the interim permission this has to be in place
Now, how well done this is might be open to question, but done it is, the identity of the company who would do this is written down
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james
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Post by james on Feb 10, 2017 20:55:15 GMT
One of the basic ideas behind p2p is that the risk should be directly to the lender, with no risk on the balance sheet of the platform. The risk to the lender is mitigated by diversification. Some platforms pool the risk through a protection fund. This is not a guarantee against loss: there can be cuts to the interest received and to the capital. If there is to be an absolute guarantee by the taxpayer, then the protection fund will also have to be beefed up to provide 100% protection. This will increase costs and therefore reduce yields Protection funds are almost irrelevant because investment FSCS protection doesn't cover loses based on the performance of an investment. It's not like deposit protection where the value of the deposit is protected. What investment FSCS protection covers is mainly: 1. Crime at or involving a platform. 2. Misrepresented investment risk. Both only if a platform or adviser has first gone bankrupt from paying the redress claims or being unable to make good the losses to whatever the crime was. So for example, any of these things could be giving a description of risk exposure which is lower than the actual risk exposure: A. Give a misleading value for a property security, well above purchase price. B. Assert that the borrower is an individual whose whole personal assets would be available for debt collection, when it's really a limited liability company 30% owned by an individual and 10% undisclosed ownership by the platform. C. Claim that planning permission had been granted when it hadn't been. D. Give a guarantee, then subsequently argue that a terms and conditions clause that was present when it was offered made it invalid. They key factor is that risk must have been misrepresented in some way. Merely suffering a loss isn't grounds for a claim.
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james
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Post by james on Feb 10, 2017 21:01:26 GMT
Like easteregg I would like to see investment FSCS protection for P2P. This is due to:
1. The relatively hard to deal with platform risk issues such as fraud at or theft from money at a platform. Or even an outright Ponzi scheme, unlikely though that is in the UK.
2. The investment mis-selling that at least one platform appears to be engaging in, through misrepresentation and failure to disclose material facts. What one is doing today is something that others can also do tomorrow.
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bigfoot12
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Post by bigfoot12 on Feb 11, 2017 9:14:21 GMT
Like easteregg I would like to see investment FSCS protection for P2P. But who is going to pay for it? Because these platforms are so small and likely returns are so uncertain any sensible 'insurance policy' should have very high premiums. Aren't fees likely to be so high that returns fall too low? Remember we can still lose money if the investments are poor in the normal sense. 1. The relatively hard to deal with platform risk issues such as fraud at or theft from money at a platform. Or even an outright Ponzi scheme, unlikely though that is in the UK. It would become very hard for a new platform to enter the market which will kill innovation. Imagine if only Zopa, RS and FC could survive such a move - would that be good for P2P? The investment mis-selling that at least one platform appears to be engaging in, through misrepresentation and failure to disclose material facts. What one is doing today is something that others can also do tomorrow. How much would that help? You could sue now if you think that you have been miss-sold. If you win and the company is solvent they will have to pay you. As I understand it FSCS would only help if you sued, won and the company folded.
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mason
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Post by mason on Feb 11, 2017 9:56:51 GMT
Like easteregg I would like to see investment FSCS protection for P2P. But who is going to pay for it? Because these platforms are so small and likely returns are so uncertain any sensible 'insurance policy' should have very high premiums. Aren't fees likely to be so high that returns fall too low? Remember we can still lose money if the investments are poor in the normal sense. 1. The relatively hard to deal with platform risk issues such as fraud at or theft from money at a platform. Or even an outright Ponzi scheme, unlikely though that is in the UK. It would become very hard for a new platform to enter the market which will kill innovation. Imagine if only Zopa, RS and FC could survive such a move - would that be good for P2P? The way the FSCS currently works is that the levy on a business is proportional to its size, so larger platforms like Z, RS and FC would pay more. New entrants to the market would likely pay relatively little until they had grown and become more established. But it would have some effect on rates. How that would be distributed between what borrowers are charged and what lenders receive remains to be seen. I think the effect would be much less than, for example, that of a provision fund. The investment mis-selling that at least one platform appears to be engaging in, through misrepresentation and failure to disclose material facts. What one is doing today is something that others can also do tomorrow. How much would that help? You could sue now if you think that you have been miss-sold. If you win and the company is solvent they will have to pay you. As I understand it FSCS would only help if you sued, won and the company folded. That is correct, although there is no need to sue. The standard complaints procedure, escalated to the Financial Ombudsman Service if necessary, would suffice. So for FSCS money to be paid out, there would need to be a loss that is a result of wrongdoing by the company, and of sufficient scale to take down the business. Hence, it is a classic low probability, high severity event that consumers really ought to be insured against.
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shimself
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Post by shimself on Feb 11, 2017 11:54:50 GMT
Does anybody feel able to estimate the effect on us lenders, if a platform went down? After all the borrowers still owe us. (disregarding a ponzi or similar fraud)
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Balder
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Post by Balder on Feb 11, 2017 12:36:45 GMT
As P2P is currently classed as unclassified for lending via a SIPP I'd assume that P2P becoming part of the compensation scheme would open investments from SIPP's.
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