on the rebuildingsociety.com blog

06th Jun, 2019

Rule changes for P2P platforms.

If you follow news on P2P lending you may be aware that over the last few years the Financial Conduct Authority (FCA) have been carrying out a review of the Peer-to-peer and crowdfunding (equity) sectors. Since publishing their first rules in 2014, the industry has seen significant growth and diversification, so the new rules are due for review.

On the 4th June 2019, the FCA published its feedback and changes to the rules, which will come into effect on the 9 December 2019. We responded to the consultation papers and have worked closely with industry bodies such as the UKCFA, to help shape and influence changes to the regulations.

The changes that the FCA have decided to implement are synergistic to the changes proposed in the consultation paper 2017/2018, most of which we agreed with and were already part of our processes. Consequently, users will notice relatively few changes.  Many of these changes focus on demanding higher levels of transparency and clearer communication, risk management and cross-platform standardisation of definitions in relation to defaults. We are pleased to learn that the FCA has adopted the definition we have used since our inception of “90 days past due”. Historically members of the P2PFA have been able to compare favourably, by having a more lenient default definition of “120 days past due”. So this makes it easier for users to compare platforms.

In the FCA’s consultation in 2018 it classified platforms into three categories based on their business model. Pricing, Conduit and Discretionary platforms. We are a conduit platform because we allow lenders to set an interest rate price. Many of the new rules are specifically aimed at pricing and discretionary platforms, mandating high standards on credit risk analysis models and reporting, as lenders have less control of their own investments on these platforms.

Model Features
Conduit Lenders pick the loans and the platform administers the loan, clearing of funds and security
The platform sets the price, but the lender picks the underlying loans
Discretionary The platform sets the price and chooses the investor’s portfolio of loans to generate a target rate

What changes to expect

Investor categorisation

Lenders will need to be classified as either:

  • High net Worth investor; or
  • Sophisticated Investor; or
  • Self-certified sophisticated investor or
  • Restricted Investor

Restricted investors are unable to put more than 10% of your available investment assets into P2P lending platforms.

Lenders must also undertake an appropriateness test prior to being able to invest in any of the businesses on the platform. This mandated test will essentially quiz your knowledge and understanding of the platform and your understanding of our role.

Many of you have already completed a type of appropriateness test, so we are confident that the majority of our long-standing lenders will have no problem passing this once introduced.

The classification of investors wil have an impact on how and to whom platforms may market to and will change the structure and nature of many P2P promotions and adverts.

Find Out about how we handle defaults

Living Will (Platform Wind-down Arrangements)

It has long been a requirement that P2P platforms have a Living Will or wind-down arrangement in place to ensure an orderly wind-down of a platform’s loan book in the event that the platform ceases to trade. The necessity and importance of these arrangements is currently being tested with the current winding down of Lendy and Collateral.

Living wills must adequately set out the plans for a 3rd party to be able to successfully distribute lender funds from ongoing loan repayments and ensure that lender funds are maintained and kept according to the CASS (client money) rules.

As a fully authorised and regulated platform, we are frequently reviewing and updating our Living Will and also act as the back-up servicing company for our appointed representatives and have in the past successfully facilitated the winddown of an associated platform. Should we as a platform cease to trade we’re confident that our arrangements would ensure the protection of client money and the smooth winding down of the loan book.

Find out more about our Living Will.

What the new rules failed to cover (in our opinion)

Whilst many of the rules implemented by the regulator are welcomed, we believe that there is more to do. Lenders need to able to compare and contrast the performance of their investments across a variety of platforms.

Definition of Net Return

Whilst the definition of default may now be standardised, there is great diversity in the manner in which platforms calculate net returns and how these are reported to investors. Whilst each platform is required to set out for its investors how it goes about calculating net returns, lenders will still be unable to compare like for like net returns across platforms.

Find out how our net returns are calculated

Higher Standards of Transparency

Many of the new regulations have focused on strengthening the requirements of specifically of pricing platforms’ Risk Management and Credit Risk frameworks, implementing improved requirements on reporting and audit. However, lenders investing on some pricing, but mainly discretionary platforms will still be unable to identify who specifically they are lending.

Rather more concerning is a sentence in the FCAs feedback is what seems to be a reduction in standards for conduit platforms like ourselves. The regulators feedback states:

In cases where a platform decides not to price loans on behalf of investors (ie. operate a conduit-type business model) the platform will not be required to conduct a credit risk assessment of the borrower.

FCA Feedback to CP18/20

This could result in performance standards amongst conduit platforms plummeting. Lower standards of credit risk might result in higher defaults and increased risk to investors.

We will not be reducing our credit risk assessment standards and will not be reducing the amount of information or level of transparency our lenders have come to enjoy. Our credit risk team regularly review the loan book performance and manage the credit risk assessment applied to all loan applications according to its performance.

Furthermore, we will also continue to review ways in which information on lending opportunities is published, so as to inform lenders as much as practically possible, to make considered investment decisions for themselves, and price the risk appropriately.

Find out more about our views on transparency.

What’s Next?

As a platform we’re proud to have already implemented or made steps to implementing many of the changes mandated by the FCA.

Over the next few months we’ll be making a few minor changes to platform and your lending experience. If you haven’t already, we’ll ask you to complete an appropriateness test and lender classification.

If you have any questions about the new regulations, how they might affect you as a lender please feel free to get in touch with us, we’d be happy to hear from you and to answer your questions.

Get in Touch

31st Jul, 2018

Transparency Matters

Peer-to business lending started out with the ambition to be better than the banks, by being more open and transparent, more ethical, more dynamic and better for businesses and lenders alike. Since the early days of the industry, we’ve seen platforms come and go and there have been many changes to the way in which platforms operate.

Many platforms started off as marketplace lenders, arguably the most transparent of the P2P models, but over time many platforms have changed their models, today few platforms still offer real marketplace lending, and even fewer offer the level of transparency on which the industry built its foundations.


28th Feb, 2018

rebuildingsociety.com Celebrates

This month marks one year since our platform received FCA authorisation. We are excited to celebrate the anniversary of our achievement, reflect on what we have accomplished, and look forward to what the future holds.

At the end of February 2017, we shared the exciting news that we had been awarded full authorisation from the Financial Conduct Authority. After operating under interim permission for almost three years and dedicating over two years to the authorisation application process, the news was very well received.

Kylie Greeff, our Compliance Manager, commented: “It was a long, challenging journey to achieve FCA authorisation. I’m so proud of what the company has accomplished in the year since we were authorised, I’m excited about the future of the platform and I’m looking forward to working with the rest of the team to expand our AR network and come up with new ways to innovate in our ever-changing, fast-evolving industry.”

Since we achieved authorisation, we have enjoyed a year of highlights. We promptly announced the introduction of our Appointed Representatives initiative in May last year. “This scheme enables companies not yet authorised by the FCA to operate as authorised firms, by grandfathering the regulatory permissions of a Principal,” explains Managing Director, Daniel Rajkumar. Following the launch of this initiative, we  onboarded our first Appointed Representative, Huddle Capital in just four weeks; as we explain in our case study. The team at Huddle Capital were looking to build their loan book and secure themselves a position in the UK’s P2B lending market. As a new entrant to the market, working with us, rather than embarking on the authorisation process themselves, has enabled them to step into an increasingly competitive market quickly and efficiently.

In May 2017, we received our first visit from the FCA supervision team. This initial meeting was largely exploratory, intended to help explain how we operate in accordance with our policies. It was helpful to understand the regulators’ expectations and to align with them our interpretations of the high standards of customer protection and transparency that we are expected to uphold.

Following our consultation with the FCA, we produced a range of educational articles to help inform lenders. We also added a Key Risks section to the loan profile. It is our intention to link these Key Risks to the overall loan book performance, so that lenders can understand if an identified risk may lead to a higher default rate. Furthermore, we plan to include the Key Risks as a filter in BidPal, our auto lending feature, thereby giving lenders further control.

In August, we launched the IFISA offering, which has received widespread adoption.

In September, we were surprised to learn that a major competitor decided to disclose less information regarding the loans it lists. The extent of information that platforms are required to disclosed is still a grey area.

Looking forward to the future of our platform, we are currently working on several improvements; some short-term advancements, and others that will be incorporated on a more long-term basis. We will soon be implementing an improved loan application process and facilitating the option of using electronic bank statement transaction data to help inform a decision-in-principle. We will also be incorporating mobile usability improvements.

The FCA has yet to announce its post-implementation review, having received responses from the last consultation over 17 months ago. We look forward to this review and to complying with the requirements. Kylie recently commented on the effects of regulation in the industry in this article published online.

We are constantly working hard to improve lender returns, user experience and satisfaction on our platform. With that in mind, we are currently looking for a Compliance Coordinator to join our team, to support Kylie in the various compliance tasks related to the business. We would love to hear from you if you think you are suitable for the role.

If you are a user of our platform, we would really appreciate your feedback. We invite borrowers and brokers to fill in our user feedback survey, and lenders to complete our lender-specific survey, and thank you in advance for your collaboration.

19th Oct, 2015

P2P Weekly: P2P Popularity

Should You Cut Your Credit Card Debt With a Peer-to-Peer Loan?, Bloomberg

Some U.S. peer-to-peer lenders specialize in refinancing individuals’ credit card debt and consumers are pursuing those services, but financial experts don’t recommend more borrowing as a solution to debt.

Banking and Nothingness, The Economist

“European indecisiveness stands in sharp contrast to America’s large banks, which restructured more quickly. Returns are below pre-crisis levels, but their balance-sheets are stronger and management teams bedded in. European banks are still weighed down by non-core units and dud loans; America’s banks have moved on.”

RateSetter reaches another lending milestone as P2P popularity grows, The Independent

The success of platform RateSetter — the company boasts that none of its lenders have lost a penny since 2010 — indicates a larger pattern of P2P’s success, especially as household costs continue to rise in Britain. They’ve gone up 18 percent since 2007.

Improbable Kickstarter Shows How Crowdfunding Is Driving Innovation In Old Markets
, Forbes

A Kickstarter campaign that raised more than 30 times its original goal has helpful lessons for anyone seeking success in crowdfunding and fintech.

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