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Peer2Peer Finance News | August 18, 2019

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RateSetter’s investors embrace new provision fund rules

RateSetter’s investors embrace new provision fund rules
Anna Brunetti

RATESETTER’S investors have widely endorsed changes introduced to the provision fund, as hardly any of them have used the one-month window to withdraw their funds without an exit fee.

The peer-to-peer finance firm updated its lender terms in early February, one month ahead of changes to its provision fund to address concerns that it was “too binary”.

It gave its existing investors the option to withdraw by 1 March, without incurring an exit fee, in case they felt uncomfortable with the changes – but only a handful of them did, the firm told Peer to Peer Finance News.

“A fraction of one per cent of our 50,000 registered investors has withdrawn – which has also been largely compensated by remaining investors putting more money in,” a spokesperson said.

The average amount invested has now ticked up to over £22,000 – a 0.6 per cent month-on-month increase that also confirms investors feel comfortable with the platform’s strategy.

Under the new terms, if RateSetter believes the provision fund will not have sufficient coverage against expected losses, it can reduce interest or capital and divert it to the fund for a “stabilisation period”.

This contrasts with the previous structure of the fund, which would have started distributing losses to all investors as soon as it fell below the coverage threshold for expected defaults.

Read more: P2P investing firm calls for end to provision funds

The spokesperson said the smooth functioning of the provision fund is central to RateSetter’s model, as it ensures that retail clients get steady returns even if they do not pick and choose which investments they fund.

Last year, the P2P lender changed the way it charges fees to borrowers to guarantee stability of inflows over time, switching from charging fees upfront to spreading them over the lifespan of the loan – a move it expects other platforms will adopt.