Luke Madden, managing director at Wellesley, was not surprised by the FCA’s revised regulations. In fact, Wellesley has made a habit of planning ahead
THE NEW Financial Conduct Authority (FCA) regulations for loan-based (peer-to-peer) and investment-based crowdfunding platforms have been met with a wall of discussion, as firms rush to comply before the 9 December deadline.
But Luke Madden, managing director of alternative lender Wellesley, is unfazed. “We were not surprised by the new regulations,” he says. “The direction of travel was clear, based on the consultation paper from last year.”
In fact, Wellesley had already implemented the majority of these new compliance rules before they had even been announced. The platform had already been working to prioritise its risk management framework in preparation for December’s SMCR deadline, and many of these updates happen to be in line with the new FCA requirements.
As a regulated firm Wellesley was required to establish a wind-down plan and to appoint back-up service providers who could step in if the platform wasn’t able to perform its duties.
Now, Wellesley has gone further by conducting an independent stress test on its loan book, using Bank of England macroeconomic scenarios. It is standard practice among banks and insurance companies to conduct stress tests using financial modelling to look at how their businesses might perform in a more extreme economic environment and now the alternative finance industry is starting to follow suit.
Earlier this year, Wellesley hired MIAC Analytics – an independent stress testing firm – to take a look at its loan book and credit risk policy. Wellesley provided MIAC with a raft of information on its credit policy and loan book, as well as interviews with the management team and reams of quantitative and qualitative data. MIAC concluded that Wellesley’s loan portfolio is “expected to demonstrate resilience” in periods of extreme stress.
“We were happy with those results,” says Madden. “It was a ratification of the current credit policy and the strategy that we have in place today.” Wellesley has published the MIAC stress test on its website.
“We have a robust credit policy which is regularly reviewed and approved by board,” Madden adds. “We have industry professionals appointed to our panel of valuers and quantity surveyors. We rigorously assess all of our loans, not just at the point of origination but on an ongoing basis relationships are a cornerstone of our business, so we go to extreme lengths of due diligence to ensure that our borrower relationships are sound and our investors are protected.”
Madden remains positive on the ability of good regulation to strengthen the industry and protect consumer money. However, he adds that this new era of FCA scrutiny may kick start a consolidation phase, as developing firms struggle to catch up with established players.
“These rules are good for the industry because they effectively raise the minimum standards which every authorised firm must adhere to,” says Madden. “I think that’s a good thing from a consumer perspective.”
Wellesley’s forward-thinking approach is likely to confirm its reputation as one of the more reliable and consumer-friendly platforms on the market. In the ever-evolving world of alternative finance regulation, Wellesley continues to look ahead and adapt to better serve its customers’ needs.