MANY peer-to-peer lending platforms will struggle to comply with the new standby and wind-down requirements coming into effect in December, an insolvency expert has warned.
The Financial Conduct Authority (FCA) in June unveiled its updated rules for the P2P sector, which included more stringent requirements to protect consumers in the event of a platform failure.
“The FCA used to trust directors’ assurance about having standby and wind-down plans in place, but now firms have to answer a lot more questions,” Damian Webb, advisory partner at accountancy firm RSM, told Peer2Peer Finance News.
“The problem is that most firms don’t know how to answer these questions or what they should be doing.”
Webb said that many firms had obtained inappropriate advice or no advice at all, ahead of the upcoming deadline.
Platforms can trigger standby arrangements ahead an anticipated insolvency, enabling them to wind their book down and return money to investors.
The high-profile closures of P2P platforms Lendy and FundingSecure this year have intensified the City watchdog’s scrutiny of the sector, with a greater focus on platforms’ business plans, capital and wind-down arrangements.
RSM has designed a ‘standby servicer’, designed to help alternative lenders comply with the regulations.
Webb said that the key questions platforms should ask themselves in respect of their existing arrangements are:
- Will our standby arrangements survive an insolvency event?
- What is the timeline to an invocation and what would the impact of delays on the overall asset recovery be?
- Are our bespoke operating systems compatible with our standby servicer?
- Does our standby servicer have the skills and resources to step in to manage my business?
- Is the wind-down strategy sufficiently funded?