The coronavirus could cause a number of peer-to-peer platform closures, if investors lose confidence in small business lending, restructuring experts have warned.
According to analysts at financial consultancy firm Duff & Phelps, the economic impact of the coronavirus could put pressure on smaller P2P platforms as they struggle to deal with investor withdrawals and rising default rates among borrowers.
“Coronavirus is causing significant and increasing disruption across all business sectors, including P2P platforms,” said Geoff Bouchier, managing director, restructuring advisory, at Duff & Phelps.
“Success for many platforms is dependent upon the attraction of retail investors to fund loans, principally to small- and medium-sized enterprises (SMEs).
“The question then becomes whether investors still have confidence in lending to SMEs in the present uncertain economic environment.
“If the investors retreat, then the platforms will lose revenue whilst still being faced with fixed overheads, eroding their capital reserves.”
Bouchier added that in light of the current trading conditions platforms should ideally be periodically reviewing and reassessing the appropriateness of their wind-down plans.
“Prolonged adverse market conditions could see numerous platforms needing to assess their ongoing viability,” he said.
The recent introduction of the Senior Managers and Certification Regime means that senior managers are more accountable for platform management and wind-down decisions, and the Financial Conduct Authority (FCA) may choose to question these senior managers in the event of a disorderly wind-down.
“In the current climate, where decisions might be far reaching and need to be made quickly, senior managers need to ensure that they capture their rationale,” said Mark Turner, managing director, regulatory consulting at Duff & Phelps.
“It is possible, particularly where customer detriment occurs, which is more likely under current market conditions, that the FCA may ask questions of senior managers even after they are no longer in that role—for instance, where the platform goes into administration or where the senior manager resigns.
“FCA action can ultimately include fines and restrictions on future roles that can be held by individuals within the financial services industry”