Duff & Phelps’ Mark Turner and Geoff Bouchier tell senior managers how to maintain regulatory oversight during a pandemic…
Covid-19 has presented many challenges for senior managers in the peer-to-peer lending sector. Just months after the introduction of the Senior Managers and Certification Regime (SMCR), P2P managers are grappling with the reality of having to maintain oversight in an unfamiliar and unpredictable world.
But according to Mark Turner (pictured right), managing director in Duff & Phelps’ compliance and regulatory consulting practice in London, senior managers should focus on ensuring that their existing regulatory obligations are being met.
This means taking “reasonable steps” at all times, even as they may have to make sudden and sweeping changes to their business model.
“Issues such as, should we foreclose a loan? Should we gate the lenders’ investments for the protection of other investors? Those sorts of decisions need to be taken with due governance, consultation and importantly, a documented audit trail of decisions,” says Turner.
“In a year’s time when we’re out on the other side of this crisis, the regulator will be asking questions like, why did you make this decision to foreclose the loan, to gate the fund or perhaps not to gate the fund? Because maybe early redemptions got all their money back and the people at the end of the queue got 10p in the pound back.
“The fact that there’s detriment doesn’t mean that the senior manager has done something wrong, but the senior manager is on the back foot at that point. What you want to be able to say is ‘we had this discussion at the appropriate committee—here are the minutes of that meeting, yes there were different views but we landed on this decision after looking at all the risks’.”
A documented audit trail of Covid-19-era decisions is particularly important when work is not being carried out in a centralised office. With the majority of P2P employees now working remotely, there is a risk that some standard administrative processes might be overlooked. “You might forget why you made these decisions if you don’t write them down,” says Turner. “But it’s not that the decision itself might be wrong, it’s the path towards the decision that matters to the regulator.”
In the absence of water-cooler conversations and informal meetings, senior managers may choose to speak to a non-executive director or another board member for a second opinion, or they may seek external advice.
“One thing that senior managers do need to do is be honest with themselves,” adds Turner. “If they can see that their business model is being challenged or is no longer viable because of the changes that are happening, then be honest and have those conversations with your board sooner rather than later.”
These challenges may include stressed loanbooks, staffing issues or technology disruptions. Geoff Bouchier (pictured left), managing director in Duff & Phelps’ global restructuring advisory practice in London, adds that some firms may need to update their promotional materials to ensure that they are still fit for purpose, particularly if a valuation has changed since the start of the pandemic.
If senior managers can prove to the regulator that they are taking a scrupulous approach to risk management and compliance— even in extraordinary circumstances—those platforms could come out of the pandemic stronger than before. As Turner predicts: “This could be a huge coming of age moment for the sector.”