Platforms need to revisit their wind-down plans, says Chris Laverty, partner and head of financial services restructuring & insolvency at Grant Thornton
Wind-downs or partial wind-downs are set to come into focus in the peer-to-peer lending sector, as platforms seek to offset the risk presented by Covid-19.
According to Chris Laverty, partner and head of financial services restructuring & insolvency at Grant Thornton, more and more P2P lending platforms are beginning to realise the value of maintaining an adjustable wind-down plan, updating existing plans to accommodate suspension or restrictions in lending.
This may include plans for a partial wind-down, should part of the platform’s lending be assessed as non-core or under-performing.
“A partial wind-down happens because of a change in focus for the platform,” she explains.
“For example, some platforms may choose to move away from property-based lending due to under-performance in this turbulent environment.
“It doesn’t necessarily mean it changes the corporate structure or anything like that, it’s just taking a type of borrowing that may have had its own portfolio and running it off.
“There are a lot of platforms who have initially developed based on a certain product, which has performed well for the first part of its lifetime,” she adds. “And then either there is a market event like Covid-19, or perhaps there is a concentration of borrowing within the market leading to reduced margins, so the platform decides to restrict lending, suspend trading or do something different altogether.
“The business then needs to decide how to economically run off the first product, particularly if there is shared resource for the rest of the platform. We’ve spoken to a few platforms who are considering this, who would now like to run off an existing product and how this type of under-performance impacts their existing wind-down plans that have been submitted to the Financial Conduct Authority.”
Covid-19 has only accelerated these adjustments to P2P wind-down plans. The economy has completely changed in the space of just a few months and Grant Thornton has already spoken with several P2P lending platforms about adjusting their wind-down plans to reflect the current economic climate.
“We have supported a number of P2P platforms and talked to them about their wind-down plans and how to update them,” says Laverty.
“In some cases, the platform has taken the decision to stop lending to certain parts of the market because they don’t want that to pollute the existing investor base.
“They are just trying to make sure that while they’re weathering this storm, they’ve got the right preparation and plans in place.”
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Grant Thornton has been looking at the P2P sector since 2019, but it has decades of experience working with financial services firms. Laverty has worked on a range of different wind-down plans – from solvent wind-downs, to insolvency events, to partial wind-downs. In every case, the focus is always on consumer protection, and regulatory compliance.
“All investors and borrowers need a soft landing if the P2P platform needs to wind down,” says Laverty. “And the regulator is very focused on ensuring that those plans are in place – that they’ve been appropriately adapted for the operating model, that you have taken insolvency practitioners’ advice, and how the company can continue to service its customers even in an insolvency event.”
It is this forward-thinking and risk-averse approach that leads to better wind-down plans being created, says Laverty.
“It’s worth the investment,” she adds.
“Doing things ahead of time in almost anything is worthwhile. This is something that you can then control because it’s in the company’s hands, whereas if you let yourself get into a distressed state then it’s no longer in your control.
“Act early – the regulator requires it. And you can work with firms such as ours to put a future safeguard in place.”
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