Operational resilience has never been more important for the peer-to-peer lending sector, says Chris Laverty, partner and head of financial services restructuring and insolvency at Grant Thornton…
Peer-to-peer lending platforms must focus on their operational resilience in order to effectively serve both borrowers and investors and thereby secure their long-term future, Chris Laverty (pictured), partner and head of financial services restructuring and insolvency at Grant Thornton, has warned.
The Covid-19 pandemic has created a “massive test” for financial services firms, Laverty believes. However, there are a few things that P2P lending platforms can do to ensure that they survive the disruption of the coronavirus pandemic.
“It’s essential to shore up the health and sustainability of the platform,” says Laverty.
“This is a time when you should be actively testing the resilience of your business, identifying trigger points and putting robust governance procedures in place for when tolerances are breached. To do this you have to look at each and every important driver of your business.”
The primary concern for all P2P platforms should be the investor, she adds. Those platforms which have chosen to increase their lending have a duty of care to their investors to ensure that they will be able to recover borrowed funds.
Laverty suggests that investor dissatisfaction could result in many lenders leaving the platform, which could create a liquidity squeeze that can have long-term consequences.
“That’s a key concern for a P2P platform because borrower performance might be impacted, and it might go on to affect your secondary market,” says Laverty.
“A lot of P2P platforms run a vibrant, robust secondary market where their investors are trading loans. And if you’re not able to provide up-to-date information on the borrower, then you’re not only looking at current issues that affect your business, but ultimately longer-tail issues on borrower performance, existing borrower profile or borrower acquisition that might affect the future sustainability of the platform.
“My focus would therefore be on the borrower value to the investor,” she adds.
“But I would suggest that operationally most people are aware that their focus should be on keeping their current borrowers and performance levels to a point where investors are staying with the platform.”
Laverty goes on to list other operational functions that should be tested for their resilience.
“Platforms need to consider the people within the business, and their ability to work remotely and continue to do their jobs normally,” she says, adding that they should ensure that their usual funding channels are able to withstand the pressures of the pandemic.
Laverty also highlights the importance of checking in with-third party contractors that are important to the platform, to review their corporate resilience.
“We’ve heard of cases where third-party contractors have let platforms and other lenders down because they didn’t have sufficient capability for their own staff to do remote working,” she adds.
IT is another crucial area that cannot afford to be overlooked, while cyber risk should be a priority for any business which relies on remote working and IT solutions.
Platforms may be tempted to think that they have already completed their resilience planning before the pandemic, as it was a key focus for the Financial Conduct Authority in 2019. However, Laverty cautions against that.
“Resilience planning needs to be an ongoing process, especially given that so much has changed in the markets as well as the way we all work,” she says.
“In the short term, it’s all about sustainability and ensuring that your operational and financial resilience remains intact.”