Opinion Alternative Lending

Are the Standby arrangements for the P2P sector appropriate?

There are 5 questions platforms and institutions should be asking themselves, writes Damian Webb, Advisory Partner at RSM.

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Damian Webb is an Advisory Partner at audit, tax and consulting services provider RSM.

The FCA’s new rules in respect of the Peer-to-Peer sector become effective from 9 December. The FCA guidance places a specific emphasis on wind-down planning and the procedures in place by platforms. This appears specifically relevant given the recent failure of Funding Secure.

Historically the rules and regulations in respect of standby and wind down arrangements were relatively liberal with the emphasis on management teams being satisfied that their arrangements were suitable and appropriate.

The recent failures in the sector coupled with the FCA’s review of current standby arrangements have highlighted significant discrepancies and limitations in arrangements. Consequently, the FCA has guided the specific requirements they expect to see in standby arrangements.

Platforms and institutions will be aware of these requirements, but the five key questions they should ask themselves in respect of their existing arrangements are:

1. Will our standby arrangements survive an insolvency event?

Dependent on the contractual setup and structure of a P2P lender it is unclear if a P2P’s standby arrangements would survive an insolvency event. Platforms need to review their structures and prepare contingencies and outcomes to identify potential processes.

2. What is the timeline to an invocation and what would the impact of delays on the overall asset recovery be?

The invocation timeline for many operators is measured in months rather than hours. If standby arrangements need to be invoked, the matter will probably be time-critical and any delay could fundamentally undermine value for investors.

3. Are our bespoke operating systems compatible with our standby servicer?

Traditional backup arrangements assume the backup and transfer of data to external databases. Noting the unique nature and complexity of many P2P platforms this is not practical and could lead to the loss of data and a consequent increase in cost and issues for investors.

4. Does our standby servicer have the skills and resources to step in to manage my business?

The invocation of a standby service is typically characterised by time pressures and crisis management. Standby servicers need to have in place sufficient experienced resource who have the skills to provide the appropriate service.

5. Is the wind-down strategy sufficiently funded?

There will clearly be a funding requirement for any standby service/ wind-down plan. If funds are unavailable or any income stream is uneconomic it is probable any standby servicer would refuse to invoke a wind-down plan with the associated negative consequences.

At RSM we have designed a standby servicer specifically designed to assist alternative lenders and peer to peer platforms. The service is focused on providing a non-invasive, but effective standby service, thereby fulfilling the key FCA wind down regulations. 

The focus on an accelerated invocation, utilisation of existing systems, coupled with our proven experience ensures that we believe it provides the best option in maximising recoveries and minimises the negative effects of a wind-down.

Damian Webb is an Advisory Partner at audit, tax and consulting services provider RSM.

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Damian Webb

Advisory Partner


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