Tag: altfi

What should the FCA do now?

Author
Angus Dent
Date

With the appointment of Andrew Bailey as CEO of the FCA there has already been some speculation as to what changes will be made. He certainly faces a tough challenge; Parliament will debate this week whether to give the regulatory body another vote of no confidence. Here are some thoughts from the alternative finance perspective on what his appointment holds in the short and long term.

  1. Bailey will be welcomed as a CEO if he is willing to listen and promulgate policy, unlike some of his predecessors. Martin Wheatley and his infamous “shoot first and ask questions later” policy immediately springs to mind: the regulator needs to maintain a moderate tone despite its eagerness to be the antithesis of its defunct predecessor, the FSA.
  2. Bailey needs to keep in mind that over-regulation and restriction of trade could strangle the City and, whilst some may disagree, the FCA needs to help facilitate business as much as possible. Britain needs to remain attractive to investment and business; a move in the wrong direction would be catastrophic for the economy.
  3. Policy needs to be well thought through and as lucidly set out as possible to avoid the half-baked ideas that have dogged the regulatory body’s attempts to keep up with a changing world. I would wager that the FCA is better off slightly behind the curve if it means avoiding botched legislation that would present serious obstacles in the future.
  4. The process of applying to be FCA regulated, something that the P2P lending industry is going through at the moment, is incredibly clunky. Yes, the regulators need to be as thorough as possible, but there is room for acceleration. Answering questions on applications should take days rather than weeks, and processing applications should take less than the 6-12 month projected time frame. All it takes is a clear plan, which will come from better leadership and management.
  5. Back in November, Sir Hector Sants (pictured below), former chief executive of the FSA, suggested that the FCA should be stripped of its punitive power as the regulator failed to ensure that post- financial crisis regulation produced a level playing field. Outsourcing the task to an independent body would free up resources to focus on what the FCA was set up to do; Bailey could do worse than heed Sants’s key recommendations.

UK Peer to Peer Finance Report

Author
Angus Dent
Date

P2P Growth

Here is a link to a research note from Paul Hill of Equity Development looking at the explosive growth, trends and dynamics of the Peer to Peer Finance market within the UK .

This report summarises what is a rapidly evolving and highly diverse model of finance, which has more than doubled in size year on year from £267 million in 2012 to £1.74 billion in 2014.

UK P2P Finance February 2015

Quantitative Easing – Too Blunt an Instrument?

Author
Angus Dent
Date

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Maybe I’m not the only person who grew up in the 70s who finds a great irony in governments now trying to stimulate inflation. Just as they had little idea how to control inflation I doubt that Quantitative Easing (QE) is the best way to stimulate it. A more targeted approach is required, an approach that will do more than increase asset prices, an approach that might get industry and economies growing and growing faster.

Yesterday the European Central Bank (ECB) announced a larger than expected two year program of QE in the expectation that this will avoid continued deflation in the Eurozone. While QE is likely to be successful in this limited aim, it is possible that despite QE the UK will suffer a period of deflation, the lessons from the UK and the US suggest it will do little else.

QE in the UK and the USA, and arguably already in the Eurozone, has increased asset prices. Maybe it has even created an asset price bubble, if it has then as night follows day, bust will follow bubble. What QE has failed to do in any meaningful way is to:

  1. get capital into businesses, particularly smaller and medium sized businesses – the engines of all economies,
  2. increase the buying power of consumers, there is some evidence that wages are growing again now, but generally wages have not increased these last several years,
  3. increase productivity, which by some measures has fallen, this may be linked to 1 above, and is the largest single problem facing the UK economy today.

There are many restrictions on government, national and / or EU, passing money direct to companies and direct to their citizens. However as part of the program to avoid deflation greater emphasis should be given to this. If commercial banks won’t lend to any but government and the largest corporations, and the evidence of the last few years is that they won’t or have forgotten how to, then government sponsored development banks, programs for state aid and AltFi businesses should be given more of this money to do so and stimulate industry. Giving more money to consumers is relatively easy, reduce personal taxes. In consumer lead economies its nonsense to take money away from those who drive effective demand.

Of course there’ll be cries that this approach is unfair; the Germans may well be better at state aid than the Greeks for example. And taxes are for national government not EU, so there will be a disparate approach. There’s also a question of how to make sure there’s value for money from the investments made. Then again there’s little value from QE, beyond possibly a small amount of inflation.

The Growth of ‘Niche’ Peer-to-Peer Lending

Author
Tom Mitchell
Date

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The advent of the peer-to-peer model has brought fundamental change to the lending industry; change which has seen platforms such as ArchOver move with the zeitgeist and embrace the internet as a medium through which to fund loans to businesses and individuals. But as the peer-to-peer space has begun to mature and take root, much change has begun to occur within the sector itself, with many platforms emerging with their own specific applications for the peer-to-peer model.

One interesting entrant which certainly captures the ‘forward-looking’ character of the sector is Abundance Generation, a platform which provides funding to eco-friendly projects throughout the UK. Investors buy debentures in the projects listed on the platform, which have included wind farms and solar energy initiatives, with different projects carrying different rates of return. The platform seems to have successfully tapped into modern sensitivities surrounding global warming and the viability of fossil-fuel use in the longer term, with investors having pledged just over £8m on the platform at the time of writing.

Another entrant whose focus is equally timely is Bitbond. This German platform, mentioned by James in his recent blog, is a peer-to-peer business lender that solely uses the digital currency Bitcoin. The platform takes the concept of ‘disintermediation’ and the diminishing role of the banks in finance a stage further than most, for even a bank account is not required to lend and borrow on the platform. Indeed, Bitbond’s website carries the tagline “banking is necessary, banks are not,” which neatly illustrates the ethos driving their unusual platform and its use of a digital cryptocurrency.

Bitbond’s belief in the potential of digital technology is mirrored in the offering of Pollen vc, a platform with offices in both the UK and US. Pollen seeks to address the financing problems faced by developers creating apps for Google Play and Apple’s App Store. These developers not only face fierce competition for the attention of consumers, but also a long delay between making sales in the marketplaces and receiving payment. Pollen aims to alleviate the cash flow problems that this can cause by monitoring sales data and advancing a percentage of their clients’ earned revenue to allow them to continue developing their apps. To complement this service, Pollen’s management also aim to consult with them to offer advice on exactly how they should move forward with their products.

Taken together, these three platforms serve as an excellent illustration of the growing diversity found within the peer-to-peer space. And in the author’s opinion, this can only bode well for the sector at large.