With the City watchdog yet to publish its full review, Ian Anderson discusses how important it is that unique characteristics of P2P aren’t diminished. Read the interview here.
Tag: FCA
ARCHOVER GRANTED FULL FCA AUTHORISATION
London, UK – 24 May 2017 – ArchOver, the peer-to-peer (P2P) business lending platform, has secured full authorisation from the Financial Conduct Authority (FCA) to operate as a P2P lending platform (Article 36H). Since launching in September 2014, ArchOver has facilitated over £35 million of investment over its platform, operating under interim permissions granted by the FCA. Full authorisation will support ArchOver in attracting new lenders to the platform and allow it to continue working with businesses to make access to funding as easy and simple as possible.
“There is great satisfaction in gaining a stamp of approval. Our industry leading policies and procedures will allow us to take alternative forms of lending to the next level,” commented Angus Dent, CEO at ArchOver. “At a time when investors are experiencing low interest rates and banks are tightening the purse-strings, P2P lending offers a unique and much needed service. Incorporating the most successful elements of P2P lending into the regulations and strategy of the FCA is critical to raising awareness and protecting the long-term success of the industry.”
As a fully authorised P2P lending platform, ArchOver can operate on a level regulatory playing field and focus on expanding its community of investors to achieve its ambition of facilitating £500 million of lending within the next five years. With no borrower defaults, late payments or losses in nearly three years of operations, ArchOver delivers an above-industry-average return of 7.24% to investors.
Backed by the Hampden Group, ArchOver has developed two asset-based lending services allowing UK SME’s to borrow against Accounts Receivable and/or recurring contracted revenue. Its experienced management and credit team carefully vet borrowers and monitor the performance of businesses and assets every month. ArchOver also partners with Coface, the world-leading provider of credit insurance and debt recovery services, to offer additional security.
“From the first day of operations, we’ve placed lender security at the heart of our business model to exceed any potential compliance requirements,” commented Ian Anderson, Chief Operating Officer at ArchOver, who has been closely involved in the authorisation process with the FCA. “This attitude meant we have not had to change our primary working practices in order to comply with regulation. While we have waited a long time to gain this recognition, we always believed that it was in the best interests of ArchOver, and the sector in general, that the FCA take the necessary time to ensure the process was thorough and fair.”
“The P2P Sector Is Growing Up”
There was always going to come a time when the Alternative Finance revolution would falter – maybe we have already reached that point. P2P lending and equity crowdfunding are no longer quite so new and, as the latest missive from the FCA makes clear, this particular side of the Altfi sector has outgrown the rule book. There are also early signs that the novelty is starting to wear off, certainly with the media. So, perhaps now is an ideal opportunity to take a step back and reflect.
Looking ahead into 2017, it is difficult to see how the benign conditions that have helped P2P platforms to create such a significant presence so rapidly – e.g. recovering economy, low interest rates, banks on the back foot – can continue indefinitely. Sooner or later interest rates will start to climb back up and there will be a downturn in the economic cycle. And, with so few platform operators making a profit, there are bound to be casualties.
Some platform backers may grow impatient with the expensive pursuit of acquiring market share at any cost and insist on seeing a return on their investment. Other platforms may simply ‘time out’ because their proposition is not sufficiently different or they have insufficient mass or financial backing to continue.
This could lead to business failures or, more likely, mergers/take-overs of platforms. Consolidation would be a perfectly normal phase for an emerging sector that has a myriad of players all vying for customers and profitability. The High Street banks, too, will recover their poise and may decide to dip their collective toe in the water by making a P2P acquisition or two of their own – if they do, they will almost certainly take aim at the biggest, the most established or those best placed to be scaled. All this is not so much to be pessimistic, rather it is to be realistic. Consolidation is inevitable.
The important thing is to make sure that P2P lenders do not suffer financially. If a platform fails, it does not follow that the loans in which the lenders are invested go bad. All P2P operators should have run-off plans in place to cover that eventuality – something that the FCA, quite rightly, insists upon. If private investors start to lose money, the press and other critics will have a field day.
What is also important is that the P2P sector does not allow itself to be divided into a number of component parts, either into the large and small platforms, or those with different business models. The sector should operate as one for its own protection and for the common good.
The P2P sector is growing up – it can either be in charge of that process or be at the mercy of others.
FCA Feedback Statement II
Last week’s Interim Feedback Statement from the FCA on its review of the rules governing the Crowdfunding industry was a masterclass in British fair play. No one will ever be able to accuse the regulator of not giving anyone and everyone the opportunity to have their say – the knockers of P2P lending have certainly made maximum use of the opportunity. Many of the comments contained in the document, and some made since publication, have been negative and one-sided. Some, outside the document, have verged on the vitriolic.
It has even been implied that, in light of this report, the British Business Bank has acted irresponsibly in entrusting £85m of its funds to a number of business lending platforms, using the argument that the entire P2P sector has somehow been discredited.
First, surely it is a core part of the BBB’s mandate to use its funds to stimulate the economy, which it is doing by using the expertise of P2P platforms to channel money to creditworthy SMEs. And second, the sector has not been discredited at all. In fact, P2P lenders have created something good, but not yet perfect.
Within certain boundaries, the industry should be encouraged, not suffocated by a mass of complicated rules that will prevent the winds of change from blowing away the cobwebs from a stale financial market place that has been devoid of competition for too long.
Take, for example, the criticism of provision funds which, I might add, has not been the method by which ArchOver has chosen to protect its lenders; we handle the issue differently, through credit insurance. But our competitors who have created contingency funds have made an honest attempt to try to protect lenders against losses and loan defaults. Can the system be improved? Probably and I’m sure this work is in-hand. But let’s not attack the effort or the thinking behind it.
Similarly, much has been said about misleading lenders. For sure, they know the difference between a 0.1% return on their money and 7%: one is outrageous and the other fair. The price they pay for this differential is risk, which I am sure the majority of lenders understand perfectly well. Where a platform invests lenders’ money in a pool of multiple loans, is that misleading or against their interests? Do they really care so long as they receive the return they were promised?
Again, this is not the ArchOver way because we only provide access to individual loans to specific businesses, which are identified along with terms and conditions and purpose of the loan. But the multiple loan route provides a measure of security through diversity – lenders’ interests are being safeguarded. Do the banks tell shareholders who they lend money to, or when loans go wrong? We know the answer is ‘no’. So, even if the P2P lender cared in the first place, is this misleading? The answer to the question is also ‘no’ because the lender has delegated the responsibility of care to the platform of their choice.
Rules alone have never been the answer; experience teaches us that it is more important to embrace the spirit rather than just the letter of the law. To validate that stance, you need look no further than the High Street banks and their behaviour both before and even after the 2008 financial crisis.
When the FCA’s new rulebook is published next summer, let us hope that common sense shares equal billing with legislation that is fair, relevant and practical. The P2P sector needs room to evolve if it is to fulfil its potential.
The outcome is that we are unlikely to see the result of its deliberations until next summer.
