Peer-to-peer lending sites: MSE guide discussion

fun4everyone

itwasntme001 wrote: »

They may pay fees to have a FCA rubber stamp on their website to attract more lenders. But what does FCA regulated even mean anyway? Given a number of issues we have seen it seems not much.

As I already said I am of the opinion almost all regulation in the UK means in reality very little for consumers. It does generate money in fees and jobs for the lads.

For things like FSCS protection, i imagine the fees will be a LOT higher as there is actual capital that needs to be covered for. Also the FSCS scheme wont provide protection to anyone (at least i hope they don't cover everyone), they would need to do audits at the P2P platforms etc etc etc and all this costs money which should be paid by the platforms themselves.

You are just guessing as to the fees, you can get a limited understanding of FCA permission fees by playing around here https://www.fca.org.uk/firms/authorisation/fee.

Most of the costs in regulation are indeed borne by the subjects being regulated (hence imo why they are allowed to continue to do what they want to customers). The regulators like to do as little as possible. I think deflecting doing anything is part of the job training. Very much jobs for the lads for people retiring from elsewhere in public/civil service.

masonic

itwasntme001 wrote: »

Given this i am not sure how large the fees would be but given there is a lot more risk at P2P lenders then banks (no stringent capital requirements, no internal risk management processes etc), i imagine it will be a lot higher in terms of % of amount to be protected.

The FSCS levy is made up of three elements, a base costs levy, a specific costs levy and a compensation costs levy. Specific costs and compensation costs relate to the type of regulated activities the firm engages in, and are scaled to the firm's eligible income earned from those activities. While this ensures that firms offering pensions have different tariffs than those who offer deposit accounts or unwrapped investment accounts, it would treat all firms in the sector equally.

Capital requirements are irrelevant to investment firms. Although you were quick to point out that FSCS compensation is quite different for investments than savings, you seem to have conflated the two here. The appropriate comparisons were those I gave earlier: "investment broker or fund house or pension provider"

This will certainly eat into the returns investors will get, potentially to a point where its not worth lending giving all the risks.

If you believe that is the case, then the returns investors will get must already be not worth the risk, since the levy is designed to collect an appropriate amount of money to cover actual compensation claims. Yet I am not aware of a single case in the last 10 years in which investors in a P2P firm would have had cause to receive compensation from the FSCS if it applied, unlike in the case of investment firms or even credit unions.

itwasntme001

fun4everyone wrote: »

As I already said I am of the opinion almost all regulation in the UK means in reality very little for consumers. It does generate money in fees and jobs for the lads.



You are just guessing as to the fees, you can get a limited understanding of FCA permission fees by playing around here https://www.fca.org.uk/firms/authorisation/fee.

Most of the costs in regulation are indeed borne by the subjects being regulated (hence imo why they are allowed to continue to do what they want to customers). The regulators like to do as little as possible. I think deflecting doing anything is part of the job training. Very much jobs for the lads for people retiring from elsewhere in public/civil service.

That is just FCA regulation fees. For FSCS protections that would be additional fees in order to fund the scheme to be used to compensate the lenders. I imagine this would be a lot higher then banking and pensions funds given capital requirements that are non-existent in the P2P world.


Again no idea what a FCA stamp on a P2P website actually means but given the collateral issue its safe to say the FCA are run by a bunch of muppets so take FCA stamps to mean nothing.

masonic

itwasntme001 wrote: »

They may pay fees to have a FCA rubber stamp on their website to attract more lenders. But what does FCA regulated even mean anyway? Given a number of issues we have seen it seems not much.

London Capital & Finance were regulated, and by all accounts that was a Ponzi scheme. So I can't disagree with your point.

For things like FSCS protection, i imagine the fees will be a LOT higher as there is actual capital that needs to be covered for. Also the FSCS scheme wont provide protection to anyone (at least i hope they don't cover everyone), they would need to do audits at the P2P platforms etc etc etc and all this costs money which should be paid by the platforms themselves.

Again, things work differently in the different classes of regulated activity. The scheme raises capital in proportion to actual claims. If you believe regulated firms who are members of the FSCS undergo more stringent audits than the P2P firms that became FCA authorised, I think you are mistaken. They covered Beaufort Securities, and I'd hardly hold them up as an example of a well run company.

fun4everyone

itwasntme001 wrote: »

That is just FCA regulation fees. For FSCS protections that would be additional fees in order to fund the scheme to be used to compensate the lenders. I imagine this would be a lot higher then banking and pensions funds given capital requirements that are non-existent in the P2P world.

Which is all I said it was. You are just guessing about FSCS protection costs, Masonic has provided some breakdown for you. We can all agree p2p would be better with FSCS protection. It wouldn't mean as much as you think it would.

itwasntme001

masonic wrote: »

The FSCS levy is made up of three elements, a base costs levy, a specific costs levy and a compensation costs levy. Specific costs and compensation costs relate to the type of regulated activities the firm engages in, and are scaled to the firm's eligible income earned from those activities. While this ensures that firms offering pensions have different tariffs than those who offer deposit accounts or unwrapped investment accounts, it would treat all firms in the sector equally.

Capital requirements are irrelevant to investment firms. Although you were quick to point out that FSCS compensation is quite different for investments than savings, you seem to have conflated the two here. The appropriate comparisons were those I gave earlier: "investment broker or fund house or pension provider"


If you believe that is the case, then the returns investors will get must already be not worth the risk, since the levy is designed to collect an appropriate amount of money to cover actual compensation claims. Yet I am not aware of a single case in the last 10 years in which investors in a P2P firm would have had cause to receive compensation from the FSCS if it applied, unlike in the case of investment firms or even credit unions.

Collateral?

masonic

fun4everyone wrote: »

Which is all I said it was. You are just guessing about FSCS protection costs, Masonic has provided some breakdown for you. We can all agree p2p would be better with FSCS protection. It wouldn't mean as much as you think it would.

Yes, and to put some flesh on the bones:
https://www.fca.org.uk/publication/fees-information/fscs-levy-calculation-notes-18-19-rates.pdf

The worked example of a firm offering both pensions and investment intermediation, with a combined income of a little over £900k from the activities, would pay £7.6k for a year's membership of the scheme.

masonic

itwasntme001 wrote: »

Collateral?

Firstly, Collateral was not authorised, it was trading fraudulently. Secondly, the misappropriated funds were returned, so there is no compensatable loss.

itwasntme001

fun4everyone wrote: »

Which is all I said it was. You are just guessing about FSCS protection costs, Masonic has provided some breakdown for you. We can all agree p2p would be better with FSCS protection. It wouldn't mean as much as you think it would.

all i said is that there will be fees for FSCS protection which would be substantially higher then FCA fees. Masonic provided more details on this but nowhere did he mention how much or how they calculate the fees. So not much added value by Masonic.



Agree that banks and investment brokers/funds etc are treated differently in terms of amount covered and how the fees are calculated. Also agree that P2P is more like investment brokers. And yes also agree that it probably wont mean much (but then how do you know how many frauds/bankruptcies will occur in P2P over time) to an investor except a bit of confidence to get them to invest in P2P. The question really is how are the fees priced, could the FSCS scheme be undercharging for taking on a lot of unforeseen risks?


Highly illiquid loans are very different to liquid stocks. It takes time to manage a loan book - this costs administrators money. The administrators may potentially have to get that money from loans being repaid. Do FSCS provide protection to lenders against this?

itwasntme001

masonic wrote: »

Firstly, Collateral was not authorised, it was trading fraudulently. Secondly, the misappropriated funds were returned, so there is no compensatable loss.

Sure but you gave a hypothetical case of firms having FSCS protection. So we need to assume collateral had FSCS protection.


They haven't been returned to the investors yet. How much will this be after the administrators take their cut? Do FSCS protect against this as well?