p2p equity

FCA Publishes Interim Feedback Following a Call for Input to the Post-Implementation Review of the Rules for Crowdfunding

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In August the FCA posted a call for input preceeding a planned review of the current regulation of p2p lending and crowdfunding for equity. Today the FCA publishes interim feedback. The feedback statement provides a first response to the feedback received and sets out next steps.

Based on a review of the feedback received, issues seen during the supervision of crowdfunding platforms currently trading and consideration of applications from firms seeking full authorisation, the FCA believes it is appropriate to modify a number of rules for the market.

Initial findings

Loan-based and investment-based crowdfunding

For both loan-based and investment-based crowdfunding platforms the FCA has found that, for example:

  • it is difficult for investors to compare platforms with each other or to compare crowdfunding with other asset classes due to complex and often unclear product offerings
  • it is difficult for investors to assess the risks and returns of investing on a platform
  • financial promotions do not always meet our requirement to be ‘clear, fair and not misleading’ and
  • the complex structures of some firms introduce operational risks and/or conflicts of interest that are not being managed sufficiently

Loan-based crowdfunding

In the loan-based crowdfunding market in particular the FCA is concerned that, for example:

  • certain features, such as some of the provision funds used by platforms, introduce risks to investors that are not adequately disclosed and may not be sufficiently understood by investors
  • the plans some firms have for wind-down in the event of their failure are inadequate to successfully run-off loan books to maturity
  • the FCA has challenged some firms to improve their client money handling standards

Proposals for new rules to be considered in Q1 2017

The FCA plans to consult on additional rules in a number of areas. These include more prescriptive requirements on the content and timing of disclosures by both loan-based and investment-based crowdfunding platforms.

For loan-based crowdfunding the FCA also intends to consult on:

  • strengthening rules on wind-down plans
  • additional requirements or restrictions on cross-platform investment
  • extending mortgage-lending standards to loan-based platforms

The FCA’s current rules on loan-based and investment-based crowdfunding platforms came into force in April 2014. They aimed to create a proportionate regulatory framework that provided adequate investor protection whilst allowing for innovation and growth in the market.

The call for input in July 2016 launched a post-implementation review of these rules. The paper summarised market developments since 2014 and some of the FCA’s emerging concerns.

Andrew Bailey, Chief Executive of the FCA, said:

“Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers. Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.” Continue reading →

Interview: Wellesley Pitches to Raise 1.5M from the Crowd

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UK marketplace Wellesley is currently pitching to raise 1.5M GBP in a convertible from the crowd.

Interview with Graham Wellesley, CEO, Wellesley

What is Wellesley about?

Wellesley is a lending business. It provides an alternative for borrowers than traditional high street lenders. Our business allows us to meet the needs of two key underserved markets:

  • experienced mid-sized property developers who are building homes in the UK
  • investors seeking higher returns that can be achieved in deposit accounts who are willing to take a level of additional risk through a range of different products.

What are the three main advantages for lenders?

  • Lenders can achieve higher risk adjusted returns than are available in traditional deposit accounts
  • Property development lending is asset backed
  • Funding is being put to good use, helping to build homes in the UK

What are the three main advantages for borrowers?

  • They are dealing with a lending firm who specialises in property development
  • We are committed to very high levels of service and quick decisions
  • Each individual borrower is important to us

Wellesley is quite established in the UK marketplace lending sector. Why do your raise capital via Seedrs through a convertible now?

We want to raise more capital to enable us to invest in acquiring new customers and developing our technology. All of our external funding is retail rather than institutional. Raising further equity through a retail route will help us to build a business where strong alignment of interests between investors and shareholders will build a stronger company for the long term.

To which extend (if any) are equity investors covering capital losses on loans to p2p lenders vs the mini bond holders?

  • So far the board has chosen that the company (shareholders / equity investors) will cover the losses incurred by all other investors. This is at the board’s discretion and investors are all aware that they are taking risk in relation to property development lending. Investors continue to carry the risk of losses on both P2P and mini-bonds.
  • Wellesley aims to use the funding to expand its business, its marketing, human resources and IT development.

Wellesley originated about 80M pound YTD. Did you experience any effect of Brexit and what is your outlook for 2017? How do you see the opportunity of the IFISA market?

  • In the run-up to the referendum and in its immediate aftermath property development across “middle Britain” took somewhat of a pause. There are signs now that growth is returning to the market and the outlook for 2017 is positive as the key driver – the demand for more housing – shows no sign of reducing.
  • We continue to develop a product that meets the technical requirements of the IFISA market and will provide an update as soon as there is more to say.
  • We specialise in multi-unit developments, our average unit size is less than £500k. As a result we believe that we are well-placed to face any challenges that the UK residential housing market may face post-Brexit.

Are there any plans for international expansion?

At this stage, quite the opposite. We had started doing some lending in Majorca, Spain and decided back in the first half of 2015 that we would be better able to serve our customers through the economic cycle if we focused on our core expertise and competency in the UK market. Continue reading →

Interview: Flender Pitches to Raise 500K

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Flender is a UK startup (with background in Ireland) currently pitching to raise 500K GBP from the crowd.

Interview with Kristjan Koik, CEO of Flender

What is Flender about?

Flender is a peer to peer finance platform which helps businesses and consumers to borrow and lend money through their existing networks.

Businesses can leverage their customer base and strengthen loyalty; while friends become part of each other’s’ success. Flender does this while adding a new element of trust via social network connections.

Flender emphasizes the social relationships between borrowers and lenders. Don’t you think borrowers are hesitant to ask friends and connections for money?

The social lending market among friends, family and connections has never been formalized, which is crazy when you consider that this is a market worth over 3 billion EUR a year in Ireland and the UK based on independent research performed in September 2016.

Asking people that you know for money – and lending to them – is an awkward thing to do and is certainly an unreliable means of finance. Whether it’s to fund further study, grow a business or to fund home improvements, Flender will let you borrow from and lend to people with whom you have a connection much more easily.

For individuals, there is the satisfaction of helping others while earning more interest than a standard savings account while businesses can have access to funds faster and at the interest rate they prefer. Everyone wins.

P2P lending has evolved a lot over the past 10 years. Your model has a back to the roots touch to me. Do you see your model as a reinvention of the true spirit of p2p lending?

I believe p2p lending and the sharing economy is the future of finance.

We have all lent or borrowed money at some stage of our lives and will use some sort of finance in the future – be it mortgage, car leasing, credit card, deposit account or investments. Similarly, we all have people in our social circles and professional networks who have money to lend or are looking for finance. It makes no sense that rather than doing these transactions with people who you know and trust we would do these with complete strangers with whom we know little or nothing.

Flender is not trying to create a new marketplace. We are simply formalising existing massive social lending market and by providing a seamless user experience and having first- mover advantage we feel we can dominate this sector.

The pitch video

Flender positions itself as different to other p2p lending marketplaces. Yet you take these as benchmarks for valuations in an exit. Furthermore your expected margin is much higher than those of other UK p2p lending marketplaces. What is the reasoning behind this?

Yes, we are very different to other p2p platforms, but investors will initially want to benchmark against something with which they are familiar, hence our comparison to existing platforms. Continue reading →

New European Alternative Finance Industry Report – Sustaining Momentum

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The European online alternative finance market, including crowdfunding and peer-to-peer lending, grew by 92 per cent in 2015 to €5.431 billion, according to the results of the 2nd Annual European Alternative Finance Industry Survey conducted by the Cambridge Centre for Alternative Finance at University of Cambridge Judge Business School, in partnership with KPMG and supported by CME Group Foundation.

The report released today, titled “Sustaining Momentum”, had the support of 17 major European industry associations and research partners, and was based on data from 367 crowdfunding, peer-to-peer lending and other alternative finance intermediaries from 32 European countries – capturing an estimated 90 per cent of the visible market. P2P-Banking.com is one of the research partners.

The United Kingdom was by far the largest in Europe at €4.4 billion, followed by France at €319 million, Germany at €249 million and the Netherlands, €111 million. Other large European markets include Finland with €64 million, Spain at €50 million, Belgium at €37 million and Italy at €32 million. The Nordic countries collectively accounted for €104 million, while Central and Eastern European countries registered a total of €89 million.

Excluding the UK, the European alternative finance market grew by 72 per cent from €594 million in 2014 to €1.019 billion in 2015.

“Although the absolute year-on-year growth rate slowed by 10 per cent” (from the 82 per cent growth excluding the UK between 2013 and 2014) the industry is still sustaining momentum with substantive expansion in transaction volumes recorded across almost all online alternative finance models,” the report said.

Peer-to-peer consumer lending is the largest market segment of alternative finance, with €366 million in Europe in 2015. Peer-to-peer business lending is the second largest segment with €212 million, with equity-based crowdfunding in third with €159 million and reward-based crowdfunding fourth at €139 million.

Sustaining Momentum Figure 11
Table: Figure 11, page 31 of ‘Sustaining Momentum’, volumes by market segment in Europe 2015 (outside UK)

Among other findings:

  • Estonia ranked first in Europe in alternative finance volume per capita at €24, followed by Finland at €12 and Monaco at €10 outside of the UK.
  • Online alternative business funding increased by 167 per cent year-on-year to €536 million raised for over 9,400 start-ups and SMEs across Europe.
  • Institutionalisation took off in mainland Europe in 2015, with 26 per cent of peer-to-peer consumer lending and 24 per cent of peer-to-peer business lending funded by institutions such as pension funds, mutual funds, asset management firms and banks.
  • Across Europe, perceptions of existing national regulations in alternative finance are divided. About 38 per cent of surveyed platforms felt their national regulations for crowdfunding and peer-to-peer lending were adequate and appropriate, 28 per cent perceived their national regulations to be excessive, and a further 10 per cent said current regulations were too relaxed.
  • The biggest risks perceived by the alternative finance industry are increasing loan defaults or business failure rates, fraudulent activities or the collapse of platforms due to malpractice.

Perceived risks
Chart: Figure 28, page 47 of ‘Sustaining Momentum’, risks to the industry as perceived by the polled platforms

Robert Wardrop, Executive Director of the Cambridge Centre for Alternative Finance, said: “European alternative finance transaction volume increased to more than €5 billion in 2015, with volume outside of the UK market exceeding €1 billion for the first time. The European alternative finance industry is still small, however, and the slowing rate of growth during the year is a reminder of the risks the industry must contend with in order to transition from a start-up to a sustainable funding channel within the European financial services ecosystem.”

Irene Pitter, Global Executive, Banking & Capital Markets and member of the FinTech Leadership Team at KPMG, said: “This report shows that the alternative finance sector is set to continue to grow and mature. 2016 marks a significant year for ‘alternative finance’ in Europe as the market demonstrates clear signs of continued strong growth and increased maturation in the sector as a whole. European activity, excluding the UK, showed solid growth of 72 percent last year and demonstrated client demand for alternative finance solutions even in the smaller EU countries.”

Rumi Morales, Executive Director, CME Ventures, said: “The prominent feature of financial technology is that it is truly borderless. No one country is harnessing alternative financial markets or business models to the exclusion of any other. Rather, from the UK to Estonia and from Finland to Monaco, the entire European continent is experimenting and expanding upon innovations that can provide greater access to capital and financial services to more people than ever before.”

See the full report below. Continue reading →

Overview of the Regulatory Framework for P2P Lending and Equity-based Crowdfunding in Singapore

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This is a guest post by Pawee Jenweeranon, a graduate school student of the program for leading graduate schools – cross border legal institution design, Nagoya University, Japan. Pawee is a former legal officer of the Supreme Court of Thailand. His research interests include internet finance and patent law in the IT industry.

1. Introduction

In the recent years, it is inevitable that the financial technology or Fintech takes the significant role toward the evolution of financial services industry in this region. In other words, Fintech normally be used to improve the financial industry services.

In 2015, the Monetary Authority of Singapore (hereinafter referred to as “MAS”) has committed two hundred twenty five million Singapore Dollar (around 166 million USD) to support the development of Fintech industry for the startup ecosystem in the upcoming years[1]. This is a good reflection of the significance of the financial technology or Fintech development in Singapore.

From the economic perspective, Small and Medium Enterprises (hereinafter referred to as “SMEs”) are important part of Singapore’s economy. SMEs account for 99 percent of all registered enterprises in Singapore[2]. From this reason, enhancing the competitive capacity of Singapore SMEs is essential for Singapore economy development.  Even almost all of the SMEs in Singapore are supported by the Governmental Enterprise Development Agency and Centers[3], (more than 100,000 SMEs got funding support by the Singapore government[4]); however, internet financial technology was also proposed as an alternative mechanism for enhancing the competitiveness of Singapore SMEs in the recent years[5].

 

2. Regarding Peer to Peer Lending


2.1 Background
Generally, there are many peer to peer lending platforms in Singapore; however, they normally lend money to businesses rather than individuals due to the strict regulation for money lenders. The additional limitation on lending to low-income borrowers[6] who are Singaporean citizens or permanent residents which is another requirement should be considered by the lenders.

In general, money lending in Singapore is mainly regulated by the Moneylenders Act 2010 and the Moneylenders Rules 2009. For the Moneylenders Act 2010, due to the main purpose of this act is to develop consumer protection mechanism to protect borrowers of small amount loans[7], this is the reason why the act provides stringent limitation for moneylenders to operate their business. This is another key different of money lending law of Singapore compared to other countries in Asia such as Hong Kong which focusing more on lending activity[8]. Briefly, the act requires moneylenders to hold the Moneylenders license with obligations and limitations for licensee[9].

In Singapore, even there are strict regulations in the existing law relating to a money lending business; however, there is the legislative effort of the Singapore government to address the issue regarding Securities-based Crowdfunding, which can reflect the understanding of the Singapore government toward the development of Financial Technology (Fintech) and the supporting regulatory framework.[10]

2.2 The Regulatory Framework for Peer to Peer Lending Business

From the document published by the MAS on Lending-based Crowdfunding – Frequently Asked Questions (FAQs)[11], generally, the operation of P2P lending is restricted by MAS under the Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap. 110) (FFA).

Specifically, the P2P lending business needs to prepare and register a prospectus with MAS in accordance with Section 239(3) of the SFA. In addition, not only the registration of the prospectus but also the P2P lending platform need to follow the licensing requirements, particularly, the P2P lending business which fall within the scope provided by MAS needs to hold a Capital Market Services (CMS) license. Continue reading →

Merger Between a P2P Lending Marketplace and an Equity-Based Crowdfunding Platform

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In Germany Kapilendo and Venturate announced they will merge. Kapilendo is a p2p lending marketplace offering loans between 30,000 and 2.5M Euro to SMEs for loan terms of 1 to 5 years. The minimum amount for investors is 100 Euro. Investors are not charged any fees. Kapilendo was launched in 2015 and recently gained some publicity, when it succeeded to fund a 1M Euro, 3 year loan to first division soccer club Hertha BSC in 10 minutes. This loan has an interest rate of 4.5%. So far loans listed at Kapilendo were in the range of 3.1% to 6.5% interest. Kapilendo uses Fidor as transaction bank to originate loans.

Venturate is a small equity-based crowdfunding site, launched in summer 2015.

FinLab, owner of Venturate will also invest an additional amount to foster further growth of Kapilendo. After the transaction FinLab now owns 25.1% of Kapilendo.