News & Media | Alternative Investments

Opportunities and Challenges in Online Marketplace Lending U.S. Treasury Report

On Tuesday, May 10, 2016 the United States Treasury Department published a white paper entitled “Opportunities and Challenges in Online Marketplace Lending.”

“There is a clear need for greater transparency in the market for borrowers and investors,” Treasury Counselor Antonio Weiss said Tuesday in a call with reporters. He said Treasury recommends that regulators form a group to examine oversight needs for the industry and figure out “where further regulatory clarity could benefit the market.”

This report and call to action comes on the heels of the resignation of Renaud LaPlanche, the founder and now former Chief Executive Officer and Chairman of Lending Club, the largest global marketplace lender.  An internal review found a failure to disclose a personal interest in an investment fund the company was considering investing in. The review also found that he was among managers who had knowledge of abuses that were tied to the sale of some loans.

It has become clearer that marketplace lenders need to be more transparent about their business practices and some should be subject to additional oversight from U.S. regulators, according to a Treasury Department study released as the industry grapples with market turmoil and a scandal involving one of its leading firms.

The Treasury department said today in the released white paper/ report (attached) that companies in the burgeoning industry need to develop a public database for tracking data on their loans, and firms that lend to small businesses in particular should be subject to more federal consumer protection laws.

Treasury sought public comment on the marketplace lending industry to help government officials better understand the different business models and products being offered in July 2015.  Treasury outlined six recommendations, including calling for online lenders to improve how transparent their products are to borrowers as well as investors and the need for them to employ consistent standards and disclosures.

You can read the full report here.

The University of Cambridge and University of Chicago 2015 Americas Alternative Finance Benchmarking Survey

The study is supported by the Inter-American Development Bank (IDB), Business Development Bank of Canada (BDC), KPMG and a number of leading industry research partners

The Cambridge Centre for Alternative Finance at Cambridge Judge Business School and the Polsky Center for Entrepreneurship and Innovation at Chicago Booth School of Business are jointly launching the 2015 Americas Alternative Finance Benchmarking Survey. This survey will be a comprehensive and empirical assessment of crowdfunding, peer-to-peer lending (marketplace lending) and other forms of alternative finance across North, Central and South America and scheduled to be available in April 2016.

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U.K. Treasury publishes draft Financial Services and Markets Act 2000

February 6, 2015

The U.K. Treasury Department has published the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 for approval by both Houses of Parliament. Various changes to the regulatory framework is underway for the the alternative financing industry such as Peer-to-Peer Lending.

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Financial Stability and Shadow Banking

Posted December 10, 2015

Federal Reserve Vice Chair Fischer delivered remarks at the “Financial Stability: Policy Analysis and Data Needs” 2015 Stability Conference sponsored by the Federal Reserve Bank of Cleveland and the Office of Financial Research. Here is discussed financial stability and shadow banking.

Vice Chair Fischer believes that there are “five factors that contribute to financial fragility”: (a) high debt burdens at households and firms; (b) elevated leverage and maturity transformation within the financial sector; (c) complexity and interconnectedness in intermediation chains; (d) low risk premiums on assets, especially assets funded with debt; and (e) complacency on the part of investors, supervisors and decision-makers in the private sector of the financial system.

During Vice Chair Fischer’s presentation he offered an assessment of vulnerabilities in the financial system; and identified gaps in the current understanding of conditions inside and outside of the banking sector that should be addressed by regulators and researchers.

He stated, “An essential element of [the federal regulatory] infrastructure is learning the lessons of history – both the lessons of what happened, and the fact that supervisors and regulators will on occasion be surprised”.

Mr. Fischer made the following assertions regarding what needs to be understood to monitor financial stability:

  • A Closer Look at Shadow Banking: The reduction in leverage and maturity transformation associated with better regulations leaves the financial system “much more resilient – even if such regulations have modestly affected market liquidity.”
  • What We Know and What We Do Not: Data on a range of activities – including securities lending, bilateral repos, and derivatives trading – that create funding and leverage risks “remain inadequate and hence could prove destabilizing if sufficiently large or widespread.”
  • Data Are Not Enough: We Need Theory Too: An “important area in need of development” is economic modeling on interconnectedness, particularly on the interaction of shadow banking, banks and the broader financial system. Further, research that distinguishes between banks and nonbanks, or highlights how their interactions are driven by economic incentives, could guide regulator efforts to collect data and set policies to limit possible instabilities associated with interconnectedness.

Though Vice Chair Fischer made no mention of the alternative investment landscape of P2P Lending, it will be interested to see where Peer -to- Peer Lending Marketplaces will be placed as related to shadow banking as a contributor to financial stability in the coming years.

 

 

 

New peer-to-peer operating principles for P2P Financial Association Members

October 28, 2015, posted by Kim Wales

Christine Farnish, Chair of the Peer-to-Peer Finance Association (P2PFA) announced new operating principles that will enhance risk management and promote transparency for the sector.

Over the last 12 months, data collected by P2P FA showed that almost £2bn worth of new lending in the EU P2P industry  from consumers, small businesses and property lending almost doubling.

The new guidelines require P2P association members to publish debt data to a common standard, make their loan books transparent and ensure that retail investors are competing on the same level playing field as institutional investors.

“Our new operating principles set a benchmark of fair dealing and transparency,” said Christine Farnish, Chair of the P2PFA.  “By the New Year, all our members will publish their full loan books, show bad debt losses in a comparable way, and commit to ensuring that retail investors get a fair deal compared with institutions.

“These new measures will help build further consumer confidence, demonstrate our commitment to ethical practice and set a beacon of good practice across the market.”

You can see a copy of the new guidelines here:

Screen Shot 2015-10-28 at 10.21.41 AM

 

Crowdfunding Facts, Myths and Best Practices

New York, NY

The Inventors Association of Manhattan speaks with securities crowdfunding expert, Kim Wales founder and CEO of Wales Capital about crowdfunding facts, myths and best practices.

Crowdfunding: National Experts, Kim Wales Discuss Impact of Title II of the JOBS Act

New York, NY

National Crowdfunding Experts, Kim Wales, Douglas Ellenoff, Zack Cassidy – Dorian and Jonathan Sundland share their views on where the big opportunity is in securities based crowdfunding within the next five years at the Feliciano Center for Enterpreneurship on the Montclair State University Campus.

Alternative Investment Fund Manager (AIFMD) Directive Guidelines

On August 8, 2014, ESMA published the final translated Guidelines on reporting obligations under the Alternative Investment Fund Managers Directive.  The Guidelines provide clarification on the information that alternative investment fund managers (“AIFMs”) must report to national regulators, the timing of such reporting and the procedures to be followed when AIFMs move from one reporting obligation to another. The Guidelines, which apply to national regulators, will apply from October 8, 2014.   In addition, AIFMD_Top 10 Guidelines as presented by Wales Capital in  2013 can be reviewed as cross reference.

Read the Guidelines here.

 

 

The State of Equity Based Crowdfunding

Washington, D.C.,

August 24, 2014, 700+ days after the JOBS Act was signed into legislation, the SEC still has not released the final rules for Title III: Regulation Crowdfunding.

Over one year ago, February 19, 2013, the nation’s principal leaders and experts on equity and debt‐based financing providing an in‐depth review of the extensive build out and preparation that has taken place to help entrepreneurs’ access capital through online platforms, while protecting the investors who will finance these enterprises. The group touched upon the global advancement of equity‐based crowdfunding, the significant challenges entrepreneurs still face in accessing capital and why it is vitally important that the SEC finalize JOBS Act rule makings.

Watch the Press Conference:

 

Moderator and Host: Karen Kerrigan, President & CEO, SBE Council; Panel of Experts: Sherwood Neiss & Jason Best, architects of the crowdfund investing framework that became law through the JOBS Act and Principals of Crowdfund Capital Advisors; Candace Klein, Founder, Bad Girl Ventures and SoMoLend; Ryan Feit, Co‐Founder, SeedInvest; Vince Molinari, President, GATE Technologies; Sara Hanks, CEO, CrowdCheck; Chris Tyrell, Nehemiah Investments; Kim Wales, Founder of Wales Capital and Chair of the Crowdfunding Professional Association [introduced at 25 minute mark]; Judy Robinett, Entrepreneur, Advisor to Early Stage Companies; Doug Ellenoff, Ellenoff, Grossman & Schole, LLP; Chance Barnett, Founder, Crowdfunder

How to Get Funding in England?

July 26, 2014 — New York, NY

How to get funding in England?  Funding for Lending (FLS), the Bank of England and Treasury scheme, initially to boost bank lending to households and companies, opened for business at the beginning of August 2012.

The aim of the scheme was to increase bank lending by up to £70bn.

The government changed the rules in January 2014, with this type of funding is no longer used to support mortgage lending.  The scheme aimed to bolster the economy, by halting a downward spiral of lending and borrowing that the UK had experienced since the onset of the credit crunch and international banking crisis.

Banks and building societies are able to access the funds until the end of January 2015.

How does it work?

In essence, the Bank of England is letting commercial banks borrow funds from it cheaply, so that the banks then pass this on in the form of cheap loans to firms.

What is the point?

The point is to encourage the UK’s commercial banks to borrow more money, and more cheaply than at present, so they can then in turn lend it to companies who wish to borrow.

Is it working?

The debate is fierce. Some report banks are still unwilling to lend to business. Others say businesses are unwilling to take on new debt and are paying back loans. Either way, repayments are rising faster than borrowing, leaving the latest “net” lending figure (for the first quarter of 2014) down.

So what are the mechanics of FLS?

Banks and other lenders approach the Bank of England, if they want. They swap assets they already have, such as loans, with the Bank. It in turn provides them with pieces of paper known as Treasury bills, for a four-year period.

The commercial banks are then able to use these bits of paper as top quality backing with which to borrow cash in the wholesale financial markets, from other lenders. With the Treasury’s backing, the idea is that they will be able to borrow funds at very cheap rates.

How will the taxpayer be protected in this arrangement?

The collateral pledged by commercial banks will have to be worth more than the high-grade paper being offered by the Bank of England. So, for every £1 of Treasury bills they borrow, the assets being pledged will have to be worth, say, £1.10 or £1.20. Thus if the value of that asset subsequently falls, the Bank of England will not suffer from the top slice of any loss.

What about savers?

They have suffered an unforeseen knock-on effect of FLS. The availability of cheap funds from the Bank means that lenders do not need to try so hard to attract funds from the general public, to then lend on to borrowers. That is why it is now almost impossible to find a savings account offering more than 3% interest.