October Stops Catering to German Retail Investors

Marketplace October has just announced that due to regulatory requierements it won’t enable retail investors from Germany to invest into any new projects starting next week

In July 2019 we announced that we were going to launch October in Germany by the end of the year after the arrival of our local CEO, Thorsten Seeger. This is now coming fast with our first recruitments and operations in Munich.

For regulatory reasons we cannot open German projects to individuals. This is because the BaFin (German Federal Financial Supervisory Authority) requires the use of a fronting bank to allow retail investment in loans. We have studied this possibility, which has been chosen by other platforms, but the additional constraints and costs make this an unacceptable alternative under our business model.

German projects will only be funded by our institutional lenders (nor Spanish, Italian, French or Dutch retail lenders will be able to German projects). Additionally, lenders who are tax-resident in Germany will not be able to lend to any projects on the platform. Now that we operate locally, we have to apply local restrictions.

This means that you will not be able to lend on October as of next week. You will still be able to:

  • Receive repayments on your current projects,
  • Debit your October Account at any time.

We will provide you with your annual tax-summary (and this as long as you will be receiving repayments on your October Account).

We are really sorry to announce this news but have to comply with the German regulation. We have at heart to treat all our lenders, borrowers and partners equally wherever we operate. We will continue to work hard, with our peers in the European Crowdfunding Network, to allow German lenders on the platform in the future. How? We are confident that regulation, particularly at European level, will evolve to enable you to support the growth of European companies.

We are at your disposal should you have any questions.

Collateral UK in Adminstration – a Summary for Investors

Yesterday evening investors on the Collateral p2p lending marketplace were informed via email by a letter by Gordon Craig that he was appointed administrator for Collateral (UK) Ltd, the company running the marketplace.

The company is continuing to trade under his supervision, but will not be facilitating any new loans and the secondary market is closed at the moment. Reason for the company going into administration is given as ‘The Company was operating in the belief that it was authorised and regulated by the Financial Conduct Authority under interim permission. It has transpired that this is not the case and consequently the Company has ceased lending‘.

Most reassuring for investors into loans is, that he states: ‘Please note that your investment is safe and this is a procedural and compliance issue. … ‘

Investors into loans do not need to take any immediate action. ‘I have lent money via the Collateral platform do I need to do anything? No. Subject to the borrower continuing to make payments of interest and capital those will be returned to you in accordance with the Collateral terms and conditions.’

At a later point it was clarified that uninvested cash and money invested in loans without drawdown is also safe:’ I can confirm however that any monies that are sat on the platform and are not invested are ring fenced in a separate client account and the intention is for these to be returned to all investors after the Administrator has obtained control of the bank account and carried out a reconciliation.

As P2P-Banking has learned, the individual loans are bankruptcy remote, with security held by a separate security trustee – Collateral Security Trustee Ltd.

Collateral has lent about 17 million GBP since the start, most loans were secured by property.

So that are the positive points.

It remains unclear to me how Collateral could have misjudged the regulatory status? The interim permission seems to have lapsed on January 29th. Again it is unclear whether it was actively revoked by the FCA. Investors analyzed yesterday that Collateral had quitely removed references to FCA authorisation (e.g. from email footer) after January 30th. Worse yet the company seems to have changed T&C materially and investors complain they were not notified about any change of T&Cs.

There is also the question why it was allowed to continue to operate from January 29th to February 28th, if it did not have the necessary regulatory approval (anymore). And the lack of communication (prior to the letter of the administrator which is comprehensive) is a disaster (see my previous article). Putting up a server maintenance note for two days, when you are going into administration is not the right way to do it in my opinion.

The adminstrator has not decided if the website will go live again ‘We are currently looking into the website and the possibility of this being reopened in order for investors to view the balance of their investments, however this isn’t something that will be dealt with until next week at the earliest.’

Several other UK platforms have emailed investors and informed them about procedures in place to reassure them that they have taken all the necessary precautions to be prepared in case of a situation like this.

To sum it up, while it is very unfortunate that a platform goes into adminstration with a chance that eventually it will go out of business, it looks like investors into loans will get off fairly lightly.

According to the FT the FCA commented it was ‘aware of the issue and working with the firm‘. The role of the FCA in this happening leaves some questions open for debate at the moment.

 

Doing KYC on International Investors and the Potential of Automation

German id exampleOn the majority of p2p lending marketplaces that accept non-resident international investors, the necessary process to comply with ‘Know Your Customer’ (KYC) rules involves multiple manual steps both on the side of the investor and on the side of the marketplace. After filling in details in forms the investor typically needs to submit scans (or photos) of an ID or a passport. As an investor  I balk at the very few marketplaces that ask me to submit these via unsecured email. The better ones offer an upload inside the SSL secured website after login. The British marketplace typically also require a recent utility bill to confirm address.

Video ident

In continental Europe a few marketplaces are doing video ident. Recently when I registered at Paskoluklubas, aside from entering details in forms I needed to schedule a Skype video call in which I answered several questions and had to show my ID live. While it was straightforward, it is not more time efficient (both for investor and for marketplace). And I was lost for words for a split second when asked for my zodiac. How many non-native-english speakers can answer that question without hesitating for the right word (luckily mine is easy to translate). So there may be a higher drop off in conversion than in the document upload version.

I learned from Paskolulubas that they used video ident not to optimize the process but rather to fulfill Lithuanian regulation requirements: ‘In the end of last year in Lithuania … [a law was passed] which legalized digital identification …. There are just two legal methods to identify clients through digital technologies. The first one is to use special programs, applications or other measures to ensure that the photos execution process is continuous and that the photos transfer in non-real time would be impossible. The second one is video identification when [the] company directly could record customer and his ID document. We chose … [the latter] method because of the following reasons: a. easier control of quality with in house team and b. faster start’.

So Paskolulubas uses inhouse staff to conduct the video ident process.

Outsourcing KYC

In Germany video ident is also an allowed method of identification. And it slowly replaces the traditional Postident process, a longtime German proprietary solution, since it avoids media discontinuity. But usually the video ident process, while integrated in the website is outsourced to a specialized service provider.

Another example of outsoucing is the process Lenndy uses. When registering, all an investor is asked by Lenndy is his email address, nothing else. Then the investor is required to link an Paysera account with at least level 3. Either an existing one or a newly setup one. Paysera is a E-money institution with over 5 million customers. Lendy then imports the customer data, which have been verified by Paysera with the consent of the the customer. While this solution is elegant for Lenndy, Paysera receives mixed reviews by several German investors in p2p lending. But as the search for ‘Paysera’ in the last link shows, actually several p2p lending platforms use Paysera processes to some degree.

All of the above still require mainly manual labor for checking, even if some of the work is outsourced.

Automating KYC for international investors

Last week British Relendex moved from a manual document upload process to an automated process for investors of 7 countries; Australia, Canada, Denmark, Germany, Sweden, Switzerland. Relendex uses the Call Validate solution and checks (in case of Germany) first , middle, last name, gender, phone, address, city and postal code with the data coming from three different data sources and which Relendex says has high match accuracy. Relendex’s criteria was that the data available should be of equal quality and accuracy to that of the UK database.

A Relendex representative told P2P-Banking: ‘With the new process, international lenders from the nine countries could see their account be approved in a matter of minutes. Where previous manual checking could take a couple of days, the automated KYC process is much more efficient.’

Of course there are other solutions. I reached out to other companies for comment. But those who have automated are tight-lipped about details citing proprietary technology and competitive advantages.

Marketplaces that also use automation are welcome to comment and add to this story.

Irish Linked Finance secures full approval from UK regulator FCA

Linked Finance announced yesterday that it secured full approval from UK regulator:

I’m delighted to announce that we recently gained full authorisation from the Financial Conduct Authority in the UK. This approval is the culmination of a rigorous 2-year application process and a lot of hard work.

In the absence of any regulatory framework in Ireland, we originally began this process as a way to demonstrate our commitment to operating Linked Finance in line with best practice from the much more developed UK market.

This UK approval also opens several exciting avenues to us in terms of our plans for future expansion. It gives us the opportunity to attract lenders form the UK to support Irish SMEs. It would also allow us to start supporting SMEs north of the border, as well as paving the way for a full UK roll-out.

The P2P industry in the UK is the largest in the world on a per capita basis and platforms there are originating more than €1 billion in lending each quarter. It would be a logical next step in our evolution.

That said, our primary focus remains on Ireland and helping to grow the sector here as market leaders.

This authorisation in the UK won’t have any major impact on how you use Linked Finance but you may see some slight changes and modifications on the site, as we look to implement some of the various requirements, such as warnings and disclaimers, that would be required when operating in the UK.

The fact that we have gained full authorisation from the FCA should simply serve to underline that Linked Finance has developed the type of management processes and controls that are in line with industry best practice.

The timing couldn’t be better too.

This announcement comes as the Irish government have launched a public consultation in relation to regulating the sector here.

It’s a move that we wholeheartedly welcome. We believe that all platforms who want to operate in Ireland should be required to operate to the same high standards as Linked Finance.

Obviously, this approval from the FCA demonstrates that we are well ahead of the curve in the Irish market and we are encouraged that the Department of Finance is now considering a similar set of rules here.

We recognise that the development of P2P lending in the UK owes a lot to the introduction of government initiatives that promote the industry, including tax-free Innovative Finance ISAs and direct government lending to SMEs, via the British Business Bank, on platforms such as Funding Circle and RateSetter.

We would love to see the same type of support here and we will be using the current public consultation as an opportunity to promote similar initiatives in Ireland.

For our Irish lenders, this approval from the FCA in the UK should serve as further evidence of our commitment to developing a strong and stable platform that will continue to deliver healthy returns while providing much need credit to great local businesses.

Moneything Gains Full FCA Authorisation

Moneything logoMoneything announced  today that have been fully authorised by the Financial Conduct Authority (FCA).

Moneything see this as a significant milestone for our business and the result of just over 18 months’ work that involved the scrutiny of every aspect of our business.

In the announcement Moneything says

Many platforms in the P2P industry are working hard to gain their full permissions and we are one of the first few platforms to be granted full authorisation, ahead of some of the largest P2P companies.

This will help to give our lenders and borrowers confidence that we meet high standards in the way we operate, based on the regulations set by the FCA.

We have had some extraordinary assistance along this journey from our compliance consultants and our legal advisors who have helped us to navigate the complex regulatory landscape. We would like to thank them and the MoneyThing team who have all contributed to our authorisation.

There will be a few changes as a result of our authorisation. Significantly, we are no longer able to pre-fund loans and we will be introducing new lender terms for new loans. A full update on the changes and how they will affect lenders will be provided shortly.

Now we are authorised we can look towards launching an IFISA offering to lenders. This will be subject to HMRC approval and we will release further information in the coming months.

Continue reading

Beehive is the First P2P Lending Marketplace to Receive Approval by DFSA

Beehive logoBeehive has become the first peer to peer lending platform to set up offices in the Dubai International Financial Centre (DIFC) and become officially authorised and regulated by the Dubai Financial Services Authority (DFSA).

The new regulation is a first for the region and could catalyse growth of the fintech industry, says Beehive. Not only will it ensure clear governance for fintech businesses but will also provide added protection and peace of mind for peer to peer retail investors. Its introduction is particularly timely as peer to peer lending, is becoming an increasingly important route for small and medium enterprises (SMEs) to access finance.

Beehive was launched in Dubai in 2014 by serial entrepreneur, Craig Moore, aided by Rick Pudner, former Group CEO of Emirates NBD. Read an earlier interview Craig Moore gave P2P-Banking.com. Craig Moore, now said: “We’re delighted to be regulated by the DFSA. This regulation reinforces Beehive as one of the fintech leaders in the region and we feel this greatly expands the opportunity to further help SMEs and the wider economy.” Continue reading