In January, the Financial Conduct Authority (FCA) issued a stern warning to peer-to-peer lending platforms: confirm your wind-down plans or risk losing regulatory status.

By law, every peer-to-peer lending platform must have a wind-down plan in place in order to be regulated. This rule was introduced following the high-profile failure of P2P platforms such as Lendy and Collateral, whose investors are still fighting to recoup their funds more than four years later.

Unlike savings accounts, P2P accounts are not a part of the Financial Services Compensation Scheme (FSCS), so there are no provisions available to investors who lose their money. Wind-down plans were introduced to provide reassurance to investors should their P2P platform fold. These plans can be reviewed by the FCA and act as a step-by-step guide to running down the loan book while minimising investor losses.

Loanpad has had a robust wind-down plan in place since 2019, and it is updated and reviewed regularly. The wind down plan details how Loanpad will protect investor money should the business cease trading, under a variety of possible scenarios. The plan was written by Neil Maurice, Loanpad’s Chief Operating and Finance Officer.

”It was all done in house together with external specialist advice and in line with regulation is reviewed and updated regularly, says Maurice.

“It goes through all the requirements of the wind down plan and the costs associated with it.”

What does Loanpad’s wind-down plan look like?

Under every wind-down scenario, Loanpad is projected to continue generating income for both the business and its investors. This is due to the unique structure of the platform. Unlike many other P2P lenders, Loanpad earns little money from fees at origination of a loan. Instead, it takes a percentage of the interest payments alongside the platform’s lenders. This means that Loanpad as a business should continue to generate revenue as long as its loans are active.

Furthermore, Loanpad does not work directly with borrowers, but with lending partners who themselves liaise with borrowers. This reduces the administrative burden on the platform in the event of a wind down.

There are three ways to run wind down plans, according to the FCA:

1. Platforms can maintain a segregated amount of money which can be used to wind down the loanbook.
2. A third-party can be appointed to take charge of the platform’s portfolio and manage the wind down of the loanbook.
3. The platform winds down its own loanbook based on the resources that it has in-house.

Loanpad has opted for the third solution. The platform has built bespoke software that helps manage the wind down for Loanpad, ensuring that investors are aware of what is happening, and receive regular communication throughout the wind down process.

The company, in line with FCA requirements, has also set aside money to cover the cost of running the business through a wind down. This pool of cash is increased as the business grows.

Furthermore, Loanpad’s lending partners all manage the loans on a day-to-day basis and must report to Loanpad at set intervals.  They also agree to take a first loss provision.

Every lending partner takes a stake of at least 25 per cent of each loan, which means that they agree to take responsibility for the first 25 per cent of losses incurred on any loan. This provision helps Loanpad to mitigate the risk of investor losses in any circumstances, including during a wind-down.

How likely is a wind down?

The economic volatility of the past few years has shown that there are no guarantees in finance. However, Loanpad has put a number of measures in place to ensure that investor funds are as protected as possible.

Loanpad as a company has been profitable on a monthly basis since 2021 and maintains financial resources significantly in excess of those required by the FCA. Loanpad expects to remain profitable on a monthly basis.

All loans are secured against property, with a maximum loan-to-value at origination of 50 per cent. This means that the underlying property would have to lose more than 50 per cent of its value before investor funds are at risk. Investor funds are also automatically diversified across a number of different loans, to reduce the possibility of large capital losses stemming from one or two unpaid loans. These processes are in place to protect investor capital, no matter what is happening with the company.

In the event of a Loanpad wind down, all loans will remain active and the loan book will be managed as usual, albeit without the addition of any further loans.

Loan management is all about balancing risk with reward, and at Loanpad that philosophy extends to its hypothetical wind-down.

“We regularly review our wind down plan, and make updates where necessary. We have built bespoke software to manage any potential wind down to make administering the loanbook far easier in run-off,” says Maurice.

“Should the company fall victim to macro-economic conditions, investors can be assured that there is a detailed plan in place to protect their money and help them sleep better at night.”

Loanpad’s success is testament to the hard work and expertise of the people who operate the platform behind the scenes. In this new blog series, we meet the team and learn more about their roles. First up is Neil Maurice, Chief Operating and Finance Officer.

• What did you do before Loanpad?

I started my career back in 2004 as an equity banker at UBS Investment Bank. I then qualified as a Chartered Accountant at BDO LLP in London. I spent about ten years at BDO in their financial services team specialising in a range of audit and consultancy work. As part of that role, I was part of the leadership team on a large remediation project at Barclays Bank focusing on the mis-selling of interest rate derivatives. This involved leading teams assessing whether a mis-sale had occurred and working to calculate any redress due.

I then moved to another multinational consultancy, Duff & Phelps and I was there for a couple of years focusing on a number of risk and regulatory projects for entities regulated by the Financial Conduct Authority (FCA). Then in 2018 I decided to branch out and that’s when I joined Loanpad.

• What brought you to Loanpad?

Louis Schwartz, Chief Executive of Loanpad and I have known each other for more than 20 years, so we’ve always had a link. Every so often he would reach out and ask my opinion on business matters because I have a background on the advisory side of FCA regulated firms, as well as an overall understanding of the way the business works.

Louis needed someone who could effectively fill several senior roles within the company – I filled the criteria and I was ready for a change.

Joining an exciting startup is great fun. You’re forming it, you’re nurturing it, you’re deciding which way they go, what you pull, what you push. Its great fun, but its not for everyone. There’s no boredom.

• What is your day-to-day role in the company?

My formal title is Chief Operating and Finance Officer, which means the management of the day-to-day teams, loan underwriting, regulatory compliance, day-to-day operations, and finances fall under my purview.

• To what extent has the P2P lending market changed since Loanpad was launched?

Massively. When Loanpad was being conceived, P2P lending was a very exciting concept, in the industry. It was decentralizing finance and giving retail investors exposure to an asset class which historically only banks and large finance houses were able to have exposure to. And I think that as a concept, it was phenomenal and still is phenomenal. Why should the retail investor with £5,000 not be able to lend money on a piece of real estate, but a bank is able to do it?

Logically, the concept of P2P finance is a great idea and a great concept. Unfortunately, there were a number of P2P failures in the early days.

This resulted in more regulation around areas such as disclosure, financial promotions and senior manager accountability. The level of regulation has massively gone up, and this has made the sector less attractive for new entrants. The result is that a lot of players have looked to leave, and fewer have looked to enter.

The market has shrunk for certain, but I don’t think that’s a bad thing. It means that the good actors remain.

• What are Loanpad’s core values?

Trust, integrity, and morals. We invest every single penny of money as if it’s our grandmothers’.  We believe in being open, transparent, highly ethical, and highly moral in the way that we act. And our main focus is always trying to ensure that investors get their money back. We don’t want to be in a position of losing people’s money. We can’t guarantee it, but everything we do is focused on getting investors money back or making sure we invest it so we expect to get it back. We don’t look for the fast buck, we don’t look for the high arrangement fees on a loan just so we can make the loan and get it out the door. We look at the security needed in order to recover the capital.

• How has the business evolved to meet customer demand?

We constantly look for ways to make the Loanpad experience simple, efficient and friendly, whilst of course meeting all regulatory requirements on a disclosure basis. We don’t believe in complicated interfaces, we don’t believe in having to press 95 buttons to get anywhere. That’s just not how we want to be.

We look to constantly react to our clients’ needs, and to make incremental improvements on our site and functionality to meet customer demand. We prioritise our customer care, and make sure that we respond to all queries in a timely manner.

• What are your plans and ambitions for 2024?

We are hoping to put out a large software release in 2024. Investors may not see a huge change on the front end of it, but behind the scenes it’s a rebuild of the back end. That’s going to mean that we’re going to be able to put through new features and new products much more quickly than we have done in the past.

I’d also like to launch an Apple Store and Google Play Store apps this year. Towards the end of the year, I’d like to improve our data transparency so we can actually show better graphics of our loan book and the splits between different lending partners and different loan types.

But beyond all of that, the big focus of 2024 is continue doing what we’re doing now and continue to serve our investors. We’re in difficult macroeconomic conditions, be under no illusion. It’s not an easy market and we just need to be laser focused on delivering over and over again in what we’re doing.