Wind-Down Plans – Good Business Practice

Neil Maurice, Chief Operating Officer of Loanpad gives an overview of wind-down plans and shares some views on Loanpad’s wind-down approach.

What’s central to any business?

As with any business, there is no guarantee that Loanpad or any peer-to-peer lender can or will choose to operate forever.

Since the financial crisis in 2008, we have seen a raft of corporate failures both within financial services and in other sectors. Whether it’s lenders in peer-to-peer platforms, counterparties in investment banks or holidaymakers in tour operators, all failures have one thing in common – customers.

Customers, or within peer-to-peer lending – investors, are and should always be the centre of any business throughout its lifecycle. Unfortunately, history has taught us that corporate failure has often caught firms unaware and customers or investors have been left with uncertainty over both whether and when they will get their money back.

What are wind-down plans?

At Loanpad, we see it as critical to have plans in place to both identify when our business is no longer viable and to implement plans to wind-down any outstanding investments or loanbook before an insolvency process is required.

The FCA has put increasing emphasis on the need for peer-to-peer lenders to have adequate and proportionate wind-down plans in place to avoid what it deems as “disorderly failure”. Within peer-to-peer lenders, one of the FCA’s concerns is that loans continue to be administered if the platform ceases to operate for any reason.

The overarching aim of a wind-down plan is to help ensure that existing loans continue to be managed, monies recovered from borrowers in a timely and efficient manner and then ultimately repaid to investors without the need or even consideration to enter any form of insolvency.

What are Loanpad’s wind-down plans?

We built our wind-down plan taking into account our business model and web-based platform and considered the best interest of investors in respects of efficiency and costs.

Our wind-down arrangements consist of a plan to manage the wind-down of the loanbook internally (alongside our lending partners).  Staffing requirements and operating costs have been assessed and we have capital set aside (which will be increased proportionately with the size of the loanbook) to keep things running smoothly.

In addition, our lending partners take on contractual obligations to investors / Loanpad insofar as management and reporting are concerned and, combined with their “first loss / skin in the game”, this is unlikely to be treated lightly even in a wind-down scenario.

Loanpad believes its business model provides for an orderly and less resource-intensive wind-down due to the following factors:

• Loanpad earns money on a daily basis based via an “assets under management” margin, therefore Loanpad is not dependent on new business for its revenue;
• The lending partner approach means that the day-to-day management of the loans is undertaken by established and experienced lenders with our supervision and monitoring; and
• All investors are in the same pool of loans so there are no difficult or time-consuming allocations to be administered on a loan-by-loan basis.

What will the future hold?

As the industry works through a number of peer-to-peer platform failures, lessons continue to emerge to assist us and the rest of our sector in improving our wind-down plans.

We hope that new regulations coming into force will ensure that all peer-to-peer lending platforms have wind-down plans to cater for all reasonable eventualities. Whilst all platforms are competitors in one sense, we are first and foremost partners in the common aim of securing the continued growth and sustainability of the sector and ensuring good practice throughout.