Mark Turner, Managing Director in Duff & Phelps’ Compliance and Regulatory Consulting practice, and Geoff Bouchier, Managing Director in Duff & Phelps’ Global Restructuring Advisory practice, recently spoke to Peer2Peer Finance News about how the coronavirus (COVID-19) could disrupt the peer-to-peer (P2P) industry and why senior managers may need to revisit their wind-down plans.
The FCA introduced several new regulations for the P2P sector, alongside the senior managers and certification regime (SM&CR) in December 2019, which prompted many platforms to work with professional advisors on their wind-down plans in the event of a collapse. However, the sector and wider market now face a significant challenge with COVID-19 and the economic impact this will have on the UK economy.
Geoff commented: “Coronavirus is causing significant and increasing disruption across all business sectors, including P2P platforms.” This means many platforms will have to revisit their wind-down plans sooner than expected as prolonged adverse market conditions could see numerous platforms needing to assess their ongoing viability, he added.
Geoff said, “Success for many platforms is dependent upon the attraction of retail investors to fund loans, principally to small- and medium-sized enterprises (SMEs). The question then becomes whether investors still have confidence in lending to SMEs in the present uncertain economic environment. If the investors retreat, then the platforms will lose revenue while still being faced with fixed overheads, eroding their capital reserves."
Mark explained: “In the current climate, where decisions might be far reaching and need to be made quickly, senior managers need to ensure they capture their rationale. What we are seeing here is a market shock. The market itself is being disrupted through the unexpected loan default, and in many instances, failure of borrowers while at the same time investors are seeking the return of their investment, so this is not a straightforward scenario."
Subscribers of Peer2Peer Finance News can read the full article here.
