You’ll have noticed a lot of changes on the LendingCrowd platform in recent weeks as we prepared for the introduction of new rules from our regulator, the Financial Conduct Authority (FCA). Read on for more details about these changes, and what they mean for you.
Instead of an estimated future return, we will now show an expected return. By working with data analytics specialist Brismo, we believe we provide you with a credible and conservative forecast of the performance of your portfolio.
Brismo independently verifies the data and modelling we use to calculate probabilities of default and loss given default to measure the likelihood of a borrower not meeting their repayments to you and the risk of you losing money.
You’ll notice that expected returns are lower than the previous estimated future returns. We have been working with Brismo on a new methodology for loan valuations through the repayment cycle. Loan valuations can change for a variety of reasons, for example if a repayment from a borrower is overdue or the borrower has made a recovery payment. We consider that it’s in our lenders’ best interests that this data be independently scrutinised on an ongoing basis in order to provide you with the best indicator of your likely returns.
An expected return will be shown for each loan on the platform. You’ll notice that this number is different from the interest rate the borrower pays you, as the expected return takes into account the likelihood of the borrower not meeting their repayments to you and the risk of you losing money.
Expected returns may change frequently in line with borrower repayment behaviour. You’ll always see your latest expected return when you log in to your LendingCrowd account.
The target rates for our Growth Account and Income Account (including the ISA versions) are designed to give a reasonable illustration of the returns a lender could earn. From now, we’ll review the target rate every three months, based on the lender portfolio expected returns reviewed in the previous three months.
As well as verifying the methodology we use to provide expected returns to lenders, Brismo also models the repayments across our loan book on a monthly basis. In doing this, it provides a way to forecast returns for loans by risk grade and through different stages of repayment behaviour.
Therefore, our new methodology has produced a new target rate of 4.9%* for the Growth Account and 4.6%* for the Income Account. This is indicative and we have lenders earning in excess of this as each lender’s portfolio is unique. We believe this methodology provides a conservative projection.
*Capital at risk. Target rate is variable, net of ongoing repayment fees and bad debt.
Please note that past performance does not guarantee future returns. It’s important to remember that your capital is at risk when lending to businesses.
One of the key changes is that everyone who lends money to businesses with LendingCrowd has to tell us whether they are an Everyday, Self-Certified Sophisticated, Sophisticated or High Net Worth investor.
For example, someone who has been a lender in more than one peer-to-peer agreement or portfolio in the last two years could classify themselves as a Self-Certified Sophisticated Investor.
This investor classification exercise is required by all peer-to-peer lending platforms that are regulated by the FCA – not just LendingCrowd. You must renew or update your classification at least every 12 months.
This is an important exercise, designed to show that you understand the risks involved before we can accept your instruction to lend money to businesses. Each P2P lender that’s regulated by the FCA will have its own appropriateness assessment, so if you’re registered with other platforms you can expect to see a similar assessment.
You only have to complete the LendingCrowd appropriateness assessment once. If you don’t complete it, you won’t be able to lend further money to businesses through our platform. There are only 11 questions and you have two attempts to get each one correct. It will only take a few minutes.
We’ve added new information fields to our loan details pages, which you can access from our Loan Market. For example, you can see an Indicative Loan Repayments section for new loans that are at auction, displaying an indication of the repayment schedule and an estimated final repayment date. The Fees section of the loan details pages now includes a Borrower fees tab, displaying any fees that the borrower has paid or is due to pay.
You’ll notice that we’re rolling out some different terminology across our platform. This is to harmonise terminology across the industry. For example, instead of referring to ‘investors’, we’ll be using the term ‘lenders’ as this better explains the fact that you’re lending your money to businesses, with LendingCrowd acting as an agent. We’ll be changing this term in stages throughout our website.
Rather than referring to loans as a capital loss, we now use the term default.
We’ll declare a loan as a default when the borrower is past the contractual payment due date by more than 90 days. This is a new regulatory requirement and replaces the previous practice of declaring a loan as a capital loss after 120 days. If a loan is declared a default and there’s no clear indication of how and when we’ll receive the payment, we’ll take recovery action. Our loans have various types of creditor protection in place, so our recoveries process can involve forcing the sale of assets through a legal process, which can take time.
As a P2P lending platform that is authorised and regulated by the Financial Conduct Authority, LendingCrowd is required to have a ‘wind-down plan’ in place that would set out what would happen if:
• we decided to strategically exit this market, or
• an unexpected event meant we were unable to operate our platform
Our wind-down plan is reviewed and approved by our board on an annual basis. It is also subject to ongoing review to reflect any material changes in our business or operating model.
We have always had a third-party standby servicing company in place to administer our loan book if we were unable to operate our service. As loan contracts are between lenders and borrowers, lenders would still continue to receive repayments on loans originated with LendingCrowd.
Our wind-down plan gives us confidence that we have adequate resources in place to wind down our service, especially under challenging circumstances.
Please remember that your capital is at risk when lending to businesses. LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.
If you have any questions about these changes or need any help, please email firstname.lastname@example.org