Peer-2-peer (P2P) platforms should take time to revist their wind-down plans, as platforms seek to readjust their businesses to offset the risk presented by COVID-19.
Wind-down plans are due to come into focus in the P2P sector as more platforms realise the value of adjusting their wind-down plans. Firms may need to update existing plans to accommodate suspension or restrictions in lending. This could include plans for a partial wind-down should part of the platform’s lending be assessed as non-core or under-performing.
A partial wind-down happens because of a change in focus for the platform. There are a lot of platforms who have initially developed based on a certain product, for example a property based portfolio, which could have performed well for the first part of its lifetime. Market events, like COVID-19 can potentially change that. Or management could feel that a concentration of borrowing within the market is leading to reduced margins, and therefore a strategic decision is made to restrict lending or run that particular portfolio off.
The business then needs to decide how to economically run off the first product, particularly if there is shared resource for the rest of the platform. P2P platforms also need to consider how any under-performance impacts their existing wind-down plans that have been submitted to the Financial Conduct Authority.
Importance of revisiting wind-down plans
The economy has completely changed in the space of just a few months and our financial services restructuring team has already spoken with several platforms about adjusting their wind-down plans to reflect the current economic climate. Businesses need to make sure that while they are weathering this storm, they have got the right preparation and plans in place.
The FCA is very focused on consumer protection and ensuring that those plans have been appropriately adapted for any updated operating model, including how the company can continue to service its customers even in an insolvency event.
P2P firms should act now to revisit their wind-down plans and put future safeguards in place. A forward-thinking and risk-averse approach is worth the investment. Doing things ahead of time in almost anything is worthwhile, as a business can then control the process. Once a P2P firm is in a distressed state, events are no longer in the company's control.
For more information, contact Chris Laverty, Head of Financial Services Restructuring.