Europe's Leading Peer to Peer Secured Property Lending Platforms Enters Administration

Leading P2P Lending Platform Lendy Enters Administration

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(04 June 2019)


The original article below is from 27 May.

Lendy (not to be confused with Lendo – a Mintos P2P originator) has announced it has been forced into Administration. On court orders by the Financial Court Authority (FCA) on 24 May 2019, a restructuring agency has been appointed to wind up Lendy on behalf of creditors.

According to reports, the collapse of Lendy is the largest collapse of a European P2P lending company.

Who is Lendy?

Lendy is a UK Peer-2-Peer (P2P) lending group which used to allow investors to fund property development loans. Lendy had over 20,000 registered users and was generating returns up to 12%. According to their website, they were one of Europe’s leading peer to peer secured property lending platforms.

The Growth of Lendy Before Entering into Administration
The growth of investors on Lendy over the last 6 years.

Why did Lendy Enter into Administration?

This didn’t come out of thin air. Lendy has been having problems with default rates for the last year. In October 2018, Lendy appealed to the FCA for help after a big borrower threatened to sue the company and some investors. According to an analysis of the loan book during this time, almost 66% of borrowers had failed to repay their loans on time.

In January 2019, Lendy was placed under supervision by the Financial Court Authority (FCA) after concerns were raised about the ability for Lendy to meet the required standards. Further questions were raised about the business model, leadership and financial position of the company.

May 2019 Lendy was appointed administrators by court order.

Lendy currently has more than £160m in outstanding loans, of which more than 55% of that has defaulted.

What Does Lendy have to Say?

Lendy has an “Important Update” plastered to the front of their site.

As the administration process has only been in place for less than 24 hours, there is only a limited amount of information available. New information will come to the website soon.

If creditors wanted to contact the administration team, they can use [email protected] or call 020 3858 9653. However, due to the high number of messages expected, only urgent ones will receive responses.

What Happens to Lendy Now?

According to the frequently asked questions on Lendy’s website:

What happens to my lending if Lendy goes out of business or closes?

Lendy has taken a number of precautions to mitigate the risk, including:

  • Back-up Servicer
    Lendy has appointed global business process outsourcing company that would step in and run our business as if we were fully operating, in the unlikely event that Lendy was to become insolvent.
  • Segregated Client Account
    Lendy holds all our lenders’ money in a segregated client account. Any amounts, which are due to investors from the proceeds of a sale of property (or any other security) will be held on trust for investors and paid into the segregated client account

    If Lendy were to become insolvent, an insolvency practitioner would be appointed and would distribute the funds in the segregated client account back to lenders.
  • Segregated Security Holding
    All security is held by a third-party security trustee
  • We are well-capitalised
    *No further information was provided about this their capitalisation.

In most cases, an insolvency practitioner would be appointed with a view to either:

  • rescue Lendy
  • achieve a better result for creditors than might otherwise be achieved
  • realise the assets of Lendy to make a distribution to creditors.

How does this affect other P2P Groups?

Other P2P industry names such as Mintos and Grupeer who act as platforms attracting different lenders (also known as loan originators) shouldn’t be very affected by the issues faced by Lendy. These platforms are marketplaces for multiple loan originators (Mintos currently has 61). On the first hint of a lender facing problems, the overarching platforms (Mintos, Grupeer, etc.) would analyse their position with the affected company, and then take the action required. If a lender was to suddenly default without warning, the platforms would be able to fall back onto other sources of income, so would not get into trouble themselves. If all platforms were to default at the same time, then there could be trouble.

However, other crowdfunding platforms such as Kuetzal, Crowdestor, and Crowd Estate who sort out the loans themselves could face similar challenges as Lendy in the future.

The collapse of Lendy could create traction on new regulations to be placed on P2P lending companies

Any lessons to be Learnt from Lendy Entering Administration?

P2P Investing has gained a lot of traction over the last couple of years due to the lucrative returns on offer. However, events such as those seen with Lendy can bring the risks of the industry back into perspective.

Currently P2P investing is not regulated and there is a chance to lose all your invested funds. Various platforms offer buyback guarantees, provision funds, claim to be well capitalised etc., however in the end, they can still go into Administration, like Lendy.

The collapse of Lendy highlights the risks of investing through P2P systems. P2P investments should make up a part of a multiple-income portfolio which includes other investment types as well (i.e. real estate, shares, funds, bonds, etc). Having everything in one basket is risking it all!

If you are interested in the types of risks, check out my article on the 11 Investment Risks You Should Know.

As mentioned earlier, Lendy was having problems with borrower defaults for the year leading up to their problems now. If those events start to happen (i.e. more than 20% default rate, a warning from the FCA, etc), it may be wise to look at withdrawing your money as fast as possible.

The FCA has also suggested that current regulations will come under review. The main goal will be to stop investors from blindly investing large sums of money into high return loans without assessing the risks involved. Currently, it is very noticeable to see how quickly it is for investors to pour large sums of money into projects, without doing their due diligence on the investments. Look at the crowdfunding Envestio. A loan will be released on the platform (worth anywhere between €400,000 and €600,000), and it can sell out within 30 minutes. It would be near impossible to perform due diligence at that time.

Lendy Administration Group Findings – 04 June 2019

Since the original article was written, the Administrators who were appointed for Lendy have closed down the majority of the website.

They provide a detailed FAQ which can be found here. The main points of the FAQ list were:

  • It’s too early to say how much money will be recovered and paid back to investors
  • Within 7 days, the Administrators will write to creditors
  • Within 8 weeks, the Administrators will provide a proposal to creditors setting plans for managing the Administration
  • Administrators are contacting borrowers directly and assessing their ability to repay loans at the appropriate maturity dates.
  • The administrators can be contacted through [email protected]

A media statement released by the FCA has said there will be new rules for P2P platforms. The new rules aim to help protect investors and allow companies to operate in a long-term sustainable manner. The FCA has said:

  • investors will not be able to invest more than 10% of their investable assets into P2P loans, without appropriate financial advice
  • companies will be forced to provide more information to customers and test their knowledge of an investment if they have not received advice.

In addition, further rules will cover :

  • further requirements clarifying governance arrangements, systems and controls the P2P platforms need to have to support the outcomes they advertise. Focus will be placed on credit risk assessment, risk management and fair valuation practices.
  • strengthening rules on plans for the wind-down of P2P platforms if they fail.
  • a requirement for platforms to assess investors’ knowledge and experience of P2P investments where no advice has been given to them.
  • stipulating the minimum information that P2P platforms need to provide to investors.
  • applying the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other Handbook requirements to P2P platforms that offer home finance products, where at least one of the investors is not an authorised home finance provider.

The FCA has said that P2P platforms need to implement these changes by 9 December 2019, except for the application of MCOB, which applies with immediate effect.

The restriction may trigger closures of more P2P lenders, with some already facing problems:

  • Property investment group BondMasen is pulling out of its P2P business
  • GLI Finance has said one of its investment P2P platforms is facing significant financial difficulties and needs immediate investment to stay afloat.

A survey from the Financial Times found that out of 4,500 investors in P2P loans, 40% had invested more then their annual income. 20% has invested double that.

 References:

Financial Times (October 2018) UK peer-to-peer lender asks regulator for help
Financial Times (March 2019) UK peer-to-peer lender put on regulator’s watchlist
Financial Times (May 2019) UK property finance company Lendy collapses
Financial Times (June 2019) UK financial regulator clamps down on peer-to-peer investment
FCA Webiste: FCA confirms new rules for P2P platforms

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2 Comments

  1. Thanks Matt!

    It’s nice to read well-thought articles on risks. In the back of my head I know I’m taking on a little too much risk, probably. But unless I read articles like these frequently enough, then I’ll forget.

    So much of the content is positive, encouraging, which is natural. For as long as the company doesn’t have issues, it’s in their best interest to act as if everything was going real great. No-one want to hear about any concerns, or all investors will abandon the platform.

    And us bloggers, we sometimes make the mistake of perhaps writing a bit too positive articles. I do at least.

    Anyway, great piece, thanks!

    • Hi Eelis,
      Thanks for stopping by!
      I think these sorts of events are good for the industry as it shows that things can go wrong. This day and age, it’s so accessible for people to invest too much into high-interest platforms. At least now we will have a real-life example of how robust the risk mitigation techniques are.
      It’s interesting to see that some of the other platforms (Grupeer, Reinvest24) have brought out articles with their own take on the situation.
      Hopefully, any reviews into the industry will just make these platforms more accountable by providing more business related information (accounts, dealings etc). That way we would have a bit more information to go off!
      It would be sad if the FCA just decide to block us all out of the market.
      I am probably a bit like you in writing articles on the more positive side. Maybe that is something that will change the more we write?
      Matt

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