Peer to Peer Products - Due Diligence

AndyRichards

Hi All,

Has anyone had any experience with Due Diligence on products such as Octopus Choice? What sort of questions were you asking and how did you bolster up your files?

I'm aware that P2P services would only suit a certain type of client, and they are v high risk due to the lack of FSCS protection.

Thanks,

Andy

benjaminfabi

Hi,

Off the top of my head:

• Access to capital? Pretty sure Octopus Choice is unrestricted with no minimum term.
• How interest is paid, ie as an income or as a reinvestment and is there a choice
• Minimum deposit amount.
• Diversification levels ie maximum exposure to any one borrower.
• Explicit or implicit fees. Set up fees?
• Historic rates paid for last say 3 years.
• Average term of loans on book
• Average value of loans on book
• Historic default rates. Or write-off rates. Not sure if this is available but I'd like to know for each £100,000 lent how much is written off. Does the provider offer any underwriting of this up to a certain amount.
• Existence of any contingency provisions in lieu of FSCS protection

AndyRichards

@benjaminfabi said:
Hi,

Off the top of my head:

• Access to capital? Pretty sure Octopus Choice is unrestricted with no minimum term.
• How interest is paid, ie as an income or as a reinvestment and is there a choice
• Minimum deposit amount.
• Diversification levels ie maximum exposure to any one borrower.
• Explicit or implicit fees. Set up fees?
• Historic rates paid for last say 3 years.
• Average term of loans on book
• Average value of loans on book
• Historic default rates. Or write-off rates. Not sure if this is available but I'd like to know for each £100,000 lent how much is written off. Does the provider offer any underwriting of this up to a certain amount.
• Existence of any contingency provisions in lieu of FSCS protection

Thanks, appreciate it!

victoriabarberops

@AndyRichards

The PFS have published "a good practice guide" on the questions to ask when considering P2P lending. I've attached this in case its helpful.

There's often confusion around P2P lending - with the assumption that all P2P is the same. Equity crowd funding platforms require investors to sign themselves off as "sophisticated investors" as this sits at the higher end of the risk scale. You then have unsecured lending and secured lending. Clients do not have to be defined as "sophisticated investors" to invest into P2P platforms that facilitate lending. Whilst it will of course depend on the client's attitude to risk, secured / asset backed lending such as Octopus Choice can work well as a diversifier for clients in a variety of different situations.

AndyRichards

@victoriabarberops said:
@AndyRichards

The PFS have published "a good practice guide" on the questions to ask when considering P2P lending. I've attached this in case its helpful.

There's often confusion around P2P lending - with the assumption that all P2P is the same. Equity crowd funding platforms require investors to sign themselves off as "sophisticated investors" as this sits at the higher end of the risk scale. You then have unsecured lending and secured lending. Clients do not have to be defined as "sophisticated investors" to invest into P2P platforms that facilitate lending. Whilst it will of course depend on the client's attitude to risk, secured / asset backed lending such as Octopus Choice can work well as a diversifier for clients in a variety of different situations.

Thanks for this, that's a useful article from the PFS. To be honest I think we were just looking at Octopus Choice, but obviously we will need to do due diligence on the whole of market for comparison. Staying well away from Equity crowdfunding!

charlotte.e

Hi @AndyRichards i'm also now looking Octopus Choice and wondered where you re up to with your DD?

AndyRichards

@charlotte.e said:
Hi @AndyRichards i'm also now looking Octopus Choice and wondered where you re up to with your DD?

All finished on our due diligence, had quite a few meetings with the team and have screened the whole of market for Peer to Peer products. Our outsourced compliance network have also conducted their own due diligence on the product which we have also referred to.

Feel free to ping me a message if you have any questions