News Briefing - Crowdfunding, SME And Alternative Finance

a crowded meeting room - taking questions from the audience

1.UK – P2P

 

P2P Finance News with the latest from the troubled GLI Finance.

 

“GLI FINANCE executives were collectively paid £784,250 in bonuses last year, despite the company sliding into losses.

The 2018 annual report released by the Aim-listed alternative finance group on Wednesday showed that chief executive Andrew Whelan received £370,800 in bonuses, which included £123,600 in company shares, and a discretionary cash bonus of £247,000. Whelan’s fixed annual salary was also £247,000.

Chief operating officer Aaron le Cornu was given a £100,000 sign-on bonus, plus £46,350 in discretionary cash bonuses over the course of the year. His salary was fixed at £150,000.

Chief financial officer Emma Stubbs earned a total of £92,700 in cash bonuses and share holdings, on top of her £154,500 salary.

Managing director Dan Walker was given a £25,000 sign-on bonus, plus shares and cash bonuses to the value of £150,000. His salary was also fixed at £150,000 per year.

The annual report said that the bonus scheme reflects “shareholders’ approved terms for a revised long-term incentive scheme”, as agreed at the 2017 annual shareholder meeting. The new terms included an option for executive members to buy company shares at favourable rates of 25p, 30p and 35p. The additional cash bonuses were paid “for duties performed during the year ended 31 December 2018.”

GLI reported operating losses of £2.3m in 2018 – down from a profit of £101,000 the previous year.

Earlier this year, GLI announced that the “disappointing” performance of its Fintech Ventures portfolio had contributed to the firm’s 2018 losses. The Fintech Ventures division – which invests in fintech lending platforms – reported a writedown of almost £20m last year, due to challenges in securing additional growth capital.

GLI Finance recently announced plans to close its peer-to-peer supply chain finance platform, Sancus Finance. The platform had suffered a £1.1m loss from an insolvent borrower.”

 

2. UK – IFISAs

 

P2P Finance News reports:

Growth Street has revealed details of its Innovative Finance ISA (IFISA) ahead of its imminent launch.

The peer-to-peer business lender said that its tax wrapper will offer a fixed rate of 5.8 per cent with a one-year term.

It will be a flexible ISA, meaning that investors can withdraw their money and put it back in again within the same tax year. Investors can also transfer previous years’ ISAs into the Growth Street ISA.

Growth Street said that early withdrawals are available after the ISA has been opened for at least three months, subject to liquidity and the firm’s discretion. Investors need to give 30 days’ notice and there is a one per cent early withdrawal fee.

The firm told customers via email that they only have “a few more weeks to wait” until its IFISA is available.”

3. UK – IFISAs

 

Professional Adviser runs a cautionary piece on IFISAs.

“Take-up of the Innovative Finance ISA in the first two years of its existence has been underwhelming but, suggests Laura Suter, that may be no bad thing as they are by no means suitable for everyone

ISA season took off this year with the usual wall-to-wall advertising - and no more so was this obvious than on the tube in London. The usual ads for teeth whitening and estate agents were pushed aside and the entire carriage appeared to be filled with the word ‘ISA'.

A large bulk of these adverts this year, though, were for Innovative Finance ISAs - or ‘IFISAs'. One of the newest forms of ISA, it so far has failed to have the impact the government presumably wanted. Launched by then-chancellor George Osbourne - remember him - in 2015, the ISA allowed peer-to-peer and mini-bonds assets to be held within an ISA for the first time.

Take-up initially was underwhelming, with just 5,000 accounts and £36m invested in the first year. Pick-up improved last tax year, with £290m invested across 31,000 accounts, but this remains far below the relative figures for the other new ISA, the Lifetime ISA, which had £517m invested across 166,000 in the first year. That, however, is probably a good thing, because these ISAs are not suitable for everyone.

What worried me about the sea of IFISA ads was their comparisons, with many pitting themselves against cash ISAs and boasting of the greater returns on offer. If you Google ‘IFISA' the first hit that comes up is someone offering an 8.7% tax-free return, with reams of others promising gains of 7% and upwards.

This caught the attention of the Financial Conduct Authority (FCA) too - albeit too late for this year's ISA season. In the shortest of notes, the regulator warned that IFISAs are "generally high-risk", not protected by the Financial Services Compensation Scheme, and that people might lose their money or find it hard to get it back. It will be interesting to see whether the onslaught of advertising this year has had an effect on take-up of the IFISA when the next government ISA figures are released this summer.

Some of the offerings are eye-catching for investors and might be tempting for your clients, with high-street restaurants or brands well-known to the man or woman on the street offering colourful adverts flaunting high interest rates and other perks, such as free meals.

For advisers this may be particularly frustrating because, for the average person looking to take on more risk than their current cash account, peer-to-peer is not likely the next logical step. Advisers have an important role to play in making clients aware of the risks involved and how their money will be dealt with if the firms fail.

Some of this market has echoes of the crypto-currency bubble we saw a couple of years ago and many clients will be grateful to you for steering them clear of disasters such as London Capital & Finance.


 

4. UK – AltFi/P2P

 

Mortgage Introducer runs a piece arguing that P2P is increasingly attractive for would-be purchasers of second properties.

“Traditional routes into property investment are being squeezed as never before. The stamp duty surcharge on additional properties introduced in 2016 has made investing in a buy-to-let portfolio more expensive.

Meanwhile, some landlords now face an uphill battle getting mortgages at all, thanks to tighter lending restrictions ushered in by the Prudential Regulation Authority (PRA) at the start of 2017. And this month sees another tranche of mortgage interest tax relief disappear driving up costs once more for buy-to-let investors.

All of this has led to an 80% fall in new lending on buy-to-let properties in two years from £25bn to just £5bn. As a result, many investors spooked by the volatility in the equity markets and put off by the cost and increasing administration associated with buy-to-let investing have begun to look to alternatives such as P2P lending.

In their simplest form, P2P platforms connect those with money to invest with those looking to borrow, enabling investors to target solid returns without the rollercoaster volatility of the stock market, while benefiting from reduced transaction costs.”

 

5. UK – AltFi

 

Professional Adviser runs a comment by an IFA on the lessons to be learned from the LCF affair.

“The City watchdog has been ordered by the government to begin an independent review of how it handled the failure of LCF. It seems the collapse of the firm could prove deeply embarrassing to the regulator, which were warned three years ago about the firm's conduct - not to mentions HMRC, which granted the investment ISA status and where questions will no doubt be raised about the decision and the process that permitted this.

The depressing fact is we have seen it all before - the regulator focuses on SMCR and product guidance rules for adviser firm and MIFID II cost and charges disclosure across the industry, while £236m, representing 11,500 investors disappears up the chimney in yet another Ponzi scheme hiding in plain sight. That said, this situation and others that we have seen represent a failure of the whole industry to promote itself sufficiently well to the consumer.

Consumers will naturally draw comfort from an investment advertisement including the words ‘Authorised and Regulated by the Financial Conduct Authority.' The nuance of advertising an unregulated product will be completely lost to the myriad of investors and why wouldn't it be? These same consumers will also take little comfort from the fact the FCA wrote a ‘Dear CEO' letter in January warning firms the watchdog was aware of firms whose advertising gave the impression they were conducting entirely regulated activities.

Veneer of respectability

In addition, throw in the allure of tax breaks delivered by HMRC, and you provide a veneer of respectability in the eyes of a group of investors happy to invest their hard-earned cash by responding to off-the-page adverts offering returns of between 6.5% and 8%.

The public is and remains blissfully ignorant regarding the maxim that if something is too good to be true it usually is and will pile into all this toxic nonsense. They end up wondering where there money has gone.

In this case it seems to be a combination of leisure investments, oil and gas exploration, an equestrian centre and a helicopter emblazoned with the LCF logo. The equestrian centre seems appropriate in terms of references to stable doors and bolted horses. Finally there is the £58m that was taken as commission by the marketing company that promoted the bonds.

As advisers, we need to get smarter in setting out not just how we help deliver customer-oriented financial outcomes, but the layers of protection that come with using the services of a professional adviser. Professional indemnity insurance, The Financial Ombudsman's Service, which is free to use for consumers, in the event of a dispute, and finally the Financial Services Compensation Scheme (FSCS), available to consumers where the firm is no longer around to pay a claim.

I worry that we end up with a compromise in this case where a decision is somehow reached for the FSCS to compensate this group. Manifestly unfair, I know, but further evidence - were it needed - of the necessity to protect this group of consumers from themselves by informing and educating about the benefits of professional advice. A fool and his money may be easily parted but, these days, claims management companies as well as the FSCS can often ensure you get it back. Far better though, surely, to try and prevent them losing it in the first place.”


6. International – P2P

 

The Irish Independent highlights strong growth from one player in the sector.

“Loans from Linked Finance to Irish small and medium enterprises (SMEs) passed the €11m mark in the first three months of 2019.

The strong start to the year means the peer-to-peer (P2P) lending platform is on track for record growth this year, having delivered the strongest quarter in the platform's six year history.

In the first quarter of this year Linked Finance issued €11.3m in loans to SMEs, an increase of 32pc on the same period last year.

Launched by Peter O'Mahony in 2013, with the aim of using technology to connect SMEs looking for finance with lenders keen to back Irish businesses while earning attractive returns, the platform has now provided more than 2,000 loans and €92m in funding to businesses across the country and in every sector of the economy.”

7. International - P2P

 

State-controlled Caixin reports that settled regulation of P2P is some way off.

 

“It will not be soon for China’s commercial banks, consumer finance service firms and other institutions to see a national regulation governing internet-based lending activities, despite recent progress on specific rules for online peer-to-peer lending and microloans, Caixin learned.

Financial regulators have mulled working out rules for online lending since 2017. Speculation rose late last year that the top banking regulator was drafting broader rules for commercial banks’ internet-based loan business. But Caixin learned that a new regulation still has a long way to go to solve some basic issues such as clearly defining different types of internet-based lending activities and ways to balancing supervision between local and central authorities.”

8. International – FinTech

 

Crowdfund Insider reports:

“Bitbond announced the first BaFin approved security token in February. The digital asset, BB1, is a debt based offering with a targeted return of 8% per annum which includes a 4% coupon and a participation percentage (60%) baked into the crypto. BBI was issued with a compliant prospectus and the offering is live on the Bitbond site now.

A Tokenized Bond


Interestingly, BBI will be immediately tradable following the issuance. Tradability, or liquidity, was one of the characteristics that made ICOs so popular. In a tweet, Bitbond confirmed the tradability:

As an investor, one of the most important aspects of any token is how easily you can trade it. That is why we are delighted that the BB1 token will be tradeable the moment it is issued.

Bitbond adds that the token will be tradable on the “integrated decentralized exchange of the Stellar blockchain after the end of the subscription period.”

BitBond BB1 token may be purchased with BTC, ETH, XLM and Euros. The subscription period is scheduled to end on the 10th of May. Wallets are automatically created following the purchase.

According to their website, €1.8 million has been raised to date.