A milestone for peer-to-peer investing.
The end of the year may be approaching, but today marks the start of a new era for peer-to-peer investing.
RateSetter launched a decade ago, giving people the opportunity to earn more on their money. Since then, RateSetter has built an unrivalled track record in peer-to-peer of delivering consistent returns and liquidity, i.e. access to your money when you need it.
Today is a milestone for the peer-to-peer industry as enhanced regulations take effect. The sector will be better regulated than ever, with rules on risk management, disclosure, governance, marketing and wind-down planning that puts peer-to-peer on a par with other mainstream investments.
Regulation is important in every industry. It sets standards and gives confidence. Today confirms peer-to-peer is becoming mainstream.
The new regulations and what they mean for you
Enhanced risk management, governance and wind-down planning
Under the hood, we have enhanced our enterprise risk management framework, internal audit, senior manager responsibility and our policies and procedures. These changes ensure that our business continues to be well managed and governed, promoting good customer outcomes.
The new regulations require all peer-to-peer platforms to publish information about what would happen in a wind down scenario. When you invest with RateSetter your money is invested into loan contracts. This means that you are contractually connected to a borrower who has committed to repay you – even in the event that RateSetter winds down as business. RateSetter’s plan, details of which can be found here, focusses on a responsible and orderly wind down of the portfolio, with fair outcomes for investors and borrowers. Investment risk would continue to be spread across the whole loan portfolio thanks to the Provision Fund.
Provision Fund policy
We have also published our Provision Fund policy here. It details how the Provision Fund works, how we calculate the Interest Coverage Ratio and what would happen if things go wrong.
Selecting your investor type
The rules require investors to classify themselves. This means that we will need you to confirm what type of investor you are – for most investors this simply means confirming how much experience you have with peer-to-peer.
You may have already completed this classification as we introduced the rules early. If you haven’t, you can do it the next time you log in, following which you will be invited to reconfirm your selection on a yearly basis. Please note: your choice won’t affect your investments, the service you receive nor your rights.
Depending on the classification, investors who are new to RateSetter are asked to limit their investment to no more than 10% of their net assets until they become more experienced. This limit falls away once the investor has gained more experience. For first-time peer-to-peer investors, 10% is a sensible starting place and we have seen over the last ten years that investors tend to dip their toe in and then increase their investment as they gain experience and see the value. We think that in time it will become a target for every investor to diversify their investments with a percentage held in peer-to-peer.
We are also asking new investors and the most recent existing investors to confirm via a short and simple test that they understand the nature and risk of investing.
Updated lending criteria
We spread lending across different types of borrowers. We view this as a strength of the RateSetter model as it helps to diversify risk because different types of borrower perform differently through the economic cycle. You can see our lending criteria for each borrower category here.
Further transparency in the data we publish
We have always published a range of data about investment performance and the Provision Fund. This is data now enhanced so you can see in greater detail how the investment works and how the Provision Fund contributes to it. Visit our statistics page here.
Alongside this, we have added more detail to your individual investments. You can view your loan contracts by logging in, clicking on a product in the “Your Portfolio” section of your dashboard and expanding the “On loan” section, then selecting “Your money on loan”.
There you can view information including:
- the original loan term and how long is remaining;
- the initial amount borrowed and how much is remaining to be repaid;
- the interest rate the borrower is paying (excluding fees), the fees paid by the borrower (to brokers, the Provision Fund and RateSetter) and the APR of the loan (including all fees);
- whether the Provision Fund has made any repayments to you on behalf of the borrower (which could happen if the borrower has missed a repayment on their loan) and whether the loan is backed by security or not.
We are proud that the total amount earned by RateSetter customers is nearing £150m, and we are now delivering almost £1m of interest every week. The advent of stronger regulation for our sector means that we go into 2020 with even greater confidence of extending our track record of delivering the most consistent and readily accessible returns in peer-to-peer.
I would also like to take this opportunity to thank all of you for choosing RateSetter and to wish you a Merry Christmas and a prosperous New Year.