One segment of business lending is secured wholesale lending (lending money to other financial companies who use that money to finance their own loans). This can be an effective way for a growing lender to write loans and provide additional diversity, and in practice this lending has performed well, providing consistent returns to RateSetter investors.
In autumn 2016 we identified a technical point of regulatory uncertainty around wholesale lending and flagged this to our regulator, the FCA (Financial Conduct Authority), requesting clarification. Around the same time, we took a strategic decision to wind down this lending in view of this uncertainty and because we had reached a scale at which writing loans directly had become comparably more efficient - we have invested in building up our in-house lending teams over the last two years and we are focusing on using that capability to originate loans directly to individuals and businesses.
Therefore, we do not intend to enter into any new wholesale lending partnerships; we have agreed a way forward with each existing wholesale partner and we are in close contact with the FCA to ensure that there is no customer detriment as we transition to new arrangements, which may take a few months to conclude; and over time existing wholesale loans will pay back as scheduled. The FCA has since confirmed that they agree with the technical classification of deposit-taking and we are keeping them informed as we wind down our existing wholesale lending.
This will simplify our lending and is consistent with our focus on continuing to scale up direct lending to individuals and businesses.