YES-secure: A Cautionary Tale
Make sure their houses are in order
A crowdfunding platform has failed – providing a lesson for would-be investors, crowdfund platofrms, regulators, and all in the industry. The first, and most obvious point is the simplest: just because a platform calls it self “secure’, that may not really be the case.
“YES-secure is the most serious casualty so far in the “peer-to-peer” craze, where savers lend money directly to borrowers for higher rates of interest than offered by high street banks,” reports the Telegraph.
“The firm shut down on March 31 before a regulatory crackdown, sending an email to customers promising a full refund of outstanding loans.”
If this is true, the damage to lenders will be limited – plainly a good thing.
But another, far thicker and brighter, silver lining, is the opportunity for lenders to take a long, hard look at crowdfunding platforms, and examine them for financial and regulatory soundness. As for this site, please take a look at our Frequently Asked Questions, where we outline the risks inherent in this type of lending.
Below, we also add the Telegraph’s safety check list – which we thoroughly endorse. With one exception (point 1): we believe that we are as safe, if not safer, than any crowdfunding platform in the UK (the quality of credit analysis, the strength of our governance, our regulatory reporting to the FCA and our membership of the UK Crowdfunding Association speak to that). Below is the Telegraph’s list.
1. If this is your first time investing in peer-to-peer, stick to either Zopa, RateSetter or Funding Circle.
2. Check that the company is regulated by the Financial Conduct Authority.
3. Is it a member of the P2P Finance Association? This is a good sign.
4. How long has the firm been in operation? Staying power is essential.
5. Check bad-debt ratios are reasonable. Below 1pc is low; above 2pc is high.
6. Do the returns ring alarm bells? Anything above 10pc could indicate its borrowers are higher risk – be aware.
7. Are fees and bad debts factored into the return? Zopa and RateSetter protect against bad debts but other companies do not. This could significantly reduce the headline rate.
8. Ensure fees are fair. Around 1pc is standard for the industry.
9. Ask what happens if the peer-to-peer firm goes bust. Will an administrator make sure loan repayments continue? Most firms have a robust contingency plan, but check for yourself, as there is no official savings safety net.