>> 5
PLAYING BY THE RULES
What the new appropriateness tests look like
IFISA special report supported by
>> 10
LITIGATION FINANCE
A new opportunity for P2P lenders
>> 20
ISSUE 40 | JANUARY 2020
New wind-down rules present legal quagmire for lenders PEER-TO-PEER lenders have been warned to choose their wind-down options carefully so they don’t get caught out by Financial Conduct Authority (FCA) guidance. Under the new FCA regulations, firms must notify investors of their wind-down arrangements and inform them if it will be managed by themselves or by a named third party. Another option suggested by the new rules is that platforms could hold sufficient collateral to manage a wind-down that is “ringfenced in the event of the firm’s insolvency.” But legal experts and insolvency practitioners warn this approach could be tricky. Dena Chadderton, partner at compliance consultancy Adempi, said the most obvious method to follow that guidance would be to put the funds in a separate bank account from the main business bank account. “But the key is that account still belongs
to the firm so it is not ringfenced in insolvency,” she said. “I am not aware of a legal means to do this.” Before the new rules were introduced in December the guidance suggested firms hold collateral in a segregated account but Chadderton said adding the line about ensuring it is ring-fenced from insolvency has made it harder to follow. Frank Wessely, partner at insolvency firm Quantuma, suggested firms would need to
create a separate trust, legal structure or company if they wanted to ring-fence funds but said issues remain with this approach. “The source of the collateral funds and timing of the transaction will require careful consideration,” he said. “In the event that such funds were set aside from company resources and then within a relatively short period, up to two years, the platform failed, was placed into insolvency and the company’s
creditors suffered financially as a result, the insolvency practitioner would have the ability to potentially challenge the arrangement as a possible voidable transaction. “Additionally, the conduct of the directors would be reviewed which could possibly expose them to some risk.” Mark Turner, managing director of compliance for consultants Duff & Phelps, said firms using this approach would have to ensure the failure >> 4 of the platform