THE NEW ALTERNATIVE TO

BANK SAVINGS

FCA REGULATION EXPLAINED

HOW WILL THIS AFFECT

LANDBAY LENDERS ?

• In April 2014, the Financial Conduct Authority (FCA) introduced new regulations for peer-to-peer (P2P) lending platforms like Landbay

• These regulations affect both platforms and lenders, so we felt it was our duty to explain them to you

• We have chosen to highlight the key features of the new regulations to help lenders to understand and manage their risk

WHAT HAPPENS IF A P2P

PLATFORM FAILS?

• Like any lend-to-save system, platforms like Landbay always carry a certain risk because they depend on individual borrowers paying back their loans

• FCA regulations recognise the risks attached to P2P lending, and therefore cover 3 principal ways in which platforms can reduce risk for lenders

• These risks are covered on the following 3 slides

1. MINIMUM OPERATING CAPITAL

(MOC)

• The FCA requires that all platforms hold a Minimum Operating Capital based on the outstanding loans

• This ensures a minimum level of funding to help withstand unforeseen financial shocks

2. RUN-OFF PLAN

• P2P platforms are also required to have a contingency, “run-off” plan involving a 3rd party

• In Landbay’s case, this 3rd party officially hold the deeds to properties we lend mortgages on, and therefore would repossess the properties in the case of a client’s default combined with failure of the Landbay platform

• This is what we call a secured loan

3. PROTECTION OR

PROVISION FUND

• The FCA maintain that this is optional

• Our Protection Fund ensures continuity of short term lender interest payments in the case of any late payments from borrowers

• Cover from a Protection fund cannot be guaranteed. It is not an insurance product

• Risk can never be fully eliminated in any savings or investment product, but to get as close as possible to ensuring lender returns, our unique business model of secured loans on the residential rental market provides strong bricks-and-mortar security

CLIENT MONEY

• All platforms must ring-fence client funds, so that they are not held alongside the funds of the platform or used for the day-to-day operations of the business

• In the case of a failed platform, only loans that have not yet been drawn down will be reallocated to lenders

• This is a key difference between P2P lending platforms and banks

TAXATION

• P2P platforms are required to inform lenders of their tax obligations

• Currently, all income received by lenders is subject to UK tax, depending on their individual circumstances

• We would also recommend that lenders seek professional advice if they are in any doubt

• Changes announced recently by the Government will make P2P lenders eligible for ISAs and SIPPs in due course

REPORTING

• The 2008 financial crisis taught us that firms need to be more open about their accounts

• P2P platforms must send regular reports to the FCA, detailing: - our financial and prudential position- the client money we hold- any complaints we have received and the details of loans

• We conduct rigorous checks for all users on our system, including Anti Money Laundering checks, but fundamentally Landbay is a platform open to all

DISCLOSURE

• Alongside reports to the FCA, P2P platforms must conform to regulations regarding disclosure

• We must explain the risks of any P2P platform, allowing lenders to fully understand that their capital is at risk

• We are committed to highlighting the potential risks of P2P lending and we are pleased that the FCA is encouraging transparency within the sector

FSCS: FINANCIAL SERVICES

COMPENSATION SCHEME

• Firstly, lending on any peer to peer site is not covered by the FSCS

• The FCA believes that sufficient standards are in place to inform lenders of the risks involved in P2P lending

• Therefore responsibility falls on both platforms (to inform their users), and users themselves to decide whether or not P2P lending is suitable for them

WHY IS LANDBAY SO KEEN TO

HIGHLIGHT RISK?

• FCA regulation is an important milestone for the industry and we welcome it• We think that the regulation could even be extended in order to further protect

lenders• We support innovative finance, but our users’ security and risk awareness is of prime

importance to us• Responsibility and transparency are crucial to the future growth of the P2P sector. We

are responsible for distributing our users’ funds and therefore it is only fair to be honest with lenders about the P2P industry

• This is all part of the democratisation of the lending market that comes with P2P platforms

THANK YOU

See the full version of this presentation content on our blog at: http://blog.landbay.co.uk/blog/2014/7/2/fca

Not familiar with some of the terms we’ve used? Check out our Landbay glossary page on our blog

DISCLAIMER

Landbay operates a dynamic peer-to-peer (P2P) lending platform specialising in property loans

secured by first ranking mortgages. While loan investments are secured against property, capital is

still at risk and therefore Landbay lenders face the possibility of losing money. Investments in

mortgages are long-term in nature and may not be readily realisable.

Landbay is regulated by the FCA, however, lenders on Landbay and other P2P platforms are not

covered by Financial Services Compensation scheme.

We recommend that you seek independent financial advice if you are in any doubt as to whether

lending on Landbay is suitable for you.

@LandbayUK

info@landbay.co.uk