In 2016 government regulators became more involved in the fintech industry in a variety of ways; while new regulations were discussed across the globe, governments also got more involved in the industry through sandbox and innovation programs; China's fintech market continued to grow in 2016 with both private market funding and fintech company growth; in 2016 robo advisors and blockchain emerged with new services; the market now offers a broader range of robo advisor services and the leading asset managers have introduced their own platforms; blockchain also reported unprecedented growth with distributed ledger being used for a wider variety of solutions across all industries; all of these industry developments are expected to remain in focus for 2017. Source
Lend Academy takes a retrospective look at the most important stories for the industry in 2016; regulation was a factor for the industry and 2016 included a white paper from the Treasury with consultation from seven federal agencies governing the financial services industry including the Securities and Exchange Commission, Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau; the Office of the Comptroller of the Currency proposed its new fintech charter and the Marketplace Lending Association was formed as an advocate for the industry; other highlights included a $50 million investment in US P2P loans from Chinese marketplace lender CreditEase and a leading market position from SoFi. Source
2016 could be the alternative finance industry's first net negative year according to AltFi; uncertainty in capital investment was a substantial factor for the first time causing a renewed focus on retail investment; CEO turnover has been a significant factor with Renaud Laplanche's resignation a catalyst for decreased investor confidence; regulators have also caused market uncertainty with new regulations potentially adding compliance burdens for alternative finance businesses; macroeconomic factors including Brexit and the US presidential election have also increased pressure on alternative finance; despite hardships, sentiment for 2017 is mostly positive with 2016 seen as only a temporary retrenchment. Source
PricewaterhouseCoopers' DeNovo team says transparency, credibility and evolving business models will be key factors for marketplace lending in 2017; increased disclosures and new solutions for data analytics are expected to help transparency while also improving confidence and credibility; new regulations will also be an important factor for the landscape overall, potentially creating new business requirements while also validating funding sources; the DeNovo team also cites potentially lower investment taxes from House Speaker Paul Ryan's "A Better Way" plan and expansion to broader lending categories as important for the new year; in 2017 funding disbursement is also expected to come from a wider range of sources with securitization in the lead; originations overall in 2016 are down 4.9% through September at $7.8 billion versus $8.2 billion in 2015 while securitizations have increased by 80% at $5.4 billion versus $3.0 billion in 2015 according to Orchard. Source
The SEC Small Business Advocate Act of 2016 (HR3784) was signed into law; the law will add a new office within the Securities and Exchange Commission (SEC) for small business advocacy; the small business advocacy office will oversee and support regulation and investment activities for small businesses and small business investors; the new law will also establish a small business capital formation advisory committee that will advise the SEC on small business market activity. Source
US legislators have proposed that student loan debt be discharged in the case of bankruptcy; the current law gives added protection to student loan lenders by requiring the debt to be repaid in bankruptcy; lawmakers and lobbyists are also considering other provisions that would provide debt relief to student loan borrowers who have filed for bankruptcy; while the debt relief initiatives will benefit borrowers, the effects will add increased default risk for investors in private student loans and private student loan securitizations. Source
The Financial Conduct Authority released its interim update on crowdfunding rules last week; the update reported that the regulator would be scrutinizing numerous factors pertaining to P2P lending in the UK; one such factor, discussed by the Financial Times, includes the disclosure of loan performance; the introduction of provision funds has caused this disclosure to potentially be misleading for investors; in some cases platforms use provision funds to cover defaults for borrowers; this action could potentially lead to better than actual loan performance on the loans. Source
In their recently completed review, the Financial Conduct Authority (FCA) was particularly worried about some platforms using customer money to buy loans from rival platforms; FCA CEO Andrew Bailey explained that platforms don't have enough loans to present so in turn they use investor money to buy up loans from a rival platform; this is worrisome as investors are not being told the correct risks; Mr. Bailey did not disclose any platforms by name and said the issue was not widespread but worth keeping an eye on. Source
The Financial Conduct Authority has issued an update on its rules for the crowdfunding market; the update is based on feedback received since July and its authorization process; seems there will be a number of modifications; some of the key areas for new regulation in P2P lending include disclosure, wind-down plans, mortgage lending standards, cross-platform investment, investment limits, operational risk complexity, marketing promotions, provision funds, money handling standards, regulatory arbitrage, maturity mismatching, investment for institutional investors and liquidity risk for IFISA investors. Source
The Securities and Exchange Commission (SEC) has requested that Lending Club provide increased disclosure on its loan portfolio and sources of funds also suggesting they improve non-GAAP reporting which is potentially misleading for investors; Lending Club has agreed to provide more disclosure and evolved its SEC filings accordingly however it has defended its non-GAAP accounting procedures, reporting it did not see the measures as misleading; recent requests for added disclosure as a publicly traded company are included in the SEC's last correspondence on November 4; the items remain open and the SEC's most recent correspondence is in addition to its review of the company following the replacement of its CEO in May. Source