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Thursday March 20 2017, Daily News Digest

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United States

New York Regulators Investigating Online Platform Lenders (BNA), Rated: AAA

New York state regulators will continue investigating online platform lenders to see if they have violated state lending laws or if their activities require licensing, regardless of how the Legislature handles a proposal to broaden regulation of the industry by statute, an official with the state Department of Financial Services (DFS) said March 27.

The proposal would extend state licensing requirements to all lenders making loans of $25,000 or less for personal uses and of $50,000 or less for business uses. The requirements now apply to those loans only if the interest rate exceeds the state’s 16 percent usury cap.

The proposal also specifies that the licensing requirement applies to any company that solicits loans and buys loans. That apparently would cover online lenders that partner with banks in some standard industry set-ups, such as one in which the online platform originates the loan and a bank partner issues the loan and then sells it within days to the online lender, which then both securitizes and services the loan.

Elevate Performs a Roadshow (Retail Roadshow), Rated: AAA

Download the documentation here.

Elevate roadshow

The age of advice manufacturing is here (Financial-Planning), Rated: AAA

The new DoL fiduciary rule is about fully aligning the interests of the individual investor and the investment management industry. While the original lobbying efforts against the new fiduciary rule argued that it would drive up costs and reduce access to investment advice for regular Americans — we are witnessing the exact opposite in the marketplace.

The current administration has moved to delay the rule’s applicability and could repeal the new rule entirely. However, the financial services industry has already moved to comply with the rule and smaller investors who did not have access to financial advice previously will benefit from a best interest standard as well as digital advice technology.

robo-advice

However, even without the fiduciary rule in place, technology is the other disruptive force, which will move us towards new standards. Personalized digital advice solutions are helping advisers take into account more than just financial products. As a result, investors have more awareness of their entire financial picture. Advisers would be smart to embrace change, whether from regulations or technology, because the industry is quickly moving in a new direction.

ADVICE MANUFACTURING RISES

The new DoL rule, coupled with the rise of technology-driven TAMPs, managed account platforms, and now more holistic digital advice platforms, is fundamentally shifting the entire industry from product manufacturing to “advice manufacturing.” The investment management business, while perhaps not yet a fully formed concept yet in the minds of all industry executives, is now in a race to manufacture scalable personal advice solutions. Digital advice platforms will be utilized to fulfill both the near term regulatory requirements of the fiduciary rule, but perhaps more importantly, to ensure long-term offensive competitiveness.

How fraudsters are gaming online lenders (American Banker), Rated: AAA

Online lenders’ advantage in speed has exposed them to a growing problem: a type of fraud called loan stacking.

People are taking advantage of the quick loan approval times online lenders offer to game the system by applying for multiple online loans in a short time before credit files update to reflect the increased debt load. By doing so, they are able to get more money than they would typically qualify for in any one loan.

One surprise in investigators’ early findings is that online lending fraudsters tend to hit phone companies first.

According to TransUnion data, stacked loans in the superprime segment are 10.5% more likely to default than loans without stacking, whereas stacked prime loans are only 3.2% more likely than non-stacked loans to go bust.

ID Analytics buckets loan stackers in three categories: fraudsters, shoppers, and the over-leveraged. Fraudsters deliberately apply for loans they have no intention of repaying. Loan shoppers are financially savvy consumers who apply for several loans because they’re smart enough to know they can shop around and get the best rate. The third category is consumers with financial problems who need more than one loan to make ends meet.

loan fraud

Second-Quarter 2017 Corporate Credit Market Insights (Morningstar), Rated: A

Key Takeaways

  • Rising federal-funds rate did not preclude fixed-income indexes from rising in the first quarter.
  • Corporate credit spreads remain near the tightest quartile they have registered over the long term.
  • Corporate credit rating upgrades continue to outpace downgrades.

Chinese Lender Says It Didn’t Gloss Over Regulation Risks (Law360), Rated: A

Peer-to-peer lender Yirendai Ltd. urged a California federal court on Tuesday to toss a shareholder suit alleging it glossed over risks from the Chinese government’s crackdown on online lending fraud, saying investors’ “dire predictions” of revenue loss from the new regulations were never actualized.

The China Banking Regulatory Commission’s new peer-to-peer lending regulations have not caused revenue losses by limiting offline customer sourcing, Yirendai said, arguing the stock-drop suit fails because securities fraud claims cannot rely on false premises.

Online Lenders: The ‘Modern Day Loan Sharks’ (The Epoch Times), Rated: A

Jamar White had no idea what he was getting into when he took out a nearly $50,000 loan with an online lender in 2013 for his New York-based restaurant Buffalo Boss. “Like a lot of small businesses, we made a bad decision by getting into high-interest loans,” he said.

He later realized that the annual interest rate on his loan was in fact between 40 and 50 percent.

White is just one of the small-business owners around the country who, having failed to secure a traditional loan from a bank, turned to online-based alternative lenders to stay open. What they encounter are loans without clearly stipulated terms and a dearth of regulation and oversight.

According to Doxford, many of the predatory lenders approve loans based on the average daily bank balance of the company they’re lending to.

California-based Opportunity Fund, the nation’s largest nonprofit microlender, has formed a dataset about the conditions provided by these alternative lenders. They gained the data through their own clients who they refinanced.

They found that the APR was 94 percent. One loan was for 358 percent, which Opportunity Fund called “shocking.”

Proliferating AI-backed tools remake wealth management (Financial-Planning), Rated: A

It’s a piece of the continued creep of AI into financial advice — a recent study by Bloomberg determined that 58% of an adviser’s work can now be digitized and done by computers.

Like IBM’s Watson, Salesforce says its Einstein can analyze client sentiment based on data profiling and content analysis to provide insight. The suite of tools combines with aggregation to allow advisers to scan across a client’s wealth holdings.

That’s the name financial services consultancy Synechron chose for its matrix of 14 financial management tools, from robos to chatbots, all powered by proprietary AI as well.

How states can still outmatch OCC over fintech (American Banker), Rated: A

The OCC’s draft charter requirements, while well-meaning, appear too cumbersome to help the firms most likely to benefit from more consistent regulations. The agency’s misfire presents the states with an opening to come back, but they will need to change their playbook — and will likely need to ask Congress for a little help.

So far states have objected to the OCC’s fintech charter on technical and substantive grounds. The states’ primary technical argument is that the OCC lacks the authority to offer charters to fintech firms, an assertion the OCC disputes.

The “dangerous” argument holds that a federal charter will preempt state consumer protection laws and replace them with inferior federal laws or the more lenient laws of the bank’s home state. The “unnecessary” argument holds that states are better positioned to facilitate innovation and growth by fintech firms and the OCC would muck things up. The “state sovereignty” argument holds that the OCC charter represents an inappropriate intrusion by the federal government into state jurisdiction.

Further, our current system already allows some states the de facto authority to regulate the entire country. Large states or states uniquely important to the financial system, such as New York, have outsize influence on what products and services can be provided. Companies need to build their product to meet bigger states’ regulations to remain competitive — effectively allowing large states to limit the options of the citizens of smaller states.

Open Source Data:The Last Frontier of the Fintech Revolution (Crowdfund Insider), Rated: A

In today’s Fintech ecosystem and the larger consumer privacy concerns, there are questions regarding the regulatory oversight looming over issues like the United States’ Office of Currency and Comptroller’s newly proposed Fintech charter.

Should we take a lesson from the open source movement of the 1980’s and 1990’s and rise to the occasion as an industry to embrace the ability to make our data and information transparent? To enable the inner workings of how we approve transactions, issue credit and making investments available for consumers, regulators, and competitors?

In particular, they point out the following value propositions over proprietary formats:

  • Security
  • Affordability
  • Transparency
  • Perpetuity
  • Interoperability
  • Flexibility
  • Localization
United Kingdom

P2P fund manager cuts regular fixed income exposure as inflation worry kicks in (AltFi), Rated: A

Thesis Asset Management is slashing its exposure to fixed income across its range of seven model portfolios as uncertainty has increased over the outlook for inflation and interest rates.

He says the firm had briefly considered adding a little to fixed income exposure, but with the election of Donald Trump to the Whitehouse and the subsequent trend of rising inflation, they reversed course.

How to lend your money (PC Advisor), Rated: B

With savings accounts offering increasingly poor interest rates, what else can you do to boost your finances. Aside from stocks and shares, buying property or even selling your unwanted stuff online, you could try peer-to-peer lending.

Funding Circle

This is a well established peer-to-peer lender that specialises in loans to small businesses. So far the company has lent over £2.5bn, with 25,0000 businesses on its books. The UK government even granted Funding Circle £40m so it could help small companies with loans.

Zopa

The loans offered by Zopa are to a mixture of individuals and organisations, which provides a wide range of risk and rewards to choose from.

Ratesetter

Financial advice site moneyexpert.com says Ratesetter is a good place for beginners, mainly due to the layout and style of accounts.

European Union

Disclosure standards: framing the debate (AltFi), Rated: AAA

And while regulation is beginning to catch up with the burgeoning industry, disclosure standards and levels of transparency still vary massively amongst the myriad of marketplace lenders.

The European alternative finance sector is estimated to have grown 92 per cent to €5.4 billion last year. It continues to experience substantive growth. The players are diverse and the stakes are high.

At present both regulation and disclosure standards vary widely across Europe. In the UK the big four (MarketInvoice, Zopa, RateSetter and Funding Circle) are providing sufficient disclosure to allow third-party validation of their lending data. The consistency and proactive approach is positive – a good start that benefits investors as well as the wider industry. The Dutch are also starting to move towards jointly agreed upon standards. The ongoing debate is centered on the who, how and when.

Perhaps one of the most interesting initiatives in Europe is that of the crowdfunding sector in Germany. The German Crowdfunding Association (Bundesverband Crowdfunding) recently announced that its twenty-one members have adopted common rather stringent standards for reporting to investors.

AltFi Data Announces the Addition of Lendix to the AltFi Data Analytics Platform (AltFi Email), Rated: AAA

AltFi Data has today announced that the historic origination data of Lendix, the leading European SME lending platform, has been added to the AltFi Data Analytics platform. This allows all the information relating to loans originated by Lendix to be represented into AltFi Data’s established standards. Investors can now review a track record of net return, together with all supporting metrics, and perform like-for-like analysis against the other marketplace lending platforms that make up AltFi Data Analytics – including Zopa, Funding Circle, Ratesetter and MarketInvoice in the UK, and Prosper Marketplace in the USA. This represents the first time that standardised comparison has been made available outside of the UK and USA.

Lendix AltFi

Kreditech Russia achieves Microfinance Company (MFC) status (Finextra), Rated: AAA

A new federal law in Russia aims to make the microfinance market transparent and understandable. It therefore requires the MFC status for all alternative lending companies operating in the country. As a Microfinance Company, Kreditech Russia is going to offer both consumer credit and deposit products.

Marketplace and P2P Lending: Viable or Not? (AltFi), Rated: A

Conceptually, the beauty of the matching nature of marketplace and peer-to-peer lending is that it is a perfect solution for matching supply and demand of capital and risks. Finding the right risk profile for the investor and matching maturity, currency, and tenor would eliminate a lot of regulatory hassle and burdens.

How do we get conventional fixed-income investors (pension funds, insurance funds, large asset managers) to properly engage with marketplace lending as an asset class?

Despite these obvious advantages, institutional investors have not yet fully embraced marketplace lending. Why?

marketplace lending

Standardisation of data: How important is it for investors to be able to accurately compare risk and reward across the asset class?

At present, the lack of a uniform set of standards places severe obstacles for investors willing to invest across multiple marketplace lenders.

China

Swipe by Swipe, Chinese Smartphone Users Flock to Risky Investments (WSJ), Rated: AAA

In China, about 700 million people carry a smartphone, and many of them are comfortable sending money from their screens through the world’s busiest mobile-payment networks. That has created a crowdfunding wave bigger than anywhere else, a real-time experiment in a type of online investing proponents have long pushed in the U.S.

Swipe by swipe, the online money supply is helping to democratize investing and loosen capital markets. It also is propping up indebted Chinese companies and inflating bubbles in asset types from bonds to plastic pellets. And it is shifting more of the risks from China’s corporate debt load onto consumers.

China mobile payments

Last April, crying investors flocked to Shanghai Kuailu Investment Group to demand their money back after its 13 fundraising platforms halted redemptions for about 38,000 customers who invested more than $2 billion, according to company documents reviewed by The Wall Street Journal. It had invested in at least 20 feature films, one starring former boxer Mike Tyson.

In a recent survey, about 70% of Chinese internet users said carrying cash is no longer a daily necessity. It is common for consumers to swipe from deal to deal on apps that advertise investment opportunities. The apps usually are connected to online payment services that supply the customer’s personal details and link to bank accounts.

Online finance is part of China’s wider shadow-credit system, where borrowings totaled $9.22 trillion in 2016, equivalent to 90% of gross domestic product, according to UBS Securities. The term shadow credit refers to lending outside the formal banking system and its regulations.

china p2p

 

Chinese P2P Lenders Are Still Having Trouble Finding Bank Custodians (Crowdfund Insider), Rated: A

In the face of numerous scandals plaguing P2P lenders, commercial banks in China have been reluctant to take up custodial duties.

Even though the CBRA clarified that banks would not be responsible for P2P defaults, banks clearly only want to act as custodians to P2P lenders with a reputable track record.

Canada

A 5-year look at fintech in Canada (MaRS), Rated: A

The data demonstrates that over the last five years both highs and lows were evident in Canadian investment activity from angel investors, VCs and corporate VCs. Growth was marked, with a rise from US$87.21 million in investments in 2012 to US$367.51 million in 2016.

Canadian FinTech

RBC introduces MyAdvisor to digitally connect clients with advisors for real-time advice (Newswire), Rated: A

A new digital experience for clients, using live video to connect them in real time with advisors, has been introduced by RBC.

MyAdvisor uses an online advice platform to digitally connect a client to an advisor, where both can view and adjust a dynamic “dashboard” showing the client’s savings and investment goals and establish actions to achieve those goals – all in real time.

Now being piloted in Ontario, MyAdvisor is using feedback from pilot participants to further shape the final product ahead of full national launch, to ensure it meets the financial needs of Canadians.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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