The Importance of Being Prudent


2019 was a year of unflattering headlines for the peer to peer (P2P) sector. Underpinning it all, are the varying approaches platforms have taken when it comes to identifying, assessing, managing and communicating risk – some have done this well, others less so.

So how about FOLK2FOLK? How does the company measure up in its approach to risk?

Well, put simply, we’re prudent. Prudent in attitude and prudent in action.

And, so far, that’s worked for us. At time of writing, our track record has been good – with no Lender losses to date. But we would be naïve if we expected that to continue in perpetuity. Instead, we take sensible steps to try to maintain low default levels and minimise Lender losses.

How we demonstrate prudence:

  • By taking a conservative approach to risk, lending up to a maximum of 60% loan to value (Open Market Value).
  • Applying common sense and taking an holistic view when assessing Borrowers.
  • Our risk management framework means we adhere to strict credit risk parameters for our Lenders, matching the interest rate reward with the risk, taking heed of and being alert to external factors and market forces that can influence levels of risk.
  • Taking additional care in early identification of late payments by defining our own definition of ‘default’. The Financial Conduct Authority (FCA) deems payments that are 180 days overdue as ‘defaults’, while we view any payments 14 days overdue as in ‘default’. We foster a culture of ‘no surprises’ by maintaining regular dialogue with Borrowers and any missed payments are flagged internally within one day.
  • The appointment of our Head of Risk & Loan Portfolio as Managing Director, purposefully setting a risk mindset at the head of our business.
  • It’s in our DNA that good folk lend to good folk and ‘good borrower behaviour’ is an intentional outcome of our local lending model. This results from Borrowers knowing who their Lenders are (and vice versa), instilling a keen awareness they’re borrowing an individual’s money and not from a faceless pool of cash.
  • All P2Ps are now required by the FCA to have a ‘stand-by service provider’ and wind down plans in place to manage the continuation of customer investments in the event they cease trading. FOLK2FOLK has always had this measure in place for its customers, but has now changed to a market-leading provider: Baker Tilley Creditor Services LLP (part of the RSM UK Group), to ensure the very best service and reassurance for our customers in the event the company has to wind-down its lending operations at any point in the future.
  • Lastly, we are prudent in the running of our business, viewing platform stability and profitability as key elements of managing risk for our customers.

As with all investments, capital is at risk. Peer-to-Peer lending is not protected under the Financial Services Compensation Scheme. Our current track record of zero Lender loses relates to our past performance and is not a reliable indicator of future trends.

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