DBS

54 Those established firms are likely to already have permission to arrange deals in investments, whereas, the journey to getting a 36H permission for P2P loan based crowdfunding seems to be long and painful. So, I think there’s going to be some mainstream players moving into this space and they will choose debt based securities because they’re already working to this higher standard and why would they do anything different when they already have permissions in place? I think this will help the industry scale and mature and help standards improve. Also, my experience is that, whilst advisers do have to have permissions and qualifications to recommend debt based securities, they are much more comfortable with the level of due diligence that we do in the debt based securities sector. A really key point here for me is the average size of a debt based security, even back in 2015, was £880,000 and the average size of a P2B business loan was £76,000. There’s only so much due diligence you can do on a £76,000 deal and on which you earn a few hundred pounds. Our comfort and the comfort for advisers comes from the level of due diligence we’ve done on a deal basis. I think the main thing in terms of the development of debt based securities will ultimately be whatever deal comes out of the Brexit negotiations; debt securities are governed by European Directives and… but retail investments are not covered by the concept of the country’s equivalence. So if we don’t include a specific deal around retail investment, crowd funded debt securities will need their own legislation and their own focus from the UK government to continue their development. At one level that might be an opportunity and some elements of debt securities not seen as a priority by the EU, particularly around secondary markets, could benefit as we could be in a position to inject new priorities into the UK market. That would require greater focus from the government than there has been in the past, when the only role of government has been to interpret the EU Directives, not to come up with primary legislation itself. So the future could well be bright for debt securities because it has a lot of potential as a market product, but it will need continued support from government to develop the rules so that we can operate and innovate within them. The other thing which affects the outlook is that debt securities offer a way for ordinary investors to access a more diverse range of assets, with higher yields (and a higher level of risk) for their long-term financial goals. The choice of assets in mainstream finance has slowly retreated in the last 15 to 20 years, partly because of regulation but partly because the large traditional institutions have demonstrated very poor controls in the way that they’ve marketed those investments. As a result, they have been fined heavily for that failure and therefore have stepped out of the market almost voluntarily whether or not the regulators told them to do it. So, if you’re a small investor now you have less choice than you had 20 years ago of long term investments and we think that debt securities are a way of reintroducing that choice in a way that’s appropriate for small investors. The outlook for DBS is very strong, especially when considered in the context of viability pressures faced by the peer-to-peer sector and the constraints with respect to necessary scalability. As to whether we see any clouds on the horizon, it’s the unknowns that one should be worried about. So perhaps an obvious one to consider might be fraudulent behaviour or a significant platform failure, and the risk of such an occurrence tarnishing other platform businesses in the sector. It may perhaps surprise your readers, but we would actually like to see more proactive oversight and intervention from the regulator, not only with respect to DBS platforms but also with regard to peer- to-peer and crowdfunding platforms in general. The reason I say this is that the barriers to entry have been particularly low, and there are many players in the sector today, so there are inevitably some questionable practices at play which risk undermining those of us who have invested significant time and resource to deliver a robust platform offering such as Property Crowd. We have definitely seen a proliferation of platforms launching from technology or marketing backgrounds. Good branding is of course nice as is technology to help make the user experience more efficient but these aspects must never take the place of solid, experienced investment management. We think experience will increasingly become the differentiator and that there will be a real flight to quality – we like to say that experience will become the new alternative! Another interesting trend we see emerging is the unwinding of one of the earliest mantras of the sector, that of dis-intermediation. We believe that professional and independent advisers will play an increasingly important role, especially as individuals use their SIPPs and IF ISA allocations. We think that there will be a wave of re-intermediation and Triple Point has specifically designed Triple Point Advancr with that trend in mind, offering its highest rates via advised channels. “Crowdfunding is becoming an increasingly popular way for businesses to seek investment and so we welcome this change which extends tax relief to individuals seeking to invest into business in this way.” — Deloitte UK