What was the Academy and 1pm deal like?
Our job is to assess the operational risk in the merger, and that’s an evolution of the audit and due diligence that we do in the background on wholesale funding, and particularly block discounting. So our knowledge of 1pm and Academy comes from that funding stable. We have known both firms for at least seven years, through the regular risk work that we do on behalf of funders.
Go deeper with GlobalData
What did they ask you to do?
It was an operational approach [from us]. We considered how the business operated, the principles involved, origination, and credit, and the approach and deal origination within Academy, and the performance of the portfolio. 1pm wanted us to check the compliance in relation to regulation, so we looked at the FCA’s guidelines in relation to Academy, and the road map in place in relation to regulation, with all the relative monitoring in place and compliance tools in place.
What are you asked to seek out during a deal for due diligence?
It’s the security of the paper: the underlying loans. This comes down to our standardised approach when we are reviewing and verifying security on behalf of the likes of Lombard and Conister Business Bank, who we work with regularly on their security. So we will evaluate whether we can track that paper, and that it exists. We look at the blend and concentration in assets, and complexion of the business written. We will look at the bad debt provisioning, whether that’s efficient, regarding the arrears handling process, recoveries, asset management, the whole origination process. We’ll look at whether the book’s in default, or that there’s a default rate greater than 10%, then that would affect my pricing, because I’d need to change my pricing to reflect my risk appetite. I would look for an even spread of concentration of a mixed asset book, but that’s nigh on impossible if it’s an auto finance book!
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe Academy deal had to be referenced closely to the application for FCA approval, making sure all those regulatory boxes had been ticked, and the policies and practice were in place, so there were elements of an internal audit review in the process.
What do you think the effect of the FCA compliance on leasing brokerages and firms has been?
I would hope it had more of a positive effect. About 40% to 50% of our revenue is servicing consumer regulated loans through an e-commerce and funding partner. So we are well versed and well prepared. Our own approval process hasn’t been easy and I can’t imagine it’s been easy for everyone. We are rated by Fitch and have to go through annual and biannual reviews in order to satisfy our rating, and service our rating.
The deals you’re doing, the deals your supervising for the asset finance community, is that relatable to other sectors?
If you look at alternate funding and peer-to-peer, for example, the same principles of debt and risk apply. More and more we are managing IT services where there isn’t so much of an asset but again the same principles are involved, there’s an underwrite, there’s an approach to credit on the underlying customer. The next part of the curve for us is looking at peer-to-peer, and other alternative platforms.
I don’t see the difference in risk from traditional to alternative forms of finance; it’s just how you get your head around what they are saying and understanding them in the first place, so you price it accordingly, and you structure the funding in a different way. It just depends on what risks you’re prepared to take. So, it’s all about perception.
What P2P and crowdfunding will face eventually is regulatory attention from those sectors; it hasn’t come yet, but there may be a huge fraud on one of these platforms. All that will do is reinforce that it’s a hard trend, it’s not going away, so for VLS this next year is really about growing, and understanding the risks.
