[Editor’s note: This is a guest post from Mark Parsells, the Executive Chairman and CEO of Global Debt Registry – a platform specifically designed to help financial institutions better manage sensitive consumer loan information.]
It’s no secret that marketplace lending (MPL) has grown at a rapid pace over the past few years and many participants see this growth only increasing going forward. It is also no secret that the ability to sustain that growth is under significant pressure in 2016.
A critical question is whether or not the industry will come together to make the investment needed to put in place new standards and structures to satisfy the compliance requirements and risk concerns of regulators, large investors, warehouse lenders, rating agencies, trustees and investment banks that package securitizations.
Among the most important considerations is the need for lenders and investors to have a way to independently “validate” loan level data such as the chain of ownership; to track collateral pledges; to confirm disbursement of funds by the originating bank to the borrower; to confirm borrower identification and credit risk characteristics; and to monitor loans on an ongoing basis for compliance and credit risks.
Global Debt Registry (GDR) hired a major compliance consulting and research firm to determine what is being done to verify loan-level information today in the MPL space. The results were that the current industry standard of “verification” is inadequate as an effective risk and compliance tool. The standard today is to compare one set of loan data provided by a marketplace lender against another set of loan data from the same lender, often manually. There is no independent, loan-level ownership tracking, no tracking of collateral pledges, no verifying that funds were actually disbursed, no validation of data against trusted third-party data sources and little on-going compliance and risk monitoring.
The research showed that participants in the MPL ecosystem were facing a “trust but verify” dilemma. The players in this market were excited about the tremendous growth prospects, the innovative new business models and the strong teams of top-level talent at the MPLs. In balance to this enthusiasm, however, as regulated entities facing the higher regulatory bar of securitization, there was interest in a much more comprehensive validation process to increase confidence in the underlying assets. More robust validation will increase confidence in MPL assets and will ultimately help to attract permanent capital to the sector. [Read more…]