By now, you would have most likely heard about the events unfolding in China regarding peer-to-peer (P2P) lending firm, Ezubao. After months of speculation and weeks of police investigations, Chinese state media reported that, there is “substantial evidence online peer-to-peer broker Ezubao cheated about 900K investors out of more than 50 billion yuan (7.6 billion U.S. dollars)”. With more than 73 billion yuan in transaction volume and more than 5 million registered users, accompanied by the fact that Ezubao was one of the largest P2P platforms in China, few expected what was to happen as top executives were arrested while shutters were pulled down not much later.
Such ‘platform risks’ are not exclusive to China. Investors across geographies (including Singapore) need to consider the strength of the P2P platform as well as the measures taken by them to safeguard the interests of the investors.
At Funding Societies, the safe handling of investors’ funds is of utmost importance to us. Since our launch in June 2015, we’ve made it a priority to engage escrow agency Orangefield Trust to handle, hold and accept monies received from investors and borrowers on the firm’s behalf. Having an escrow agency ensures that funds are appropriately received and handled while also supporting the platform in conducting another level of Know-Your-Customer (KYC) and anti-money laundering checks set forth by the government to identify the clients and track the source of funds.
In the absence of a 3rd party depository system, investors’ funds could be transferred into the business account of the platform instead. This exposes the investors to platform risks as well as to the misuse or misappropriation of funds. The funds might instead be used to pay back other investors, or to bail out the platform (as in the case of Ezubao). Similarly, SME borrowers will want to ensure that their repayments go to investors, instead of being held by the platform itself.
Despite the additional time (about 2 days) it takes for an investor to be able to start investing with their funds as a result of compliance and due diligence checks; the events unfolding in China, along with the Chinese public’s outrage and anger, makes clear how vital it is to have a third-party depository system along with the various compliance checks.
Funding Societies is committed to ensuring the safety of funds for its clients and will continue to put in place measures, however complex or expensive they might be, to ensure that the integrity of the platform as well as clients’ interests are not compromised. We also strive to continuously improve your user experience so that you can enjoy a safe investing experience, but not the hassle of the safety measures.
Photo credit: AFP