What are the risks?
The granting of credit involves risk. We have mitigated the risk to lenders by implementing a robust model for collateralising loans with securely stored precious metal that can quickly be sold if necessary to ensure Lenders are promptly repaid. Nevertheless, you should consider whether the opportunities presented through the Lend & Borrow Trust website meet your tolerance for risk by making yourself aware of the disclosures and risks described below. If you have any questions, please contact us.
Lending is Not Eligible for the Financial Services Compensation Scheme (FSCS)
Lending funds through a Peer-to-Peer platform involves risk to your capital. Lend & Borrow Trust is regulated by the Financial Conduct Authority (FCA), but Loans are not covered by the Financial Services Compensation Scheme (FSCS). This means that you are not entitled to compensation from the FSCS if you suffer a loss.
Relationship with Goldmoney
Lend & Borrow Trust stores its Customers’ gold and silver in specialised bullion vaults owned and operated by independent companies that have established relationships with Goldmoney Wealth Limited (GWL), which is incorporated and operates in Jersey, Channel Islands. GWL is a wholly owned subsidiary of Goldmoney Inc., which is incorporated in Canada, listed on the Toronto Stock Exchange (TSX:XAU) and a shareholder of LBT. GWL is regulated by the Jersey Financial Services Commission in the conduct of money services business and operates under Jersey law and regulatory standards.
Customers’ gold and silver are managed by GWL in accordance with contracts with the independent vault companies. All gold and silver are placed in allocated storage and insured for normal commercial risks.
Lenders are at risk if a Borrower does not pay the interest when it is due or fails to repay the Loan at maturity. Lend & Borrow Trust has taken various steps to mitigate this risk including:
|Maximum Initial LTV||75%||65%|
|Margin Call LTV||85%||75%|
|Metal Sale LTV||90%||85%|
If a Borrower defaults, Lend & Borrow Trust will on the Lender's behalf sell the Borrower's Collateral in order to repay amounts due to the Lender. Even with the ongoing monitoring of the LTV, it is possible that the price of gold or silver drops faster than the metal held as Collateral can be sold, meaning that the LTV rises above 100%. Were that to happen, the value of the gold or silver pledged as Collateral would be less than the Loan amount. In that event, the proceeds from selling Pledged Metal would not be sufficient to fully repay a Lender.
To put this possible event into context, there have been only 2 trading days in the last 50 years when from the previous day the price of gold has fallen by more than 10% and only 33 days when silver's price declined by more than 10%. The maximum one-day loss was 13.2% for gold and 22.7% for silver. Nevertheless, past results are no guarantee of what might happen in the future.
Segregating Customer Money
Lend & Borrow Trust operates separate accounts with a UK-based bank so that customer money is not commingled with LBT's own corporate assets.
Money that is related to lending through the LBT P2P Marketplace is held in the Client Money accounts that we operate within the scope of the Client Money rules of the FCA. Customer money that is not related to lending is held in the Customer Funds accounts, which are not governed by the FCA's client money rules.
Any Customer money, whether it is held in the Client Money or Customer Funds accounts, is protected by the FSCS up to a total of £85,000 for each Customer in the event of bank failure.
Interest Rate Risk
Where Lend & Borrow Trust facilitates Loans that are made for a fixed Term and fixed Interest Rate and interest rates rise, the Lender would not be able to benefit from higher interest rates. In a similar way, if interest rates fall, the Borrower would not be able to benefit from the lower interest rates. LBT does not operate a secondary market whereby Lenders can seek to find new Lenders to take over their existing Loan.
In order to borrow, the Borrower must pledge gold or silver bars. The Borrower retains title to the Precious Metal pledged, but control is given to Lend & Borrow Trust. If the Borrower does not meet a Margin Call, or pay interest or repay the principal when due, LBT sells a sufficient amount of gold or silver to pay the Lender. Borrowers are not entitled to compensation from the FSCS if they suffer a loss.
If Lend & Borrow Trust were to become insolvent or to cease its P2P platform for any reason, there may be a risk that LBT would no longer be able to process P2P loan interest payments and repayments due to Lenders. In the unlikely event of LBT ceasing to operate its P2P platform, LBT has set aside an amount of funds to administer the repayment of P2P loans and the closing of Customer Accounts as described in clause 13 of the Customer Agreement and clause 18 of the Standard Loan Terms and Conditions.