There was me starting the year in a more positive frame of mind and then…
We have all watched in amazement – and perhaps with a degree of fear – as events continue to unfold in the Middle East.
But developments closer to home in the world of short-term finance have also added to a growing sense of foreboding.
Of course, the magnitude of the former cannot be compared with the latter. Yet in terms of what directly affects me and many others in this industry, the latter carries far greater day-to-day implications.
MARKET FINANCIAL SOLUTIONS
The collapse of Market Financial Solutions, and to a lesser extent Century Capital, has the potential to fundamentally change the landscape of short-term lending.
Much has already been written on the subject but it is clear that institutional funders – particularly those providing mezzanine finance within funding structures – stand to lose a great deal, if not everything they have invested or funded.
I have little doubt that many internal reviews are already under way as institutions seek to understand how these situations arose.
And when the share price of a High Street bank falls because of events like these, and that news is reported on Wall Street, it is difficult to imagine that the Financial Conduct Authority will remain uninterested for long – if indeed it is not already examining the situation.
REPUTATIONAL RISK
In circumstances such as these, it would be entirely natural for institutional funders – whether directly affected or not – to pause and ensure they are not similarly exposed.
Some may even conclude that their time funding this asset class has come to an end, either because the potential reward no longer justifies the complexity or because reputational risk begins to outweigh the benefits.
At the very least, this could create a significant funding gap. Indeed, I am told that a new wholesale funder entering the market has already been inundated with enquiries.
RAPID GROWTH
The short-term lending sector has grown rapidly and has not been shy about celebrating that growth.
In doing so, it has inevitably attracted the attention of regulators before. Yet the industry still lacks any obvious kitemark of credibility and affiliation to trade bodies offers only limited reassurance.
Those funding this market will want greater certainty. So too will the regulators.
And the only way that reassurance is likely to arrive is through regulation.
Perhaps it has been a long time coming. But now it may simply be inevitable.
