My client was a small fund manager authorised to undertake regulated consumer loans.
The client had gone to great lengths to ensure its investors’ contributions were structured as contributory loans and could not be pooled with investments made by other investors in other loans. The client had regulatory relief allowing this structure, but it was expiring.
The contributory loan structure attracted investors who had lost money in the past on investments in failed trusts that were supposed to be tied to particular loans, but were ultimately pooled by the liquidator of the relevant mortgage trusts. My client needed a structure that gave investors the assurance their investment was on an equivalent basis to a contributory loan, but at the same time fitted within the credit licensing regime without the need for regulatory relief.
After analysing the client’s business and credit licence, I recommended a trust structure. Separate trusts were created for each loan and the name of each trust incorporated the relevant investors’ names. This allowed the credit licence holder to be the lender of record (as required by their licence) and provided a mechanism to assure investors that their loan investment would not easily be co-mingled with other investments.
The solution met regulations and offered assurance – exactly what my client needed.