🚨Risk Management and Compliance

Risk Management and Compliance

Pro-active Risk Management Regime

Credit Risk

1. Credit Risk remains one of the significant concerns for any P2P lending platform, as we do not have the same level of credit analysis and risk management capabilities as traditional banks or other financial institutions which can be difficult to assess the creditworthiness of potential borrowers.

2. As a P2P lending platform, we would ensure that all loans provided to the business are being collateralized by existing Assets of the business. While the platform accepts 3 categories of assets:

Category - 1

Physical Assets

Land Title

Category - 2

Cash

Current Assets

Investment Assets (Market)

Category - 3 (Cat-3)

Digital Asset

Investment Assets (Private)

Peer Protocol’s Approach

1. The fundamental of being an asset is a resource that is able to bring future economic value to the borrower, as such it can be sold to meet the defaulted loan.

2. Cat-1 assets are often physical assets such as property, plant and equipment or buildings, they would not retain their cost at their lifetime.

3. Cat-2 assets are classified as liquid assets that can be sold for cash immediately or investment holdings that are marketable on the public exchange.

4. Cat-3 assets are illiquid assets without an active market or Digital assets with high volatility.

5. All assets are evaluated through Collateral Coverage Ratio (CCR). Peer Protocol suggests that during the course of the financing term, the CCR for :

   1. Cat-1 Assets = 100% - 140%

   2. Cat-2 Assets = 100% - 120%

   3. Cat-3 Assets = ≤ 150% (Can only be used to collateral against Working Capital Loan)

6. But the ownership and possession of the collateral asset would still be held under the borrowers’ terms to continue its useful life in generating revenue for the borrowers to meet their repayment schedule.

7. The CCR formula is as follows:

   $$CCR = \dfrac{DCV}{TLV}$$

   CCR = Collateral Coverage Ratio

   DCV = Discounted Cash Value of the asset/assets

   TLV = Total Loan Value

   For DCV’s asset, the Peer Protocol’s analyst team would estimate the fair market value of the asset used to secure a loan, but due to the limit, the collateral would be discounted 30-50% this is to ensure the collateral asset could cover the defaulted loan.

Technology Risk

1. As part of being a technology company, Technological risk remains one of the top priorities for Peer Protocol, it is in the best interest of Peer Protocol to ensure that all technological risks are being mitigated.

2. In order to protect the reputation of Peer Protocol, We have implemented robust technology risk management processes and control that are also in compliance with the central bank guideline.

   Peer Protocol’s Main Area of Concern

Cybersecurity Risk

Peer Protocol’s platforms may be vulnerable to cyber attacks, such as hacking, data breaches, and malware, which could compromise the security of the platform and the confidentiality of user data.

Smart Contract Vulnerabilities

There is a risk that the smart contract code may contain vulnerabilities that could be exploited by malicious actors. It is important to thoroughly test and audit the smart contract code to ensure that it is secure.

System failure

PeerHive’s platforms rely on complex systems and infrastructure to operate, and any failures or disruptions in these systems could impact the availability and performance of the platform.

AML Risk

1. Anti-money laundering (AML) risk refers to the risk that a financial institution or other entity will be used to facilitate money laundering or other illicit financial activities.

2. This is also proved to be another hurdle as Cryptocurrencies can be highly anonymous and can be used to facilitate transactions that are difficult to trace or track, which can make cryptos attractive to criminals seeking to launder money or engage in other illicit activities.

   Peer Protocol’s Approach

   1. Peer Protocol’s approach is in line with Central Bank’s regulation, where we implement a holistic AML compliance program, including due diligence on our “Lenders” and “Borrower” through strict KYC and KYB diligence checks respectively.

   2. Such KYC and KYB investigations shed light on the anonymity of both parties while increasing transparency on their respective cryptocurrency transaction, which include but are not limited to their source of income and borrower business nature.

   3. While KYC and KYB analysis are crucial to the fundamental of Peer Protocol’s platform, pre-wallet check intensive KYT analysis for any prior fraudulent activity.

   4. PeerHive also believe that investing in a holistic AML procedure able to increase the efficiency of the platform by making it more cost-effective in the long-run, while maintaining clear and robust risk management guideline to prevent fraud and other financial criminal activities from happening.

   5. It is also in PeerHive’s best interest to ensure that clear communication with central banks and local law enforcement agencies to flag and report any potential transaction that may be related to any sort of financial crime.

   6. The cryptocurrency industry has been around for some time, but the unique anonymity of digital assets has posed unique risks and challenges for newcomers. It is essential to maintain regular communication with central banks in order to anticipate and resolve potential issues with the system before they become systemic problems in the long term.