Risk summary for P2P agreements or P2P portfolios

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose the money you invest

  • Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.

  • Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.

  • These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

2. You are unlikely to get your money back quickly

  • Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.

  • Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.

  • Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.

3. Don’t put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

  • A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

4. The P2P platform could fail

  • If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.

5. You are unlikely to be protected if something goes wrong

  • The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here.

  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here.

Complaints

  1. If for any reason you feel dissatisfied with any aspect of our service, in the first instance you should contact our client services team on: Telephone number 020 3409 3300; or email [email protected].

  2. Where possible we will do our upmost to resolve the matter for you on an informal basis within three business days. Where we consider a complaint to be resolved to your satisfaction within three business days, we will send you a “Resolution Summary Communication”, this will explain our belief that the matter is now resolved and give you the details of how you can refer the matter to the Financial Ombudsman Service should you wish to.

  3. In the event that the matter cannot be resolved informally, we will conduct a form and impartial investigation. We will investigate the complaint with a view to understanding what did or did not happen and to assess whether we have acted fairly within our rights and have met our contractual and other obligations. A full written response will be provided within eight weeks of receiving the complaint. We will keep you regularly updated with the progress of your complaint.

  4. If you do not feel that your complaint has been resolved satisfactorily, you are able to refer your complaint to the Financial Ombudsman Service who may be able to look into the matter on your behalf. The Financial Ombudsman Service is an independent organisation that was established to resolve disputes between financial institutions and their customers.

  5. Any reference to the Financial Ombudsman Service should take place within six months of our final response letter, and you should also note that the Financial Ombudsman Service will not usually consider a complaint until we have had the opportunity to address the complaint.

  6. The full contact details of the Financial Ombudsman Service are:

Address: Financial Ombudsman Service, Exchange Tower, London, E14 9SR

Telephone numbers:

0800 023 4 567 - calls to this number are now free on mobile phones and landlines
0300 123 9 123 - calls to this number cost no more than calls to 01 and 02 numbers

These numbers may not be available from outside the UK – so please call from abroad on
+44 20 7964 1000.

Email: [email protected]

Website: https://www.financial-ombudsman.org.uk