Guide to the Appropriateness test

What you need to know to pass the Appropriateness Test

To invest with FOLK2FOLK, you’ll first need to pass an Appropriateness Test. This short multiple-choice assessment is required by the Financial Conduct Authority (FCA), and helps confirm that you understand the risks involved with peer-to-peer (P2P) lending.

This guide outlines the key information you need to know before starting the test.

Key risks and facts:

1. Your capital Is at risk

• FOLK2FOLK is not a savings account. It’s an investment in loans to UK businesses, backed by property.
• There is no guarantee you will get your money back.
• If a borrower does not repay, you may lose all or part of your investment.
• FOLK2FOLK secures loans against UK land or property, but this does not guarantee you will get any or all of your money back.
• FOLK2FOLK sometimes takes additional security such as personal guarantees, but this does not increase the likelihood of you getting your money back.

2. No financial services compensation scheme (FSCS) protection

• Your investment is not covered by the FSCS.

3. Your returns may vary

• While FOLK2FOLK loans have fixed interest rates, the actual returns you receive can change if a borrower pays late or defaults.
  Investing in a P2P loan is not the same as putting money in a savings account.

4. Investments are illiquid

• FOLK2FOLK is not a bank, you cannot access your money immediately.
  It is expected that your capital investment remains in the loan until it reaches full term or when the borrower chooses to redeem their loan. If you wish to access your funds sooner, you may list it for sale via our secondary market, but there is no guarantee another investor will buy it.

5. Spreading risk is important

• Spreading your money across different investments helps reduce risk.
• A FOLK2FOLK loan investment is a useful element of a diversified investment portfolio. However, the FCA suggests you should not invest more than 10% of your net assets in higher-risk investments like P2P lending.

6. Your relationship with Borrowers and FOLK2FOLK

• You choose which loans to invest in; FOLK2FOLK does not select for you.
• You are lending directly to the borrower, not to FOLK2FOLK.
• FOLK2FOLK acts as an intermediary to facilitate loans and manage repayments.

7. Recovery may take time

• If a borrower defaults, recovery action may be needed, which can take time and may not always result in full repayment.
• Loans are secured against property
• Every loan is backed by UK land or property and assessed for suitability by our team. However, property values can fluctuate, and there’s no certainty the property can be sold quickly or for the expected value.

8. Risks of FOLK2FOLK going out of business

• If FOLK2FOLK goes out of business, we would aim to wind-down our business in a controlled and organised way. In line with our regulatory requirements, we have appointed a Standby Servicer to work with us on the wind-down process. They would continue to administer existing loans and collect borrower repayments until the earlier of loan maturity or repayment.
• Your investment will still be at risk, and there is no guarantee of full repayment.

9. IFISA Investments carry the same risk

• Investing via an Innovative Finance ISA (IFISA) carries the same risk as standard investing via FOLK2FOLK.
• IFISAs are not covered by the FSCS.

Ready to take the test?

Log In to Your Investor Portal. You’ll be prompted to take the Appropriateness Test after you have registered.

If you don’t pass first time

Don’t worry. You can:

• Review this guide again
• Read more in our Risk section
• Contact our team with questions
• Retake the test when you’re ready