What is the FSCS and does it apply to P2P
The Financial Services Compensation Scheme (FSCS) is a UK government-backed scheme that protects consumers if certain financial services firms fail.
It typically applies to:
- Bank deposits (up to £85,000 per person per institution)
- Insurance policies
- Investment business in certain regulated funds
The FSCS does not cover losses from bad investment performance. For example, the FSCS protects investments in stocks and shares if the firm holding your investment goes out of business, but it does not protect the investments themselves i.e. if your individual stocks or funds lose value due to market fluctuations or company performance.
Does FSCS cover Peer-to-Peer lending?
No. The FSCS does not cover investments made through peer-to-peer lending platforms like FOLK2FOLK. That’s because P2P lending involves you lending money directly to businesses, and you accept the risk that the borrower might not repay.
In P2P, you are the lender, not the customer of a bank or fund manager. So while FOLK2FOLK is authorised and regulated by the FCA, this does not entitle you to FSCS protection on your capital or interest.
In the event a platform ceases trading, the FCA requires all P2P platforms to have an effective wind-down plan to enable them to cease regulated activities with minimal adverse impact on customers.
So what protections do I have?
At FOLK2FOLK:
- All loans are secured against UK land or property via a first legal charge.
- We have a robust due diligence and credit assessment process before loans are listed.
- By taking a first legal charge over property security, we always have the legal recourse of recovery through asset realisation.
- Our track record of defaults is available to view and updated quarterly.
This structure gives your investment a layer of security not found in unsecured P2P or stock market investments, but it is still not a guarantee.
A note about platform failure
The FSCS does not extend to Peer-to-Peer platforms. However, the FCA requires Peer-to-Peer platforms to have robust contingency planning in place in the event they fail, including an Orderly Wind-Down Plan which is reviewed and monitored by the FCA. FOLK2FOLK has gone a step further than this, and retains RSM Restructuring Advisory (RSM) as its standby service provider.
