THE FINANCIAL SERVICES COMPENSATION SCHEME AND INSOLVENCY CONTINGENCY FOR P2P
The Financial Services Compensation Scheme (FSCS) is the fund of “last resort” if a financial firm goes bust. It is funded by the financial services industry and will pay out compensation (£85k per bank, per saver) if a UK registered provider goes out of business.
It is important to realise that the FSCS will only be triggered if an investment provider goes bust, or for a loss resulting from bad advice. It will not pay out for the demise of an underlying investment.
So, if you buy shares in one business venture that subsequently folds, you are on your own, since that is the nature of investment. The FSCS does not cover poor stock market performance of individual investments; it only pays out following the demise of a whole financial institution.
Peer-to-peer (P2P) platforms are not covered by the FSCS, but most are authorised and regulated by the Financial Conduct Authority, which mandates that peer-to-peer companies must implement arrangements to ensure the servicing of the loans even if the platform goes bust.
CrowdProperty, for instance, has a back-up service provider agreed, who, in the unlikely event that the platform failed, would take the company’s place in operationally managing and administering existing loan contracts between borrowers and investors. The first legal charge that CrowdProperty takes out on all properties would also continue to stand and protect investors’ funds if any project developer was to default on repayments.
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