More education is needed on what the FSCS covers
Investors need more education on what the Financial Services Compensation Scheme (FSCS) covers, peer-to-peer platforms and financial advisers have claimed.
P2P investments are not currently FSCS protected, which means that they would not be compensated if a platform collapsed.
However, investors may be able to claim if they received poor investment advice or if they had untouched cash in an FSCS-protected bank account used by the P2P platform.
“I do think there needs to be more education for advisers in general about P2P and the opportunities it offers and expectations they believe are in place but actually aren’t, such as the FSCS protection,” said Lisa Best, research manager at Intelligent Partnership.
“Some advisers think it probably does apply to P2P. I definitely think more education is a very good thing.”
Terry Pritchard, director of Charter HCP, which has recently launched an assurance policy for the sector, agreed and said that people need to know what the scheme covers.
“If you’re a financial adviser you should know exactly what the scheme covers,” he said.
“I find that people know of the scheme and the amount it covers, but not the detail. It should be covered in greater depth.
“P2P is not covered by the FSCS so they need to know why it’s not covered and the alternatives. Not all of P2P is regulated.”
Brian Bartaby, founder and chief executive of Proplend, said that investors do not know the difference between different versions of the scheme and can be put off from the lack of FSCS protection.
“There is a difference between cash FSCS cover and investment FSCS cover,” he said.
“I don’t believe that most investors fully understand the difference and therefore unwittingly place greater comfort in a product that states there is FSCS cover.
“A cash ISA is covered by cash FSCS cover, a stocks and shares ISA is covered by investment FSCS cover but an Innovative Finance ISA has no cover, and that lack of FSCS cover could put off both investors and advisers.”
Mike Bristow, founder and chief executive of CrowdProperty, said some education on what the scheme covers is needed, but P2P platforms should always outline they are not FSCS protected and investors’ capital is at risk.
“It’s really important to understand it covers the failure of the business, not the credit risk as an investment,” he said.
“More clarification is needed.”
Read more: FCA: Regulator not necessarily to blame for consumers’ investment losses
Carl Davies, chief operating officer at The House Crowd, agreed that it is the platforms’ responsibility to state that they are not FSCS protected, but added “I think most investors know P2P is not covered.”
“Platforms should emphasise that it only covers £85,000 per person per account on services that are covered by the scheme,” said Davies.
“However, many people have more than £85,000 so they must spread it around in lumps of £85,000.
“Alternatively, they could look to deploy far larger sums on asset-backed property loans which protect 100per cent of their capital providing they don’t exceed the 10 per cent rule.
“Providing the loans are well curated and managed, target returns would far exceed the returns from FSCS protected schemes.”
Read more: Industry calls for greater FSCS protection for P2P investments
The scheme, which was set up under the Financial Services & Markets Act 2000, provides the fund of last resort for customers whose financial services firms are unable, or likely to be unable, to pay claims against them.
Money put into savings accounts, such as high street banks and cash ISAs, and certain types of stocks and shares investments are covered up to the value of £85,000 per person, per firm.
The FSCS only offers compensation when the provider goes bust, and does not offer protection for losses, except in cases where this is due to bad advice.
