Advice to invest in peer-to-peer lending may now be covered by the Financial Services Compensation Scheme, the body has confirmed, as it reveals the criteria claimants must meet.
The FCA consulted on the move in February and announced its decision in March, ahead of new rules which made providing advice to clients about the merits of investing in P2P agreements a regulated activity on 6 April.
Eligible investors may now be able to receive compensation in relation to unsuitable advice they receive about the merits of investing in peer-to-peer lending via loan-based crowdfunding platforms, according to a statement on the compensation body’s website.
Depending on individual circumstances, the FSCS may be able to provide compensation of up to £50,000 in relation to P2P investment advice.
Including P2P advice in FSCS coverage addresses one of the major industry concerns about the sector for investors.
But with former Financial Services Authority chairman Lord Adair Turner saying back in February that losses on P2P lending will “make the worst bankers look like absolute lending geniuses,” the move could put further strain on the FSCS and advisers who fund it via levies.
In its March paper confirming P2P advice would be covered by the FSCS, the FCA stated: “Having considered the feedback, we continue to believe it remains important that customers of advice firms have recourse to the FSCS to protect them against failures by authorised advice firms.
“In addition, we believe that consumers receiving regulated advice on P2P agreements should have the same access to the ombudsman service as they do when receiving regulated investment advice on other investments.”
Alan Mellor, managing director at Phillip Bates & Co Financial Services, branded the move “great news for scammers”.
“It’s a massive headache to get adequate due diligence for advisers, but easy to set up and sell fraudulent P2P and get the usual suspect advises to reccommend them - then the FSCS foots the bill!
“The next stage of meltdown for the scheme,” he said.
Peer-to-peer lending sites have been regulated by the FCA since 1 April 2014.
To be eligible for FSCS compensation on peer-to-peer advice, investors must have received the recommendation to buy the investment on or after 6 April 2016.
The advice firm must have been authorised by the appropriate regulator to do so at that time, the investor must have lost money as a result of the advice they were given, and the firm (or its principals) no longer has sufficient assets to meet claims for compensation.
Also, the particular peer-to-peer loan agreement will need to meet the requirements for the FCA to consider it to be a ‘P2P agreement’, which will depend on individual circumstances.
The FSCS statement added it does not provide compensation in relation to loss caused by bad investment performance.
laura.miller@ft.com
