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Why FSCS Protection Matters In P2P Lending

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By on 5 March, 2020 | Read more by this author

The FCA recently suspended a regulated financial business due to weak controls against money laundering, leaving up to one million account holders unable to access their money.

The suspended company, called ePayments Systems Limited, has nothing to do with the peer-to-peer lending industry. But it serves as a good example about how FSCS can be relevant when lending online and why you might look to lend through P2P sites that offer you some of this cover in limited circumstances.

The story of ePayment Systems

ePayments Systems is an e-money business that takes deposits, issues its own payment cards and arranges digital payments.

ePayments' suspension hopefully will be lifted sooner rather than later, so that customers can access their money. In the meantime, a lot of its customers are surprised to learn that their money is not covered by the Financial Services Compensation Scheme (FSCS).

The reason is because ePayments Systems is not a bank, but an e-money business, so it has no UK banking licence. While its customers await further news, many might suffer some consternation now that they know they don't have the FSCS fall-back option.

I think this helps to ram home the benefit of using peer-to-peer lending companies that hold your unlent money in bank accounts rather than e-money “wallets”. We try to list as many of them as possible in Which P2P Lending Sites Offer FSCS Protection? The benefit is that, if the company holding your unlent money (the bank) goes under, you have recourse to the compensation scheme.

Where FSCS applies in peer-to-peer lending

FSCS cover in peer-to-peer lending is limited to two scenarios:

  • If the P2P lending platform holds your unlent money in a UK-regulated bank and that bank goes under, your money is protected under the usual bank deposit FSCS scheme.
  • If you have received poor and inappropriate personalised financial advice regarding P2P lending from a regulated business (such as a professional financial advisor), you might be able to claim FSCS cover under the investment FSCS. (But losing money on your investments doesn't necessarily mean you received poor advice.)

Where FSCS doesn't apply in peer-to-peer lending

FSCS cover in peer-to-peer lending is limited to those above scenarios. For clarity's sake, I'll just spell out the ways that it doesn't cover you:

  • If your investments (your lent money) simply perform poorly and you lose money, you're never covered by the FSCS. This applies to all investments, from the stock market to peer-to-peer lending.
  • If your unlent money is held in an e-wallet, as opposed to a bank account, it will usually or never be covered by the FSCS.
  • If the P2P lending company fails to hold your unlent money correctly in a segregated account and a shortfall arises, you're not covered.

Read more

Which P2P Lending Sites Offer FSCS Protection?

Sources: Financial Times

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Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

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Why are Orchard’s interest rates different?

Orchard’s lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Orchard’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×
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