Which P2P Lending Sites Offer FSCS Protection?
This page was last updated on 29 March, 2019
Your cash – but not loans – held by a P2P lending site may or may not be covered by the FSCS. I'll give my view on how important this protection is, explain why not all sites offer it, and give you a list of the P2P lending sites where the FSCS situation has been confirmed.
Your main protection is that loans and cash are segregated
Firstly, lets get a sense of proportion. Because FSCS protection here is actually a very minor point.
If you have loans at a P2P lending site or if that site is holding some of your cash that is currently not on loan, the P2P site is strictly required to ringfence both the loans and cash to protect you if the P2P site goes bust. In other words, the money and loans are still yours and it cannot be used to pay the P2P lending site's suppliers or any banks to which it owes money.
However, your cash at the P2P lending site is usually held elsewhere, typically at a segregated client account at a high-street bank, such as Barclays, Royal Bank of Scotland or Lloyds.
When this happens, your unlent money is at risk if the bank itself collapses. However, in almost all cases where that bank folds, your unlent cash held by the platform is covered by the Financial Services Compensation Scheme.
Unlent cash of yours in your P2P lending account is held in a separate high-street bank account just for lenders. This money is yours and will be returned to you. In addition, £85,000 of your unlent money is normally, but not quite always, protected by the government through the Financial Services Compensation Scheme, although this limit is shared between all the rest of your current and savings accounts at the same high-street bank, and sometimes with other brands in the same banking group. For joint accounts, the limit is £170,000.
To be clear, your money that is currently being lent is not protected by this scheme. No investments ever are or we'd all just bet on crazy things!
Just as a quick aside, if you're wondering why you might have any cash at a P2P lending site in the first place, it is because you typically have to transfer money to the P2P site before it is lent out, and because your borrower repayments and interest usually go to the same holding account, at least until it is re-lent.
When you don't get FSCS protection
A small number of P2P lending sites never hold your money, making FSCS irrelevant.
However, some P2P lending websites do not have FSCS protection on the cash they hold. This applies to some, but not all, “e-wallets” or a point in the chain that the money filters through.
E-wallets, like those provided by Mangopay, PrePay Solutions and PayPal, are supposed to make it easier to do transactions and keep an overview of your money. It's not easy to define why e-wallets exist when online banking is already so easy. (Indeed, I find my own Paypal e-wallet a nuisance.)
E-wallet providers operate under e-money licences rather than banking licences. Growth Street believes that this is the key reason why, with its own particular arrangement with e-wallet provider PrePay Solutions, this means there is no FSCS protection on your cash. That is even though the e-wallet provider stores your money in a segregated Barclays account. Barclays' banking licence, in this specific case, apparently makes no difference.
Which P2P lending sites offer FSCS protection on your cash?
So far, these P2P lending sites have strongly confirmed FSCS is applicable:
- Assetz Capital*
- British Pearl (Barclays)
- CapitalStackers* (Royal Bank of Scotland)
- Downing (Royal Bank of Scotland)
- Funding Circle (Barclays)
- HNW Lending*
- RateSetter* (Barclays)
The P2P lending sites where FSCS on unlent cash doesn't apply
This is not an exhaustive list:
Should you be worried?
Should you worry about your cash in Crowd2Fund, JustUs or Growth Street? I don't think it is a big concern. Remember, FSCS protection is never about the P2P lending site. If any of these P2P lending sites were to go bust, the money is at the bank.
FSCS is about the banks that your money is held at. The risk of bank collapse is small – especially compared to other risks in P2P lending, such as bad debts.
A bigger risk than bank collapse is a platform going out of business. In that event, your loan contracts are between you and borrowers and your cash remains yours. If the P2P site goes out of business owing a lot of money to its suppliers, those suppliers are not allowed to take the cash or your loans, because it is yours, not the P2P provider's.
Read more on these risks, how big they are, and what you can do to reduce them, in The Five Key Risks In Peer-To-Peer Lending.
*Commission and impartial research: our service is free to you. We already show dozens of P2P lending companies in our accurate comparison tables and we keep adding more as soon as they provide us with enough details. We receive compensation from ArchOver, Assetz Capital, BridgeCrowd, Capital Stackers, Crowd2Fund, Growth Street HNW Lending, LendingCrowd and RateSetter, and other P2P lending companies not mentioned above when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.