Will Lenders On Collateral UK, The Disgraced P2P Site, Get Their Money Back?
Peer-to-peer lending website Collateral UK went out of business in February 2018. It was quickly alleged to be operating without the correct permission from the financial regulator.
It now appears to have appointed administrators, who we can expect to wind down the website and existing P2P loans.
Whether the permission was correct or not when it was still in business, its regulatory permissions are now showing on the regulator's register as “lapsed”.
At present, there is no evidence that the site was intentionally operating without the correct permission.
In addition, based on the – admittedly very limited – information and evidence we currently have, lenders still look likely to keep receiving their loan repayments, which are ring-fenced for their benefit, until the loans are completely wound down.
Collateral UK lenders have been successfully earning interest since it was founded.
An email from Collateral to its lenders a few days ago was very uninformative about the situation, but the brief contact shows that it has not disappeared from the face of the Earth, which would be a more common move if the entire operation had been a scam.
How often does this happen?
Over the space of 12 months, it is not unusual to find a few investment providers offering investments without proper permission from the regulator.
This happens in shares, bonds, P2P and elsewhere. Investors should check that the investments are properly regulated as part of their basic research.
In addition, from time-to-time a P2P lending site does close to new business. As far as we know, so far, lenders have mostly been able to get their money back when this has happened.
P2P lending sites typically have low costs in administering ongoing loans, which makes it easier to wind down existing loans smoothly if it goes out of business. Fully-regulated sites (although Collateral UK had just “interim permission”) are required to have adequate cash set aside, and wind-down plans in place, in the event they themselves go under.
Loans and any lender cash are ring-fenced for the lenders' benefit only.
That said, lenders should always be prepared to expect delays to repayments when a P2P lending site goes out of a business. Potentially substantial delays. Furthermore, lenders should brace in the event they cannot get every penny back, not least because you are still relying on all the borrowers repaying the underlying loans. The costs of an external administrator winding down the loans might also be higher, which might eat into your remaining returns.
What does 4thWay have to say about all this?
Our view is quite simple, really:
Collateral UK never passed our initial filters, even prior to checking its regulatory permissions.
Collateral has never been listed in the 4thWay comparison tables, because it has never provided us with the detailed data and information that we require to assess the risks.* We always recommend that lenders avoid platforms that are not open and transparent.
For the same reasons, no 4thWay experts or writers have ever expressed any personal opinions of the risks of using Collateral UK.
4thWay lists many UK regulated platforms in our comparison tables. At the time they are listed, a member of staff (hi Jane!) checks that each one has permission (or interim permission) to operate. Permission can later lapse or need to be amended, although we do re-check permissions from time to time.
4thWay staff do a sense check as to whether the permissions granted appear to be appropriate for the specific P2P lending activity. However, lenders should know that the information provided by the regulator is limited and it is not always possible to be 100% sure from the outside that the permission is complete and up-to-date. This is the same situation for checking the permissions of any investment providers.
We also list some overseas P2P sites in our comparison tables, when lenders in the UK are allowed to lend, and provided they give us the detailed information on risks that we require. But our ability to check the extent to which overseas websites are properly regulated is more limited.
What is the risk, generally, of a P2P lending site closing down?
I consider the risk of losing money due to a peer-to-peer lending site closing down to be relatively small, provided it closes for financial reasons.
If fraud or negligence is involved (something that happens from time to time in any and all types of investment) that might be a different matter.
Read more about the risks in The Five Key Risks In Peer-To-Peer Lending.
Independent opinion: the opinions expressed are those of the author and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
All the experts and journalists who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
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*4thWay has previously included Collateral loans in a daily feed of loans from 12 P2P lending sites, although the feed was for individual lenders' information only for use as a starting point for their own research in picking individual loans. The loans in the feed, or the P2P sites themselves, were not being recommended by anyone at 4thWay.