Information on FCA P2P loans - October 2024

When was it decided that P2P loans would not be eligible for FSCS protection?

Any further information to explain this decision would also be appreciated (e.g. who made the decision? How was it communicated to lenders? Why was it decided to treat P2P differently to other regulated businesses?

Please note that FSCS protection relates to regulated activities carried out by authorised firms, rather than to specific products. A number of conditions (set out in the Compensation (COMP) Sourcebook of the FCA Handbook[1]) must be met before the FSCS can pay compensation. In particular:

• The claimant must be an ‘eligible claimant’.
• They must have a claim of a type protected by the FSCS.
• They must be claiming against a ‘relevant person’.
• The ‘relevant person’ must be ‘in default’ and must owe the claimant a civil liability.

In 2017, we published CP16/42[2]: ‘Reviewing the funding of the Financial Services Compensation Scheme (FSCS)’, which discussed the case for and against introducing FSCS protection for loan-based crowdfunding (also called peer to peer or P2P). Specifically, Q10 asked: Do you have any comments about the possible risks to investors posed by crowdfunding and whether these might justify introducing FSCS protection?’.

We summarised the responses we received to this question in CP17/36[3]. We received 110 responses to this question, with the majority of respondents opposing bringing loan-based crowdfunding into FSCS protection. The most common reasons given were that:

• consumers should accept the higher risks associated with potentially greater returns and take responsibility for those greater risks.
• firms in this sector should make the risks much clearer through better disclosure.
• it was felt that the required funding class would be unsustainable.

While recognising the views of those respondents who support the extension of FSCS protection to loan-based crowdfunding, we explained in CP17/36 that we did not believe that such a proposal is sustainable in practice. This was communicated to lenders and the public in the consultation papers.