- those who are certified or self certify as a sophisticated investor;
- those who are certified as high net worth investors;
- those who confirm they will receive regulated investment advice;
- those who certify that they will not invest more than 10 per cent of their net investible portfolio in P2P agreements.
The FCA has said its concerns are real because according to a survey of 4,500 P2P investors, conducted by the Cambridge Centre for Alternative Finance, 40 per cent said they had invested more than their total annual income, and of those, half had said they had invested more than double their annual income.
Adviser concerns
If a platform fails, this does not necessarily mean that an investor will lose his or her money. Mr Webb says: "The FCA is concerned that there's a standby arrangement in place to ensure that there's a contingency plan, [so] that in the event that a platform fails something can be sorted.
"For instance, most have a back-up servicer in place."
He added that the assets that the investor has placed on the platform are still treated as the investor's assets, so these would be released back to the investor, although not necessarily in their entirety.
The adviser community is mindful of some of the risks associated with peer-to-peer lending, and to a lesser extent investment crowdfunding.
Many advisers are perhaps rightly concerned, given the promotions on the platforms' websites. One platform appeals to investors with the following: "Earn 6.5 per cent per annum interest on your capital while helping fund local businesses".
Kay Ingram, head of policy at LEBC, says: "If you had a friend or relative who came to you and said: 'I've got a business idea and I've got no money', and they couldn't get lending from the bank, and they didn't show a business plan, would you give them money? Why would you do that to a stranger?
"You're effectively lending money to someone who has a great idea but possibly not a great track record. If they had a track record and some experience behind them, then the conventional banks would help them."
The platforms would argue that they do undertake credit checks of their borrowers, and they spread the risk of lending across many different individuals and businesses, so that the risk is mitigated.
The problem is that those setting up the platforms have markedly varied backgrounds. Some come to the sector with a tech background, seeing it as a way to make money, while others have come to the alternative finance sector with their own financial backgrounds.
For example, the founders of Ratesetter, one of the more reputable firms, have backgrounds with RBS and Lazard, while the founders of Funding Circle, which has announced its own IPO, have backgrounds in management consultancy and at Barclaycard.
Checking the background of a platform's management is clearly one part of doing due diligence before taking the plunge, more of which is covered in the next article.
