P2P Guide

23 SUITABILITY, DUE DILIGENCE & FURTHER CONSIDERATIONS The FCA applies its Conduct of Business suitability rules to firms making a personal recommendation involving advice on P2P agreements. Its 2016 regulatory review of crowdfunding (results due for publication in 2018), including loan-based crowdfunding, is also considering whether P2P platforms should carry out suitability checks before investors can invest. This is already the case for investment-based (equity and debt based securities) crowdfunding platforms. P2P risk tolerance and possible strategies P2P property lending with a low Loan to Value (LTV) P2P business lending spread across the market leaders conservative direct investment options with short term durations P2P business lending and P2P consumer lending, ‘stock- picking’ loans from the entire range of UK platforms HIGH P2P business lending and P2P consumer lending spread across the market leaders more aggressive investment options with longer term durations HIGH MEDIUM LOW LOW MEDIUM With inflation eating away at deposit accounts, savers who are prepared to increase the level of risk may wish to consider peer to peer lending as a diversifier from the fluctuations of equity markets. RICHARD NUTTALL, SIMPLYBIZ Higher returns than most fixed income investments with the exception of riskier high-yield bonds. Lower returns than equity over longer (5+ years) periods and lower levels of liquidity. Much lower levels of volatility and more certainty about levels of return. Higher returns than cash, with the additional risks of borrower default or platform failure. In addition, no coverage from FSCS deposit guarantee scheme. P2P comparison with... Equity Fixed income Cash Suitability, due diligence & further considerations Clearly P2P lending isn’t going to be for everybody. It’s riskier than cash, has lower levels of liquidity than equities and is still a relatively new asset class for retail investors. We don’t think it’s suitable for advisers to recommend to clients who have not started to develop conventional investment portfolios. Suitability 3.1 However, we do think that P2P lending can be a suitable supplemental investment for clients who do already have a conventional portfolio in place. For these clients, P2P lending can provide additional income and diversification, without taking on excessive levels of risk. Suitability for P2P lending is not just a top- level consideration though - with so many platforms offering so many different ways of investing, advisers need to determine which platforms are suitable for which clients. Lower risk, asset-backed options will appeal to clients with a lower risk tolerance, or clients who do not plan on taking much risk wth this portion of their portfolio. The FCA emphasises that advisers must consider suitability for P2P lending in the context of other asset classes, so we have included a summary guide below - however exactly where P2P maps onto conventional assets is of course dependent upon the type of P2P lending being considered.