Peer-to-peer investors could become embroiled in a “contractual jigsaw” if a platform becomes insolvent, an expert has warned.
Currently, P2P investors can be classified as either investors or creditors and this status dictates their financial position if the platform goes into administration.
While an ‘investor’ may be able to claim back their capital on an individual loan and thereby avoid substantial losses, a ‘creditor’ will be repaid from the general pool of assets and may end up receiving pennies on the pound.
“What it comes down to is how the investors are treated,” said Frank Wessely, partner at Quantuma.
“Are they treated as investors who can claim the proceeds and repayments of the loans they have invested in, or are they pooled as creditors?
“In an ideal world the platform would make this information available from the outset. But on the other hand, the investor should make sure they are asking the right questions.
“Investors have to have sufficient awareness to ask the right questions around borrower risk and the nature of the contractual jigsaw that they are signing up to.”