The World’s First Risk Score for Peer-to-Peer Platform

By AltFi on 11th July 2014

P2P/Marketplace Lending

A leading UK peer-to-peer lender has become the first platform in the world to receive a risk score.

The World’s First Risk Score for Peer-to-Peer Platform

RateSetter has been awarded a risk score of 1 by the investment analysis and research provider FE. The number is akin to the kind of score generally attached to cash accounts. FE risk scores are designed to quantify the volatility of any given financial instrument in relation to the FTSE 100. The FTSE 100 always bears a score of 100, and pure cash always carries 0 risk score. Mutual funds tend to score in the 0-150 range – while equities more often than not top 100.

Rhydian Lewis, CEO and Founder of RateSetter, commented:

“We are delighted to be working with FE. Their risk rating of 1, just above cash, provides RateSetter customers with a tangible metric and added confidence when investing.”

“As we continue our exceptional growth, at a time when UK P2P lending has exceeded the £1bn mark, it is more important than ever that our savers have essential volatility information when investing. As the only P2P company worldwide to have a risk rating and with the added benefit of our Provision Fund, we are becoming the go-to P2P provider for investors looking for both security and return.”

FE’s methodology for assigning ratings is to analyze over 18 months of historical pricing. It’s a familiar method – employed by wealth advisers across the UK in order to make informed decisions when investing.

Mika-John Southworth, Marketing Director of FE, said:

“At FE we understand that taking necessary, calculated risks is part of everyday life, which is why we have launched FE Risk Scores. Investors need to be sure that they are making a truly informed decision based on the facts, and FE Risk Scores provide a single, easy to understand measurement of the relative riskiness of individual investments or even an entire portfolio.  RateSetter’s low risk score should act as reassurance to anyone who is looking for an alternative to a cash style investment fund.”

Certainly this an important moment for the UK sector – and one that may well help the various platforms to shake the perception that peer-to-peer lending is inherently risky.

However, RateSetter’s risk score should not be confused with the “A” recently assigned to a SoFi securitization by S&P. The endorsement of one of the big three credit rating agencies is a different ball game entirely.   

The risk score is a measure of volatility and the simple fact of the matter is that since its inception RateSetter has offered its lenders a high level of security and supreme regularity of return. The platform is not subject to the same market fluctuations as, say, a government bond. RateSetter’s risk score of 1 is uncommonly low within the FE database. See below, for instance, a table displaying the score assigned by FE to a government gilt bond. You can also peruse FE’s ratings homepage here

FE Risk Scores

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