Exclusive: Fintech lender wins FSCS coverage

AltFi can reveal that, from today, individuals and small companies (such as family offices) that invest via LendInvest will be covered by the Financial Services Compensation Scheme (FSCS).

The majority of the LendInvest's investors are now eligible to claim compensation of up to £50,000 per person in the event of a default from the management company. That limit will rise to £85,000 from 1 April 2019.

What this means is that, in some but not all scenarios, investors will be protected in the event of LendInvest going into insolvency. But investors are not covered against the risk of the platform's loans defaulting. In other words, their capital remains at risk, and the protection won by LendInvest today should not be confused with the deposit guarantees enjoyed by banks and building societies. 

Recent rule changes have allowed for alternative investment fund structures to benefit from FSCS coverage.

LendInvest ceased to be a peer-to-peer lender in May 2017, when it closed its investment platform to retail investors. But the firm continues to operate that platform, with access now limited to sophisticated investors. It is now classed as an alternative investment manager – and is regulated by the FCA as such.

LendInvest funds its property-backed loans using a mix of sources. It kicked off a retail bond programme on the London Stock Exchange shortly after restricting access to its P2P platform, and also manages a number of Luxembourg-based funds and credit lines.

Investments made via the LendInvest platform are technically an investment in an alternative investment fund, and these funds in turn invest in the loans originated by the platform.

Christian Faes, Co-Founder & CEO of LendInvest, explained: “Because investors that invest in our Online Investment Platform are investing in a fund each time, this provides investors with a robust regulatory framework that provides significant protections over many other online investment platforms. This now comes with the added benefit of FSCS coverage.”

LendInvest says that the new FSCS cover will not affect the types of loans it originates or the rates its offers to investors.

As part of its ongoing review of the crowfunding sector, the FCA has proposed to place restrictions on how peer-to-peer lenders promote themselves such that retail investors may invest a maximum of 10 per cent of their investible portfolio in P2P assets. Faes welcomed the development, adding that a retail bond programme gives investors ‘a much better investment and significant protections’.

Elsewhere in its review, the regulator said that it intends to keep the matter of whether P2P loans should fall within FSCS coverage under review, but won't be consulting on further changes for the time being.

In April of 2016, the FSCS published an update suggesting that it may be able to step in to provide compensation of up to £50k for investors who receive unsuitable advice about the merits of investing in peer-to-peer lending and loan-based crowdfunding platforms.