What happens if a P2P platform goes bust?

Whilst the FCA requires that arrangements should be in place for the orderly run-off loan books in the event of platform failure, not all firms have adequate arrangements.  The FCA's interim review of the P2P lending sector late last year highlighted this specific risk/weakness and made the following comment in its conclusions "The plans some firms have for wind-down in the event of their failure are inadequate to
successfully run-off loan books to maturity.".

The FCA intends to launch a consultation in the coming months to help address this risk and others it has identified.  A high level summary of their findings can be read here: www.fca.org.uk/news/press-releases/fca-publishes-interim-feedback-following-call-input-post-implementation-review

Platform risk remains one of my biggest concerns which I try to mitigate by diversifying as much as possible over several platforms.  Whilst the risk of a large outright loss occurring as a result of a platform failing may be small, there will be a very large liquidity risk, ie unlikely that a SM will continue to operate and you will most likely be stuck with loan through to maturity.

I understand that nearly all arrangements that are in place involve the administrator being paid from the future platform fees payable by borrowers and lenders (where applicable) whilst the loan book is run down/sold - no cash is additional cash is required to be ring fenced.  This does give rise to the risk that this revenue stream is insufficient and the administrator may try to walk away from the contract (after all the platform will be in poor shape to try to enforce the contract and the administrator/liquidator of the platform will have little interest pursuing legal action as the platform itself will not being suffering any loss).

SYSC 4.1.8C (https://www.handbook.fca.org.uk/handbook/SYSC/4/1.html) of the FCA handbook sets out the arrangement(s) that a (fully FCA authorised) P2P platform may have in place in the event of platform failure (insolvency etc.):



(1) entering into an arrangement with another firm to take over the management and administration of P2P agreements if the operator ceases to operate the electronic system in relation to lending; or



(2) holding sufficient collateral in a segregated account to cover the cost of management and administration while the loan book is wound down; or



(3) entering into an arrangement for another firm to act as guarantor for the P2P agreements which includes a legally enforceable arrangement to meet the costs of the guarantee in full; or



(4) managing the loan book in a way that ensures that income from P2P agreements facilitated by the firm is sufficient to cover the costs of managing and administering those agreements during the winding down process, taking into account the reduction of the loan pool and fee income from it.



Also see SYSC 4.1.8A, SYSC 4.1.8B and SYSC 4.1. for further requirements.

Yes, it does, but platform risk is not normally due to any direct credit exposure to the platform operator, more the risk that it becomes difficult to administer and enforce your debt if the platform disappears. Just imagine if one of the platforms you have money invested on went bust overnight.  Who administers the client account and allocation of cash movements in and out?  Who can give you a copy of the underlying loan agreement?  Who is empowered to deal with the security arrangements? - it could very quickly turn into a big mess unless proper arrangements are already in place to deal with such an event.  It is these practicalities that could ultimately make it difficult for you to enforce all you individual loans, even if the debtor continues to pay (eg who is going to administer the client account which the debtors are paying money?)

bust or defunct? Quakle, Trustbuddy didnt end well IRC

Some listed/discussed here

p2pindependentforum.com/board/72/defunct-p2x-platforms

Full list contined in list here
www.p2pmoney.co.uk/companies.htm

Who's trying to get their post count up?