What happens if a peer to peer platform goes bust?

The platform failing is not the same as your loans failing

A crucial distinction: the platform is the company that runs the website and administers the loans. Your investment is the underlying loans themselves. If the platform company fails, the loans do not simply vanish, borrowers still owe the money. The question is who collects it and passes it on to you.

Wind-down plans are a regulatory requirement

Since 2019, the FCA has required authorised P2P platforms to maintain a wind-down plan: an arrangement for the orderly administration of existing loans if the platform stops operating. The aim is that loan repayments continue to be collected and distributed to investors even after the platform itself has gone.

How your loans are usually ring-fenced

Well-run platforms separate your money and loans from the platform's own business, commonly through:

• Segregated client money held separately from the platform's operating funds.
• A separate legal structure or trustee that holds the loans or security on investors' behalf.
• A back-up servicer lined up to take over collecting repayments if the platform cannot.

These structures are exactly the sort of thing worth checking before you invest, which is the focus of our how to spot a risky platform guide.

Where it can still go wrong

A wind-down plan is a plan, not a guarantee of a clean outcome. In practice a platform failure can mean:

• Long delays. Collecting and winding down a loan book can take months or years, and your money is locked up meanwhile.
• Higher losses. A distressed wind-down can recover less than an orderly one, and recoveries on defaulted loans may fall short of what you are owed.
• No FSCS backstop. As covered in our FSCS guide, the scheme does not make up investment losses.

The takeaway

Platform failure is a real, if not everyday, risk. The right response is not to assume it can't happen, but to invest only with platforms whose wind-down arrangements you have checked, to diversify, and to keep P2P to a portion of money you can afford to tie up and potentially lose.