FSCS limit reset to 85k

  • As predicted towards the end of 2016, and after taking account of feedback from the financial marketplace, the UK’s Prudential Regulation Authority (PRA) has confirmed that the limit on the Financial Services Compensation Scheme (FSCS) is to be reset at £85,000 with effect from January 30 2017 – thus putting it back to where it was prior to the reduction to £75,000 from the beginning of last year.

    The reason given for the U-turn is the sharp drop in the value of the pound since the Brexit vote and to bring the level of compensation in the event of a bank/building society default back into line with the value of equivalent schemes across Europe.

    This all seems very logical and fair except, of course, there will be speculation now as to what this means for the P2P lending sector, whose investors enjoy no such protection – a position that has been frequently pointed out by the media and other critics, and doubtless will be repeated yet again following the latest change. This, despite the fact that some of the major platforms have taken the initiative by devising their own protection schemes for their lenders either through provision funds or credit insurance.

    The plain fact is that P2P loans are risk investments, deposit accounts are savings and most people will have a blend of both and know the difference between the two. So does anyone really care that their investments aren’t covered by the FSCS?

    Obviously, it is right to point out the features, merits and dangers of all financial products offered to consumers, but if you take into account that inflation is creeping back onto the scene, the real risk to savers is that the return on their ultra-safe deposits is less than nil. P2P loans within a diversified portfolio are an opportunity to do something about it.

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