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COBS 10 Annex 2 Assessing appropriateness: P2P agreements and P2P portfolios

COBS 10 Annex 2G

1This Annex belongs to COBS 10.2.9G(1)(b).

When determining whether a retail client has the necessary knowledge to understand the risks involved in relation to a P2P agreement or a P2P portfolio, a firm should consider asking the client questions that cover, at least, the following matters:

  1. (1)

    the nature of the client’s contractual relationships with the borrower and the firm;

  2. (2)

    the client’s exposure to the credit risk of the borrower;

  3. (3)

    that the client can lose all of the money that they invest in a P2P agreement or P2P portfolio;

  4. (4)

    that P2P agreements or P2P portfolios are not covered by FSCS and that the Financial Ombudsman Service does not protect investors against poor performance of P2P agreements or P2P portfolios;

  5. (5)

    that returns may vary over time;

  6. (6)

    that entering into a P2P agreement or investing in a P2P portfolio is not comparable to depositing money in a savings account;

  7. (7)

    the characteristics of any:

    1. (a)

      security interest, insurance or guarantee taken in relation to the P2P agreements or P2P portfolio; or

    2. (b)

      risk diversification facilitated by the firm; or

    3. (c)

      contingency fund offered by the firm; or

    4. (d)

      any other risk mitigation measure adopted by the firm;

  8. (8)

    that any of the measures in (7) adopted by the firm cannot guarantee that the client will not suffer a loss in relation to the money invested;

  9. (9)

    that where a firm has not adopted any risk mitigation measures (such as those in (7)), the extent of any loss of money invested is likely to be greater than if risk mitigation measures were adopted by the firm;

  10. (10)

    illiquidity in the context of a P2P agreement or P2P portfolio, including the risk that the lender may be unable to exit a P2P agreement before maturity even where the firm operates a secondary market (including the fact that any advertised access to money invested is not guaranteed);

  11. (11)

    the role of the firm and the scope of its services, including what the firm does and does not do on behalf of clients;

  12. (12)

    the risks to the management and administration of a P2P agreement or P2P portfolio in the event of the firm’s becoming insolvent or otherwise failing;

  13. (13)

    that where a P2P agreement or P2P portfolio is held in an innovative finance ISA (IFISA), this does not reduce the risk of the P2P agreement or P2P portfolio or otherwise protect the client from the risk of losing their money; and

  14. (14)

    the benefits of diversification and that retail clients should not generally invest more than 10% of their net assets in restricted mass market investments.