Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment
to be very complex and high risk.
What are the key risks?
1. You could lose all the money you invest
If the business offering this investment fails, there is a high risk that you will
lose all your money. Businesses like this often fail as they usually use risky
Advertised rates of return aren’t guaranteed. This is not a savings account. If the
issuer doesn’t pay you back as agreed, you could earn less money than expected or
nothing at all. A higher advertised rate of return means a higher risk of losing your
money. If it looks too good to be true, it probably is.
These investments are sometimes held in an Innovative Finance ISA (IFISA). While any
potential gains from your investment will be tax free, you can still lose all your
money. An IFISA does not reduce the risk of the investment or protect you from losses.
2. You are unlikely to be protected if something goes wrong
Protection from the Financial Ombudsman Service (FOS) does not cover poor investment
performance. If you have a complaint against an FCA regulated firm, FOS may be able
to consider it.
3. You are unlikely to get your money back quickly
This type of business could face cash-flow problems that delay interest payments. It
could also fail altogether and be unable to repay investors their money.
You are unlikely to be able to cash in your investment early by selling it. You are
usually locked in until the business has paid you back over the period agreed. In the
rare circumstances where it is possible to sell your investment in a ‘secondary
market’, you may not find a buyer at the price you are willing to sell.
4. This is a complex investment
This investment has a complex structure based on other risky investments. A business
that raises money like this lends it to, or invests it in, other businesses or
property. This makes it difficult for the investor to know where their money is going.
This makes it difficult to predict how risky the investment is, but it will most
likely be high.
You may wish to get financial advice before deciding to invest.
5. Don’t put all your eggs in one basket
Putting all your money into a single business or type of investment for example, is
risky. Spreading your money across different investments makes you less dependent on
any one to do well.