Can you pass the test required to invest in UK private companies?

Can you pass the test required to invest in UK private companies?

Since 2016, all investors in the UK wanting to invest in private companies via regulated crowdfunding or p2p lending platforms have been required to pass an "appropriateness test" - a test of your knowledge and understanding of the types of investment offered by the platforms.

In 2023, the requirements for this test were raised significantly by the Financial Conduct Authority who laid out specific guidance for the form and content of questions which all potential investors must pass before they can make an investment. Failure in the test means that the platform must bar you from making any investment with them whatever your personal wishes may be.

The following test is based on those requirements but is not specific to any particular platform within Investment Based Crowdfunding and P2PLending.

There are 12 multiple choice questions, each with 3 answers, the quiz should take no longer than 10 minutes.

The answers to this questionnaire are anonymous. The UKCFA won't get in touch with you to follow-up on the answers you have given or send you any marketing or sales material. We are asking for your name and email to ensure respondents are genuine.

The UKCFA represent crowdfunding platforms and alternative finance with operations in the UK. You can follow the UKCFA on LinkedIn, Twitter or Join our Newsletter.

Data Use Notice

By completing this survey, you consent to your responses being used to compile anonymised data for submission to the Financial Conduct Authority (FCA).

Name

1) Am I guaranteed to get back all the money I invest?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

I am making an investment so my capital is at risk and I may lose some or all of my invested capital.

I am making an investment so my capital is at risk. However, if a business is unable to repay my capital, THE PLATFORM will cover any loss so I never lose any money.

As I am investing via an FCA regulated platform, my investment is protected by the UK Government and my capital is guaranteed like a savings account.

2) Once I’ve made my investment, can I access my money whenever I need?

Once I have invested the money, I won’t be able to access it until I am repaid under the terms of the investment.

I can choose to cancel an investment I’ve made at any point and receive a full refund.

My money will be tied up for the duration of the investment I make, but the investments are all short term so I will have access to all of the money I invest within a few months.

3) Do I have to make my own investment decisions?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

I will need to make my own investment decisions, and pick and choose which investments I want to make, and how much to invest in each one.

I am in control of what investments to make, but THE PLATFORM will provide me with recommendations about which investments are right for me and how much to invest.

I must make my own investment decisions but all of the investments on THE PLATFORM are similar so I do not need to consider each investment on its own merits and I can put all of my money into one investment.

4) Is there an option to sell my investment if I need to get my money back early?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

I can use the marketplace on THE PLATFORM to see if someone wants to buy my investment and THE PLATFORM sets the price so I’m guaranteed to get back what I invested, if not more.

I can sell my investment and THE PLATFORM has a marketplace where I can look to sell my investment to another investor, however my ability to sell will depend on there being a willing buyer.

I can use the marketplace on THE PLATFORM to sell my investment and THE PLATFORM will always find a buyer for my investment so I can sell within one week.

5) If I sell an investment am I guaranteed to get all my money back?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

If I sell my investment, I will always get back exactly how much I invested as THE PLATFORM sets the price that someone must pay to buy it from me.

External factors won’t affect the value of my investment. It will only be things directly related to my investment, such as how the business is performing and how long it is until the next interest payment.

If interest rates in the wider market go up during the life of my investment, it will reduce what other investors might be willing to pay for it if I want to sell it.

6) Is my interest rate or return guaranteed?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

The return on my investment is fixed for the life of the investment, however the payment of my returns is not guaranteed and depends on the ability of the business to make the interest payments. If the business runs into difficulties it may not be able to pay some or all of my return. Payment of my returns will depend on the business I lend to and different investments may have different returns.

The return on my investment is fixed for the life of the investment and guaranteed by the UK Government. Investing money is like depositing money into a savings account.

All of the investments on THE PLATFORM are pooled together so the payment of my interest is not directly related to the business I am investing into. If the business I have invested into is unable to pay my interest, THE PLATFORM covers the difference so I will still receive my expected return.

7) Am I protected if my investment doesn’t perform as expected?

The Financial Services Compensation Scheme will cover me for any loss on my investments up to £85,000. If I make a loss on my investments due to poor investment performance, I can ask for compensation from the Financial Services Compensation Scheme.

The Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS) do not cover poor investment performance, so if an investment I’ve made does not perform as expected, I will not be protected from losing money.

8) What will happen to my investments if THE PLATFORM goes out of business?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

My investments will continue but there could be disruptions to the administration of my investments and I would find it harder to sell them.

Without THE PLATFORM I would lose all of my investments and the business or project will no longer need to repay me.

There would be no disruption to the administration of my investments and everything would continue as normal.

9) What are the benefits of investing through an innovative finance ISA (IFISA)?

An IFISA is like a cash savings ISA, so my money is protected from making a loss.

It reduces the risk of losing money as ISAs provide a guarantee that you can’t lose money.

Any returns I may earn will be tax-free, but it doesn’t change the risk of making my investment and I could still lose money.

10) What is a good rule-of-thumb strategy to consider when investing?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

I should limit the amount I invest in an individual offer and consider diversifying across different asset classes.

Investing all my available funds into a single investment offer to maximise returns.

I don't need to worry about investment strategies, as THE PLATFORM will make investment decisions on my behalf.

11) What happens to the value of my investment if the company issues new shares?

The value of my investment will remain constant no matter what happens.

The value of my investment could be reduced and the new shares could have additional rights that my shares don't have.

The value of my investment will not change; profits due to new shareholders get paid after me.

12) What role does THE PLATFORM play in the investments offered on their platform?

'THE PLATFORM' is used in place of a specific crowdfunding or p2p platform.

THE PLATFORM carries out limited checks on the businesses you are investing in. You should always do your own research before investing.

THE PLATFORM carries out detailed research on all fundraisers on behalf of investors and is contractually obliged to ensure that investments achieve the advertised rate of return.

Once a fundraise is complete, responsibility for all future payments rests with THE PLATFORM.

Thank you for undertaking the Can you pass the test required to invest in UK private companies? Survey, your answers will be used by the UKCFA to understand more about the effectiveness of this test.

If you would like to find out more about the important work we and our members undertake please visit: https://www.ukcfa.org.uk/about-us/

Can you pass the test required to invest in UK private companies?

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