Understand The Risks
Understand the risks
Updated 19th December 2022
Lender/Investor P2P Risk Warning
The following risk warnings for Peer to Peer (P2P) lending refer specifically to the following product categories:
- Select/Select IF-ISA
- Auto/Auto IF-ISA
- Buy to Let/Buy to Let IF-ISA
Capital is at risk
Capital is at risk and Kuflink Ltd is not protected by the FSCS. Typically, higher rates of up to 8.08% could be available if you compound appropriate Select/Select IFISA investments. Securing investments against UK property does not guarantee that your investments will be repaid, and returns may be delayed. Tax rules apply to IFISAs and SIPPs and may be subject to change. Kuflink does not offer any financial or tax advice in relation to the investment opportunities that it promotes. We are professional property lenders with the skills and experience to make responsible risk assessments.
Kuflink undergoes thorough due diligence to ensure the loans we underwrite are thoroughly assessed and accurately represented on the platform. Estimated returns and past performance are not reliable indicators of future returns.
Kuflink's Gross annual interest equivalent rate (compounded annually) definition
The annual comparable interest rate for compounded investments depends on the simple interest rate, the compounding period and the investment period. To compare the interest on simple interest investments and compound interest investments, we use the "Annual interest equivalent rate", defined by calculating the compounded rate over the investment period divided by the number of years. For example, a three-year pool investment with an annual interest rate of 6.1% compounded annually would pay 19.44% at maturity, which translates to 6.48% per year.
Mezzanine Loan Risk Warning
You could lose all your money investing in these products as these are the highest-risk forms of debt. We only do second charge mezzanine loans if Kuflink has the 1st charge. This product is not available to Everyday investors.
Property as security
Securing investments against UK property does not guarantee that your investments will be repaid, and returns may be delayed. The market value of the property can go down as well as up and the return of your capital may be dependent upon the borrower selling a property. This can never be guaranteed.
Default & Delay
Repayment of loans is not a certainty, and from time-to-time borrowers may default. Kuflink endeavours to mitigate this risk by having a full due diligence process to assess the project and the borrower before listing the investment on the platform. Unexpected things can happen, and the due diligence process does not completely remove the risk inherent in lending. Loans may be re-termed, and borrowers may miss repayment deadlines which means there may be a delay in your investment being repaid and your funds will be tied in for longer than anticipated. In the event that a property borrower does not meet repayment terms, their security property may be repossessed and put into receivership. The process of receivership does not guarantee that the full outstanding capital and interest amounts of the loan are recovered. You may not receive all your capital back and the process to repossess and sell the property could alter the time your money is tied in.
Kuflink's model is to continue to pay Interest to its lenders even if the borrower is not paying Kuflink interest that is due, to ensure lender's cashflow is not disrupted. In these instances, Kuflink keeps any default interest it may recover, as it pays any regular interest/compounded interest to lenders.
Kuflink reserves the right to stop paying interest accrued by lenders on all products where the Borrower does not pay interest that is due. In this event, Kuflink's governing body may exercise the following discretion. Where the Borrower is charged and pays default interest on their account, the lender may be paid a percentage of the default interest proportionately, as a cashback into their wallet, as well as any regular interest/compounded interest.
If you are new to lending in UK-based P2P platforms you should seek advice from a qualified financial advisor.
Additional considerations for Auto/Auto-IFISA, Buy to let/Buy to let IF-ISA & SIPP Pools
While the diversification within these products is designed to reduce risk compared to Select Invest, it is important to note that defaults can also occur with Auto/Auto-IFISA, Buy to let/Buy to let IF-ISA & SIPP Pool products. There is therefore no guarantee that we will be able to return all of your capital within the notice period because some loans may have gone into default and the return of those monies is dependent upon the loans being repaid.
Selling your Auto/Auto-IFISA, Buy to let/Buy to let IF-ISA & SIPP loan part on the Secondary Market is not available, and so your funds will be tied in for the duration of the term you have selected (1, 3 or 5 years).
Over subscription of the Pool - This is where the invested amount in the Pool is larger than the total loan amount.
This can happen if the total loan amount reduces due to a loan repayment. If the pool is oversubscribed, the outstanding funds relating to P2P agreements will be held in the Kuflink client account whilst waiting to be allocated to a new loan in the pool (when one becomes available).
- Your account will show the unallocated funds you have waiting to be deployed per investment.
- These funds cannot be withdrawn as they are committed to your investment in the Pool
- You will continue to be paid interest on the original investment amount.
- Kuflink reserves the right to return unallocated capital to you and not to pay further interest on these funds
You are responsible for the administering of your own tax affairs, which may include capital gains and income tax. We won't deduct any tax from any interest you receive and/or any proceeds of sale of any loan agreement. We do not provide tax advice, and you should seek this independently before investing if you are unsure of your position. It is your responsibility to ensure that your tax return is correct and is filed by the deadline and any tax owing is paid on time.
Your investment is not FSCS protected
It's important you know that your investment is not covered by the Financial Services Compensation Scheme (FSCS).
For Individual and Corporate investors, wallet funds are in a protected Client Account
For Individual and Corporate investors, the funds in the wallet are covered by FCA CASS (Client Assets Sourcebook) Client Money Rules and are held in a segregated client account with Natwest Bank Plc. There is no capped limit with CASS protection. The total amount in this account is covered and held in trust by Natwest Bank Plc for the respective investors. Should Kuflink Ltd become insolvent, the liquidator, administrator, etc. and the banks will release these funds as soon as possible, following the CASS procedure. Your investments via Kuflink's platform are not covered by CASS. Your capital and interest are at risk.
What happens if Natwest becomes insolvent?
Whilst your funds are in your Kuflink wallet, they are held as deposits in our client money accounts with Natwest Bank Plc. Natwest is covered by the Financial Services Compensation Scheme (FSCS). Funds held by us on your behalf in our client accounts would be considered your deposits and are therefore in scope for protection by the FSCS. This protects deposits up to £85,000 per individual per bank.
Illiquidity and Secondary Market
Select Invest and Select Invest IFISA loan parts may be sold on Kuflink's Secondary Market, however terms and conditions and fees apply. Some restrictions will apply. Listing loan parts on the secondary market requires administration authorisation to ensure there is no information that will affect the loan performance before it is listed. This can take up to 24 hours to review and then reject it (due to new information required) or list it. This service enables you to liquidate your investments, but it is not guaranteed.
You will continue to be the lender for the loan part until it is sold, and you will continue accruing and receiving interest during the period it is for sale. Once sold, the associated capital is credited to your account and treated as unallocated funds until such time as you invest in another loan or withdraw it.
Selling a loan on the secondary market relies on another investor buying that loan part. Although loan parts can sell within days, we cannot guarantee the sale. Loans are sold at par value and lenders cannot apply a premium or discount to the outstanding value.
Auto-Invest and Auto-IFISA loan parts cannot be sold on the Secondary Market. Your funds will be tied in for the duration of the term you have selected.
In the event of Kuflink becoming insolvent, we have taken a number of steps to ensure that all your active investments are serviced until maturity.
If you hold money in a wallet, this will continue to be held in a separate Client Money Account so it can be returned to you even if the Wind-down process was activated. The security provided by our borrowers is not held directly by the platform but by a separate company called Kuflink Security Trustees Ltd, this is an asset holding company only and does not trade. Please note, Kuflink's stake will be the last amount that is paid during this process.
The Wind Down Plan would be managed in-house by existing staff, systems and with the same regulatory rules and requirements that the platform currently operates within. This would allow Kuflink to use its products and platform expertise to maintain the quality of the execution of the plan, minimising risks that would arise if we were to transfer operations to a third-party provider, and maximising outcomes for our customers. This WDP is designed for Kuflink to continue for two years to wind down the book to zero. All expenses have been predicted and these funds have been put aside in a segregated bank account.
Kuflink constantly works with the FCA and monitors the WDP as the business evolves to ensure the amount put aside is sufficient to cover a sensible wind-down of the business.
Innovative Finance ISA (IFISA) specific risks
The tax-free entitlement of an ISA depends on your circumstances and may be subject to future change. Your annual tax-free allowance for 2022/2023 is £20,000 and subject to change in the next tax year. Any withdrawals or capital losses count towards your annual tax-free limit and cannot be replaced in that tax year. Kuflink Ltd is approved as an ISA manager by HMRC.
Tax consequences if:
the innovative finance component is a P2P agreement that is not repaid.
Kuflink will inform of full or partial non repayment by the borrower. IFISA tax free allowance will not be affected. Loss of investment may have tax consequences. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
an operator of an electronic system in relation to lending which facilitates a P2P agreement fails.
Kuflink will need to inform HMRC of the Company's decision to wind down. All IFISA funds will need to be transferred to another HMRC approved ISA provider to maintain their tax-free status. The cash will remain within the IFISA wrapper and will continue to do so until you withdraw or transfer out the IFISA. Please note that if you withdraw money from an IFISA to your bank account, it will lose its tax-wrapper. To protect the IFISA status, you must transfer to another provider by asking your new ISA provider to start the transfer. We would encourage you to start the process as soon as possible (when funds have been returned to your Kuflink IFISA Wallet or we have notified you that funds are on their way).
In a wind-down situation, Kuflink needs to follow the 'Involuntary Cessation' guidance of HMRC and issue notices to HMRC and investors. An ISA Manager who has ceased to qualify must inform HMRC and each investor within 30 calendar days of the date he ceased to qualify, i.e., from the date the wind-down resolution was passed.
The notice to investors must inform them of their right to transfer their ISAs to another manager. If circumstances allow, Kuflink will endeavour to make arrangements with another comparable property backed IFISA manager, which can offer terms comparable to those of Kuflink to help investors with this process.
the procedure for, timing and tax consequences of:
withdrawing a P2P agreement from the innovative finance ISA
On notification from HMRC or otherwise the firm identifies the investment is not eligible for tax free investment either because:
- investments held in the account are non-qualifying
- investor is not a qualifying individual
- subscription to the account is invalid
The Firm will inform the investor of the findings and immediately move the investment made into Auto-IFISA to Auto investment, investment made into Buy to Let-IFISA to Buy to Let investment, and investment made into Select-IFISA to normal Select investment. This could mean tax free income reported for current and previous years might be incorrect and may affect the investor’s tax position in the current and previous years.
a request for transfer of all or part of the innovative finance components in the innovative finance ISA.
Investors have the right to transfer some or all of their Funds in their IFISA wallet whenever they want. IFISA’s which are invested also can be transferred when they are matured and transferred to their IFISA wallet. The Firm will adhere to HMRC’s ISA manager regulations re IFISA transfers. In the event of current year transfers are not carried out properly may mean that tax free allowances could be lost.
Only Select Invest IFISA loan parts may be sold on Kuflink's Secondary Market;
however, terms and conditions and fees apply. Some restrictions will apply. Please refer to “Illiquidity and Secondary Market” above. Auto/Auto-IFISA, Buy to let/Buy to let IF-ISA & SIPP Pool loan parts cannot be sold on the Secondary Market. Your funds will be tied in for the duration of the term you have selected.