Assetz SME Capital Limited · DRN-6225547

The complaint Mr N complains that Assetz SME Capital Limited has treated him unfairly when administering his peer-to-peer lending account. He’s unhappy with changes made to the withdrawal system, which he says disadvantaged him compared to other lenders. What happened Mr N has been investing on Assetz peer-to-peer lending platform since July 2019. Assetz provided several types of sub accounts that gave lenders different ways of investing on the platform. Mr N invested in the Access Accounts and one of the features of this type of account is that when an investor makes a request to withdrawn funds it would be placed on the secondary market. Funds were originally released to lenders on a first in first out basis (“FIFO”). In March 2020, Assetz informed customers that due to the abnormal market conditions caused by the global pandemic, it needed to initially pause withdrawal requests whilst a review of the situation was carried out in order to put in place a queuing system. From 19 March, a queuing system was put in place that involved a flat distribution of funds. Assetz explained the method divides the amount to be distributed equally amongst all lenders on a per withdrawing account basis. Mr N raised a complaint with Assetz in September 2023. His complaint points were very detailed and although I’ve reviewed these in full when reaching this provisional decision, I’ve summarised them below: • He felt there was issues regarding the pool distribution of funds as prior to March 2020 funds were distributed on a FIFO basis. • He felt Assetz’s queuing system and distribution of funds was unfair as funds were distributed on a fixed amount basis, irrespective of how much money an investor has invested – which was highly disadvantageous to investors of larger amounts like him. • He felt Assetz was using lenders’ funds against their wishes to fund development tranches. • Assetz’s vote on forbearance ignored the normal practice of weighting votes based on capital invested and so the poll was unfair and prejudicial to his interests as a lender of larger sums. Assetz considered Mr N’s complaint but didn’t uphold it. In summary, it said:

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• It took the decision to move away from the FIFO system temporarily in favour of a withdrawal system that distributed the very limited, available liquidity across all investors who had a withdrawal request pending, which it felt was fairest to the vast majority of investors. • Assetz continued to allow borrowers with development loan facilities, funded by the Access Accounts to drawdown unutilised funds. This enabled them to progress and complete development projects and avoided the very real prospect of insolvent borrowers and partially complete development projects with significantly reduced asset values. • Had Assetz not taken the action above, borrowers would not have been able to drawdown on their loan facilities, their building contractors and sub-contractors would not be paid, development projects would have stalled, and properties would not have been completed or sold to repay the loans. In addition, as a result of such events, borrowers could have asserted counterclaims against Assetz for failure to provide the loan facilities and the unfinished development projects become value distressed assets. • Assetz provided the voting data from the forbearance vote and explained that this showed that in including or excluding investors who did not vote and weighting votes by holding in loans made no material difference to the outcome. • Assetz felt its terms and conditions were clear on a lender’s termination of membership rights and explained that an investor may close their account at any time and for any reason, but that the closure process will not be able to be completed until all their loans have ended or their loan holdings have been liquidated via the secondary market, but this is not able to be guaranteed. Mr N remained unhappy and so he referred his complaint to our service for an independent review. An investigator at our service considered Mr N’s complaint but didn’t uphold it. Mr N felt the investigator hadn’t fully considered the complaint he had raised and so the complaint had been passed to me to decide. I issued a provisional decision on the matter in March 2026, explaining why I felt the complaint shouldn’t be upheld. I include a copy below: What I’ve provisionally decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I hope Mr N doesn’t take it as a discourtesy that I won’t be responding to each submission or every point he has raised. The purpose of my decision isn’t to do that, but rather to explain my findings on what I consider to be the key issues in his complaint. The crux of Mr N’s complaint is that Assetz paused withdrawals on the Access Accounts and the method employed for accessing funds was unfair. Firstly, I’ve looked at how the operation of his account was described to Mr N when he first invested. Assetz has provided screen shots of how the Access Accounts were described. These provide information about withdrawals when in normal market conditions but warns these can’t be guaranteed. This information suggest that Mr N could expect to withdraw funds fairly quickly and not expect to be in a queuing system. But the reference to normal market conditions is important. Assetz has provided detail of the FAQ document that was held on its website that

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provides a definition for normal market conditions. This says: “What is Assetz Capital’s definition of “normal market conditions”? Normal market conditions means conditions that are broadly what we have at the moment. This means economic conditions are reasonably stable, lenders are making withdrawals from the Quick Access Account (QAA) or 30-Day Access Account (30DAA), together known as the ‘Access Accounts’, in the normal course of business and other lenders are willing and able to buy their loan parts through that account and others that we offer. In addition, the Access Accounts also hold a certain amount of cash “liquid” to help increase the liquidity of withdrawal requests above and beyond normal market supply and demand. The result of the Access Accounts operation and the normal market conditions we have enjoyed to date is that every lender has had their withdrawal request carried out when they requested since the accounts opened for investment. Nonetheless past performance should not be taken as a guide to the future and abnormal market conditions could conceivably change the speed of withdrawals. Abnormal market conditions would be if there was a very large, sudden and extended demand to withdraw cash from the Access Accounts. This might be caused by a global recession, an abrupt and widespread loss of faith in peer-to-peer lending or any number of other situations. If, for a sustained period, a significant number of lenders chose to withdraw their cash in significant quantities and no (or few) new lenders were available to buy their loan parts, conditions would at that point be abnormal and the Access Accounts would not be then able to maintain their current speed of access for withdrawals. Ultimately this could mean that lenders may have to wait until a buyer could be found for their loans held within the Access Accounts, or until the loans were repaid over time by the borrowers. The latter situation arises due to the loans within the Access Accounts having monthly repayments being made by borrowers or by loans naturally reaching the end of their term for full repayment. This repayment of loans should continue to create some capital, which would be available for withdrawal by investors regardless of market conditions being abnormal. This is the reason that we quote the “in normal market conditions” message everywhere that we refer to Access Account withdrawal times; we cannot guarantee access times in all possible economic scenarios and we want our lenders to understand that.” Assetz communicated to investors in March 2020 that normal market conditions ended. It cited the excessive volatility on the financial markets as a result of the impact of the global pandemic. And its analysis of the Access Accounts’ behaviour confirmed it was seeing extreme activity around that time. It told customers in a March 2020 blog post that it had seen an imbalance created on Thursday 12th March 2020 between withdrawals and deposits that it had not seen before and couldn’t allow that to continue without a positive intervention. So it initially suspended the withdrawal system operation for Access Accounts before later introducing the flat distribution system. I’m satisfied that Assetz has provided sufficient evidence to support its assertion that normal market conditions ceased in March 2020 – due to the impact of the global pandemic. So, it follows that I think it was a reasonable decision for it to take action and inform customers that that it wouldn’t be able to operate accounts in the way it had been. The crux of Mr N’s complaint comes from his belief the actions Assetz took in March 2020 - by putting in place a withdrawal system - favoured other investors over him. He feels that he has been disadvantaged as a larger lender because of the flat distribution withdrawal system. He says, relative to smaller investors, he was put at a serious disadvantage in that withdrawals were all at the same level regardless of the level of investment. So, I have gone on to consider the broader question of whether Assetz has treated Mr N unfairly in the way it

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changed the withdrawal process. Assetz has relied on a section in its lender terms and conditions to explain why it was able to make changes and introduce a new queuing system for withdrawals in March 2020. The relevant term is: “Section 20. Altered Circumstances and Changes to The Terms 1. If there is a change in circumstances or a change in the law, HM Revenue & Customs practice or regulations or the interpretation of them, or if any Assetz Capital Company wishes to make changes to the services which it provides on the Network or Website, the Assetz Capital Companies may amend these Terms from time to time as they think fit. 2. Where a change to these Terms does not affect existing Micro Loans and does not disadvantage existing Lending Members or where the changes are reasonably believed by the Assetz Capital Companies to be in the interests of the Lending Members, the Assetz Capital Companies may make any amendments to these Terms at any time with immediate effect. Where it is necessary or desirable to make changes to these Terms which affect existing Micro Loans or may disadvantage existing Lending Members, the Assetz Capital Companies will endeavour to provide 30 days notice before any changes take effect. Any such notice shall be posted on the Website. 3. Any amendments will be posted on the Website as soon as reasonably practicable. By continuing to use the Website, by either logging in or leaving investments within Investment Accounts or Access Accounts on a daily basis, each Lending Member agrees to be bound by the amended Terms.” Assetz says the inclusion of this term allows it to make changes to the operation of accounts customers. While I appreciate this is a broad term, it does support that Assetz may vary its terms, but it still needed to consider the impact of any changes it makes on its customers. It’s not for me to decide whether this term is fair or not – that is something only a court can decide. But as a regulated financial business Assetz is under an obligation to treat its customers fairly. And the obligation I am under is to consider what is fair and reasonable in all of the circumstances – which includes having consideration for the relevant law and regulations, regulators’ rules, guidance and standards, codes of practice; and (where appropriate) what I consider to have been good industry practice at the relevant time. I’ve reviewed the terms Assetz has provided as applicable to when Mr N opened his account as well as the terms in place both prior to and after the withdrawal system was introduced in March 2020. I’ve not seen that there is a specific term that covers the appropriation of the secondary market or withdrawal system. So, I haven’t found that there is evidence to say that Assetz altered the contract by introducing a withdrawal system. But it did make a change to the way it operated the Access Accounts Mr N was invested in. There is a term that relates to loan selections that I think has some relevance to the situation I’m considering. This explains: “Section 6. Loan Selection facilities…The Assetz Capital Companies can remove, suspend or alter the terms of any Loan Selection Facility at any time although this will not affect Micro Loans already acquired under that facility.” While, this doesn’t make specific reference to the withdrawal system, it does reference Assetz ability to change or suspend the way in which loans are distributed. I believe there is a link to between the loan selection facility and the ability to withdraw from loans. Assetz updated this section of its terms by adding reference to it making amendments it considered to be in the interests of lending members as a whole – it says: “… However, in doing so it will have regard to (a) the need to balance the speed with which

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funds are invested and the level of diversification of a Lending Member's loans and (b) the objective of achieving fairness between Lending Members who wish to make similar loans at the same time. Details of the current policies on diversification and allocation processes may be published on the Website but the Assetz Capital Companies may amend these from time to time and can do so without notice if it is considered in the interests of Lending Members as a whole to do so.” The withdrawal system Assetz introduce on the 19 March 2020 was a flat distribution of funds. This meant that when funds became available for withdrawal the amount to be distributed was equally divided amongst all lenders on a per withdrawing account basis. This did lead to account holders with smaller amounts invested receiving the same level of withdrawal as larger investors. But it did mean a larger number of account holders were given access to funds. Assetz says it was a difficult decision to introduce the queuing system, but the aim of the decision was to ensure the largest number of lenders would have reasonable access to some of their funds as soon as possible. I’m conscious Assetz does need to balance the needs of all of its lending members. So, I don’t think it is a simple as a situation where one group of customers has been favoured over another. Assetz does need to show that it has treated customers fairly in its considerations of how to implement changes to the operation of accounts. I’m also conscious, if Assetz had allowed larger lenders to make full significant withdrawals this would have negatively impacted smaller investors. Indeed, it says if it hadn’t introduced a withdrawal system and left a first in, first out approach a small number of large withdrawals would have stopped withdrawals for the majority of lenders. I’m satisfied it has demonstrated why it didn’t think it would be fair for the vast majority of its customers to allow the withdrawals method to remain unchanged in light of the prevailing circumstances in March 2020. Having reviewed all of the evidence provided, I haven’t found that the changes Assetz made in March 2020 to the Access Accounts amount to Mr N being treated unfairly. It has demonstrated that during the period from March 2020 market conditions were abnormal – leading to a justification to make changes. There is a balance to be drawn between the needs of individual customers like Mr N and making decisions for the whole customer base. I do understand why Mr N would have preferred Assetz to take different actions. But this doesn’t mean Assetz must have treated him unfairly by the temporary changes made to the withdrawal system. I also understand Mr N has concerns around Assetz decision to use funds from the Access Accounts to fund development tranches. He feels that Assetz shouldn’t have been able to do this as he would have preferred to have withdrawn his funds, rather than continuing to lend. I’ve thought carefully about this and having done so, I don’t think Assetz has treated Mr N unfairly in doing so. I’ll explain why. Assetz has regulatory obligations to treat its customers fairly. This applies to both its investors and its borrowers equally. Assetz has explained that it continued to allow borrowers with development loan facilities, funded by the Access Accounts to drawdown unutilised funds. It says that this ensured that borrowers were able to progress and complete development projects and avoided the prospect of insolvent borrowers and partially complete development projects with significantly reduced asset values. Assetz says that in doing so, it has avoided any counterclaims that borrowers could have brought against it for failure to provide the loan facilities. Having weighed up the impact on both investors and borrowers, I’m persuaded Assetz’s actions were fair and reasonable in the circumstances. I say this as Assetz has explained that no development project was stopped due to lack of funding, so the risk of loss of capital from trying to recovery value from incomplete properties has been avoided, which in turn meant investors like Mr N benefited from the action taken.

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As such, whilst I understand why Mr N was concerned about his funds being tied up during this period, I’ve not been provided with sufficient evidence to support that he has been financially disadvantaged as a result. Mr N has also raised concerns regarding the way in which Assetz conducted the vote on forbearance. I appreciate he says that Assetz ignored the normal practice of weighting votes based on capital invested, however, from the data provided by Assetz it’s clear weighting votes by holding in loans made no material difference to the outcome. I’m satisfied that Mr N has been provided with this data also and so I find no reason to uphold this complaint point. For the reasons provided above, I don’t think Mr N has been treated unfairly in the circumstances, so I don’t intend on asking Assetz to do anything further. Responses to my provisional decision Assetz accepted my provisional findings, but Mr N didn’t. In summary, he felt my provisional decision was contradictory, as I accepted that there was a difference in how lenders were treated but didn’t think Assetz treated him unfairly. As Mr N remained unhappy, the complaint has been passed back to me to decide. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Mr N hasn’t provided any substantive points for me to address, beyond that he feels my decision is contradictory and unfair. I appreciate he feels strongly about his complaint, but I have fully explained why I felt the changes Assetz introduced were implemented with the interests of all its investors in mind in my provisional findings and I’m not persuaded to change my opinion. To summarise, I haven’t found that the changes Assetz made in March 2020 to the Access Accounts amount to Mr N being treated unfairly. It has demonstrated that during the period from March 2020 market conditions were abnormal – leading to a justification to make changes. I’m conscious Assetz does need to balance the needs of all of its lending member and so, I don’t think it is a simple as a situation where one group of customers has been favoured over another. I understand why Mr N would have preferred Assetz to take different actions, but this doesn’t mean Assetz has treated him unfairly by making temporary changes made to the withdrawal system. My final decision My final decision is that I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr N to accept or reject my decision before 20 April 2026. Ben Waites Ombudsman

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