The “big three” of peer-to-peer lending in the UK – Zopa, RateSetter and Funding Circle – will not be fully authorised by 6 April.
Leading peer-to-peer lenders Zopa, Funding Circle and RateSetter have confirmed that they will not be fully authorised by the start of the new tax year – the date upon which the Innovative Finance ISA goes live. The IFISA will for the first time allow peer-to-peer lending investments to be held within the ISA wrapper. It’s the culmination of a process that first began in the Budget of March 2014.
Peer-to-peer lending platforms must be fully authorised prior to accepting IFISA money. The deadline for platforms to have applied for full permissions fell as recently as October last year. The regulator then had 6 to 12 months to reach a decision on applications, and had a staggeringly large number of hopefuls to sort through.
The FCA this morning published a statement on the authorisation process. The regulator confirmed that 8 companies have now been fully authorised, with a further 86 firms awaiting a decision – 44 of which hold interim permissions. Prior to today’s update, we were aware of 5 or 6 smaller peer-to-peer lending operations that had already been fully authorised, including the likes of Crowd2Fund, Funding Tree and Crowdstacker. When the number jumped to 8 this morning, we naturally assumed that the “big three” might make up the difference – an assumption that has since been quashed by the platforms themselves. Who, then, are these extra platforms? The best we have for now is hearsay, but again they appear to be at the smaller end of the P2P spectrum.
Renewable energy investment platform Abundance will be ready to go with its ISA offering on 6 April. The Chancellor announced in November last year that “debt securities” – within which fall Abundance’s debentures – will become IFISA eligible in October 2016. This means that Abundance will not be able to distribute IFISA money until October, but will offer a "straightforward 2% p.a. return" through its ISA product before then. Most peer-to-peer lending platforms are governed by 36H rules. Abundance operates under a different set of regulations, due to having gained full regulatory sign off under the existing securities regime way back in 2011.
Another recent update confirmed that back-end solution Goji will be handling ISA-related administrative duties on behalf of Landbay, ArchOver and Assetz Capital – allowing those platforms to accept IFISA money (subject to those platforms first becoming fully authorised).
A number of the UK’s peer-to-peer lending platforms have been in touch with AltFi in recent weeks to shed light on the authorisation process. In many cases it seems that the FCA has found fault with applications, thus extending its decision-making window by up to 6 months.
“Our FCA authorisation process is progressing well and we’re looking forward to offering the Funding Circle ISA to customers as soon as we’re authorised. This will not be available on the first day of the new tax year as our review is still ongoing, however we continue to work closely with the FCA as it completes its review.
"In the meantime, we are pleased that there are other ways for investors to earn tax-free returns. Investors can buy shares in the Funding Circle SME Income Fund through a Stocks & Shares ISA or Self Invested Personal Pension, as well as take advantage of the personal savings allowance.”
Luke O’Mahony, PR Manager at RateSetter, said the following:
“We submitted our application for full authorisation in October 2015, and we are working with the FCA to become fully authorised as soon as possible, which is likely to be after the 6th of April.”
“We hope that this will happen very soon, but we understand that this is a detailed process and that the FCA is working very hard on it. It’s worth noting that the Personal Savings Allowance will allow basic rate taxpayers to earn up to £1,000 in tax-free interest each year (£500 for higher rate taxpayers), outside of an ISA wrapper.”
“We applied for full authorisation in September 2015 and are working with the FCA to progress our application. We will be ready to offer our ISA products shortly after the successful completion of the process. We now know this will not be completed before April 6th and will share more details when we have more definite timelines. That said, we are excited that from April 6th our lenders will be able to earn tax free interest as part of their Personal Savings Allowance on their lending through Zopa.”
Below is a snippet from the FCA’s statement:
“This is a young and innovative market and we expect the Innovative Finance ISA, which launches on 6 April, to further increase consumers’ awareness of peer-to-peer lending (P2P). The FCA is keen to promote effective competition in this market. We are taking a proportionate approach to regulation, recognising the need for consumers to be adequately protected and have the information they need.”
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.