As most readers will know, peer-to-peer investments will be eligible for inclusion within the IFISA tax wrapper from 6th April 2016. But a number of questions persist about the operation of investing into peer-to-peer loans via such a method. These questions pertain to the issues of disclosure and advice.
The FCA is keen to ensure that prospective IFISA investors are well informed on the matter of “tax consequences”. Specifically, what are the tax consequences for investors if a peer-to-peer loan is not repaid? What tax consequences arise from an investor wishing to withdraw a P2P agreement from an IFISA? The regulator is also seeking clarity on the procedure for switching ISA managers.
Furthermore, the FCA has touched upon an issue which has cropped up a fair bit in industry chatter recently. Namely, what are the risks of peer-to-peer lenders with “interim permission” becoming ISA managers? The window for peer-to-peer platforms to apply to the FCA to become fully authorised closed at the end of October (for all but a few exceptions). The FCA has since indicated that it will take between 6 and 12 months to consider an application. The advent of the IFISA is just 5 short months away. We might well therefore see platforms that are operating under interim permissions whilst taking ISA money. Should those platforms then subsequently be denied full authorisation, they would be forced to either close down, or to rejig their offering and reapply. They should have a living will in place, in order to ensure the smooth administration of all outstanding loans, but it’s a clear risk nonetheless. The FCA has suggested that, for platforms operating under interim permissions, “further information should be disclosed to prospective investors outlining the risks”.
The FCA is also looking to intervene in the way that IFISA advisory services function. From April 2016, giving advice on investing in P2P agreements will be a regulated activity. The FCA is now actively considering whether its suitability rules ought to apply to those that offer advice on investing via peer-to-peer platforms. If the regulator does indeed follow this course of action, advisers would be required to take “reasonable steps” to ensure that their personal recommendations are suitable for their clients. The peer-to-peer market has thus far struggled to attract the attention of IFAs. The need for “reasonable steps” will likely cause further wariness. And where indeed will advisers turn to evidence the “reasonable” nature of their due diligence efforts? The Liberum AltFi Returns Index (LARI) would be a good place to start, as it is perhaps the only accurate representation of historical performance in peer-to-peer lending available.
Finally, the FCA is also actively considering making the process of advising clients on peer-to-peer investments subject to the rules that forbid the payment and receipt of commission. In other words, advisers will be required to operate revenue models that rely upon client fees, rather than on provider commission, in order to ensure that they provide clients with a fair market view. These rules, if passed, will also be applied to portals, such as those managed by SIPP operators.
Those that are keen to respond to the FCA should do so by 31st December 2015. The FCA will then consult on any changes once legislation is made.