By Ryan Weeks on 14th December 2015
The UK’s peer-to-peer lenders might have to wait a little longer than expected to start accepting ISA investment.
The Innovative Finance ISA is set to go live on April 6th next year, for the first time enabling peer-to-peer investors to benefit from ISA relief. The peer-to-peer lending platforms themselves (with the exception of a few outliers) recently passed through the deadline by which applications for full authorisation had to have been filed with the FCA. Intel from consultancy group Bovill suggests that the FCA has fielded hundreds of applications. We’re hearing that it could take the regulator anywhere between to 6 to 12 months to sift through the backlog of hopefuls. So a question arises, as does a potential problem; will firms operating under interim permissions be eligible for IFISA investment come April 6th?
Thanks to draft legislation published last week by HMT, we now have a little more clarity. The update – entitled “Draft legislation: Innovative Finance Individual Savings Account and peer to peer loans” – suggests that only fully authorised platforms will be able to accept IFISA money. Item 7.3 in the Draft Explanatory Memorandum states the following:
“In line with these changes, the instrument will update the ISA Regulations so that providers with full permissions to carry out activities detailed in Article 36H or Article 39G of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 can also obtain approval from HMRC to be an ISA provider.”
Crowdstacker – the peer-to-peer platform that is going after the “M” of the SME lending space – was among the first to spot the wording. Crowdstacker in fact has full permissions in place already, as do four other platforms. This is due to a quirk in the authorisation process that has allowed a number of relatively early stage platforms to get through the door ahead of schedule, including, for example, Funding Tree (which offers both debt and equity funding solutions).
The UK's oldest and largest peer-to-peer platform Zopa is a part of the HMT working group that is shaping the IFISA legislation. Having spoken with representatives of the platform, we learn that negotiations are ongoing on the matter of which platforms will be eligible to receive IFISA money. In other words, the draft legislation that was published last week is by no means set in stone.
Could it really be that, come April 6th, a handful of nascent operators alone will share in the first of the IFISA money? Doubtless the peer-to-peer sector’s larger players will resist such an outcome. But what would creating a level playing field entail? Extending the IFISA date? Allowing lenders with interim permissions to take IFISA investment? Of course the problem with this latter solution is that there is no guarantee that all platforms carrying interim permissions will obtain full authorisation, adding an element of risk to them then accepting IFISA money.
Is not the fundamental issue here that you have two government entities with conflicting interests? The FCA – obsessing over the protection of consumers, and HMT, which is bent on getting money flowing in the British economy.
We’ll continue to track this situation as negotiations move forward.