The dawn of the IFISA
The Innovative Finance ISA – which will for the first time allow peer-to-peer investments to benefit from ISA relief – is slated to go live on April 6th. Here is a spot where the term “landmark” might justifiably be applied. The tax wrapper is expected by many to once and for all tilt the already burgeoning peer-to-peer space into the mainstream.
But questions remain. Equity crowdfunding investments are being barred from IFISA inclusion for the moment, but the consultations persist. “Debt securities” are in. The FCA is actively considering whether its suitability rules for advising on investment ought to be applied to those IFAs who choose to settle within the new world of IFISAs – meaning that “reasonable steps” will need to be evidenced in support of recommendations. That may not prove as troublesome as one might think, in light of a recent report from Intelligent Partnership which would suggest that financial advisers continue to suffer from a general lack of awareness of peer-to-peer products. Finally, will the April 6th date prove as pivotal as has been suggested? Perhaps not, if peer-to-peer platforms carrying interim permissions are unable to accept IFISA money. For you see, one must also consider…
The authorisation process
A bit of a bottleneck, inevitably. In August we learnt that 178 peer-to-peer platforms were then operating under interim permissions, of which 114 had sought full authorisation. We later learnt that a significant proportion of those applicants were experiencing difficultly, with some withdrawing from the process entirely. Deadline day (for the vast majority of platforms) fell on October 30th last year. However, we’re hearing that it will be 6-12 months before full permissions are conferred upon the successful applicants. In other words, the majority of peer-to-peer lenders (including the very largest platforms) will likely be operating under interim permissions come April 6th – therein lies the tension twixt the authorisation process and the IFISA.
Where are the referrals?
Not sure. The coming of a mandatory bank referral scheme was confirmed by government in August 2014. Since then, the progress has been underwhelming. The scheme is being orchestrated by the British Business Bank, on behalf of HMT. In July last year, the wheat was to some extent sorted from the chaff, as a number of referrals hopefuls were shortlisted for designation – including the likes of Funding Options,Funding Xchange and Alternative Business Funding (ABF). I recently caught up with each of these companies, and while some encouraging progress has been made on the partnerships front, my assessment is that the referrals players are yet to make a significant dent in the deal flow of the leading online lenders. Will that change in 2016?
Will the institutional funding run dry?
The various Closed End Funds (CEFs) that operate within the peer-to-peer/marketplace/direct lending sectors enjoyed a run of rampant investor demand between 2014 and the early part of 2015. That demand tailed off towards the end of last year. VPC’s Specialty Lending Investments raised £183m in a C Share issue, after having initially planned to raise at least £200m. The GLI Alternative Finance fund fell short of its fundraising target at debut on the London Stock Exchange. Ranger Direct Lending cancelled a £135m C Share round in late November, later raising £14m in a tap issue.
But whilst there’s been a clear cool off, the fund money is far from dried up. Look for more specialised vehicles to surface in the new year – vehicles that target a specific vertical, such as property or receivables. And of course, there’s also…
The Funding Circle SME Income Fund hit its fundraising target in November, successfully raising £150m. The vehicle differs from its asset manager/hedge fund-linked predecessors, in that it provides investors with a passive exposure to SME loans – originated exclusively by Funding circle – from the UK, US and Continental Europe, for low fees, with light-touch leverage at play.
We expect LendInvest to launch a fund of its own in 2016. The vehicle will likely be similar in size, structure, and in its target dividend yield of 6-7%. But that’s not all that we expect to see from LendInvest…
The UK peer-to-peer lending sector’s first IPO?
In February 2015, Judith Evans of the FT broke the news that LendInvest was sizing up an IPO. When first we heard, the listing was destined to take place at some point towards the end of 2015. LendInvest CEO Christian Faes later stated that there is no clear timeline in place (or publicly available) for the IPO, but that the company is focused on getting “IPO ready”. LendInvest secured £22m in equity money from Beijing Kunlun in June last year, and has since been on something of a hiring spree. We wouldn’t be surprised to see the platform go public in late 2016.
Will we see further examples of platform failure?
2015 brought us perhaps the sector’s most significant failure to date. Trustbuddy shut up shop in October, after evidence of serious misconduct on the part of the platform’s former management team was uncovered. It now looks as though the Swedish payday lender had been running a kind of peer-to-peer ponzi scheme. The liquidation process is proving to be hellishly complex. The peer-to-peer space and those observing its progress have been put on alert. Will we see more platforms blowing up in 2016?
Trillion Fund halted its peer-to-peer renewable energy loan offering last year. Fruitful wound down its retail investment offering. And then there’s Anthony Hilton’s mysterious red flag to consider. Tremors, rather than a quake. But as the dawn of full authorisation rolls around, and as the regulatory scrutiny mounts, will further examples of unscrupulous conduct crop up? Will disaster strike?
, will a bank or another big name
In the wake of
, will we see more in the way of M&A activity and industry consolidation?
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will we see a regulatory crackdown of sorts?