Has the Treasury acted to allow the multi-platform IFISA investment?
We are now less than 3 weeks away from the advent of the Innovative Finance ISA, which will for the first time allow retail investors to invest in peer-to-peer loans through the ISA wrapper. The Chancellor announced in yesterday's Budget that ISA allowances will be hiked from £15,240 to £20,000, effective April 2017 – potentially making the soon-to-launch IFISA all the more impactful.
There have, however, been snags along the way. The most pressing is the regulatory status of the major peer-to-peer lending platforms, which for the most part continue to operate under interim permissions. A recent update confirmed that P2P platforms will be required to hold full permissions in order to be deemed eligible for IFISA investment. The “big five” peer-to-peer platforms (Funding Circle, Zopa, RateSetter, MarketInvoice and LendInvest) are yet to receive full authorisation, and it’s not entirely clear when they’ll get it. The vast majority of peer-to-peer lenders are in the same boat. There are several anomalies – like Crowdstacker and FundingTree – that are already fully authorised, but generally speaking the platforms have been forced to twiddle thumbs while awaiting the blessing of the FCA.
Another potential stumbling block has been the rules surrounding the allocation of IFISA money. As it stood, investors had to invest their IFISA allowance directly through peer-to-peer platforms and not via their existing ISA managers. Perhaps more importantly, investors could only invest that allowance with a single provider. They could not invest across multiple platforms under a single wrapper.
Jake Wombwell-Povey, Co-Founder and Managing Director of Goji, has long argued that IFISA legislation needed to be updated for the scheme to function effectively. Specifically, he has been calling upon government to open up new distribution channels, such as investment platforms, many of which are tried and tested ISA managers. It now appears that his prayers have been answered.
A legislative amendment from the Treasury on the ISA – issued 14 March, coming into effect 6 April – appears to have opened up the possibility of multi-platform IFISA investments. These amendments can be difficult to interpret, but Gillian Roche-Saunders – Head of Venture Finance at Bovill – is convinced of its significance:
“Now the IFISA can be diversified across the different platforms and, from autumn, across bonds as well as p2p loans. This could move the IFISA from a niche concept to the mainstream market. As investors are limited to one ISA, such diversification is critical and we expect both traditional ISA providers and crowdfunding aggregators to make the most of the opportunity.”
Mr. Wombwell-Povey – who was understandably enthused – also weighed in:
"With a matter of weeks until the IFISA goes live, the news that HMRC has amended draft legislation to allow aggregator platforms could not be more welcome. Goji has consulted with peer to peer lending platforms, run a sustained campaign on this issue, and applaud HMRC for being so open to counsel from the industry.”
"This subtle difference in regulation will have a colossal impact on investor's who choose to participate in P2P lending. It will widen the P2P lending industry's reach and appeal and solidify its reputation as one of the most exciting investment areas for retail investors right now.”
"The credibility that the IFISA offers to P2P lending will prove crucial for sustainable, long term industry growth and diversifying platforms investor bases and sources of funding. Of course the Chancellor's announcement in the Budget yesterday, that from next year the ISA limit will increase to £20,000, will also be a massive boost."