Peer-to-peer ISA quick intro
The Innovative Finance ISA (IFISA) is the biggest milestone in marketplace lending since regulation of the industry in 2014. This new ISA will allow retail investors (and savers alike) to earn interest from their peer-to-peer investments tax-free upto the annual ISA allowance of £15,240, through an IFISA. The actual mechanics of the IFISA, like how you can spread your allowance, how to open an IFISA, how many products/platforms you can invest in and how you can access your money is relatively complex, read more here if you’re interested in opening an IFISA: ‘Peer-to-Peer ISA changes benefit savers’
Innovative Finance ISA build up
Everyone in the industry was giddy with excitement at the prospect of the IFISA launching, 6th April. Media outlets were presenting a David vs Goliath situation between peer-to-peer lending UK and the larger wealth management sphere in the country. Many brokerage firms ignored the introduction of the IFISA, claiming they wouldn’t offer a 3rd party for their clients to invest in P2P products. While other firms made it clear they MUST take notice of marketplace lending, and will be looking into a P2P offering in due course. The government backing the peer-to-peer market with a tax-break for investors in peer-to-peer lending is something of a stamp of approval that this industry is going nowhere. In fact, it’s being promoted as a viable alternative offering the best interest rates on the market.
IFISA D-Day launch
Now, because of the relative infancy of P2P lending, “firsts” are a common occurrence. So, the IFISA was something even the P2P platforms were uncertain of. How will it work? Where are the guidelines? Will P2P lenders have permissions in time?
Here are the answers.
1. It works like this: you can open an IFISA with a given platform and invest in their product(s) earning tax-free interest upto the annual allowance of £15,240. OR you can open an IFISA with a 3rd party provider and store multiple P2P products in it. Read more here on how the IFISA works.
2. The guidelines are only now being issued to the ISA Plan Managers.
3. Short answer, no, many platforms don’t. The “big three” — Zopa, Funding Circle and RateSetter — certainly missed out on the opportunity to offer their IFISA products on the day of launch. Other platforms, like Abundance Generation, received full FCA regulation and HMRC permissions by launch date and so can offer the IFISA.
Platforms, in order to offer the Innovative Finance ISA, MUST be fully authorised and regulated by the Financial Conduct Authority and have ISA permissions granted by the HMRC. Many marketplace lenders have been operating under interim permissions, and so are NOT fully regulated by the FCA.
Industry reaction
Needless to say, the 6th of April was a bit of an anti-climax, with the likes of Zopa and RateSetter writing to their investors assuring them their respective IFISA product will be available soon. We spoke with Bruce Davis of Abundance Generation and they were satisfied with the interest in their product, expecting to see further IFISAs opened as the months pass. We also spoke with industry news site AltFi’s Ryan Weeks, who had this to say:
The launch of the IFISA — whilst undoubtedly a major milestone in the development of the P2P space — will not change the face of the industry overnight. The vast majority of peer-to-peer lenders have not yet been fully authorised, including the “big three”. As one platform representative said to me, the IFISA is not a “one off” (event) — “it’s a multi-year transition”
Conclusion
The conclusion we can draw from this, is that the regulators are being careful. They are taking their time to get through the long scrutinising regulatory process with peer-to-peer lending UK platforms, so that savers and investors coming into marketplace lending are as protected as they can be in this alternative investment space.
