The draft regulations surrounding the forthcoming Innovative Finance Individual Savings Account was published earlier this week by the UK government. The much-anticipated vehicle is expected to add fuel to the peer to peer lending industry as it will open up the asset class to a much broader audience of investors. It is estimated by one study over 400,000 people could leverage the Innovative Finance ISA. At the end of 2015, it was estimated the market value of Adult ISA holdings to be at £483 billion. Not a small amount. But will only a handful of P2P lenders be able to benefit out of the gate?
The legislative change states:
“operator” means a person who has permission (other than an interim permission) under part 4A of FISMA 2000 to carry on the regulated activity specified in article 36H of the Regulated Activities Order 2001”;
This appears to assert that fully regulated P2P lenders are only allowed to participate in the Innovative ISA’s. Speaking with Crowdstacker, a platform with FCA approval, a representative stated they know of only five platforms with full permission – including themselves. Those platforms with Interim permission may be cut out – at least initially. Of course, there are still several months before the Innovative Finance ISAs become actionable and these are “draft” rules. Within that time, the FCA may provide final approval for additional P2P lenders.
Crowdstacker CEO and founder Karteek Patel commented on the Innovative Finance ISAs;
“The peer to peer sector has been eagerly awaiting more news from the Government about exactly how the Innovative Finance ISA will work. These recent clarifications provide the basic structure which will enable platforms like ourselves to define how we can administrate this. Undoubtedly it will make a marked difference for investors with additional savings of up to £400 on offer. (based on a P2P loan paying 6% p.a. over 3 years). Interestingly the terms mean that currently only a handful of platforms, including Crowdstacker, that have full FCA permissions will be able to offer the IFISA wrapper for their products.”
It is probably best that only fully compliant platforms are allowed by the FCA. The approval process must be sufficiently rigorous to exclude those not capable of complying with the regulatory agency. Time will tell, but all indicators point to another step-up for the P2P lending industry as savers will soon have a new option to boost gains with better risk-adjusted returns.
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