P2P lending rating agency 4thWay is highlighting that 77 IFISA applications are in limbo at the Financial Conduct Authority waiting for full authorisation. Within this group, ten of the largest UK P2P lenders are still in the queue. In what was expected to be a big boost for P2P lenders has ended up being a slow-paced process. So what gives?
After several months of the new Innovative Finance ISA (IFISA) being eligible there are only several leading peer to peer lenders participating in the savings program. Crowd2Fund and Crowdstacker were approved in April 2016. Another 15 have received the authorisation required to offer IFISAs, two significant ones being Lending Works and Downing. Lending Works has confirmed it will start offering its IFISA soon.
4thWay explains that none of the peer to peer lending sites will reveal all the details of their applications for authorisation but their researchers and risk professionals have learned of six different reasons for the slow progress in the launch of their IFISAs.
According to 4thWay:
1) Some, but apparently not all, P2P lending providers that lend their own money on their own platforms might have to change their structure or desist in doing this.
2) The providers have to show that lending is demonstrably directly between a lender and a borrower, and not between the P2P lending platform and the borrower. Otherwise, they need to change their contracts. Growth Street is just one example of an already convincing platform that changed its contracts recently in order to make this direct relationship clearer.
3) Where more complicated structures are happening, such as auto-allocation and pooling loans, some providers have to change either their structures or at least their marketing.
4) The FCA has a long learning curve and appears to have been slow in some cases, even taking its time to grasp the basics of the regulatory definition of P2P lending.
5) The FCA asks questions of each provider and then there is a gap of many weeks before it comes back with more, even if the answers were relatively simple. This
6) Funding Circle, RateSetter and Zopa – may not be approved until the regulator is just about ready to give all three of them the nod, in order to ensure none of them get an unfair advantage. So there’s a wait for the lowest common denominator.
Neil Faulkner, co-founder and MD of 4thWay, believes there is justification to be optimistic;
“P2P lending already has a good risk-reward balance and benefits from the Personal Savings Allowance, but, particularly for anyone with tens of thousands of pounds or paying higher- or additional-rate tax, wrapping your loans in a new IFISA will lower your tax costs further. Although the delays do seem to just drag on, there are two big reasons to be hopeful that more IFISAs from better known platforms are on the horizon.”
Faulkner said that both the government and the FCA have been supportive of the industry and the rumblings indicate the FCA is being cautious and “doing its due diligence in the best interests of consumers.” Basically it is just a matter of time.
“We’re also hearing now that the questions that the regulator are asking platforms are getting more trivial and less important, so it appears that many platforms have satisfied the regulator on most of the more critical issues,” explained Faulkner.