As reported by DIY Investor (Innovative Finance ISA) then Chancellor George Osborne announced that the Innovative Finance ISA would be launched in April 2016 to allow peer-to-peer (P2P) investments to be included within a tax efficient wrapper.
In theory, P2P lenders have been allowed to offer the new product since then, but the regulation process meant that only a handful of small firms were fully regulated in time (Regulation Stymies Innovative Finance ISA Providers).
However, one of the largest P2P lending platforms, Lending Works, will be offering the Innovative Finance ISA (IFISA) ‘within weeks’ having been granted full FCA approval.
Lending Works originally applied for FCA approval in October of 2015 and had undergone a ‘stringent review process’; since then it has been operating with interim permission from the FCA – ususal for firms going through the approval process
P2P lending allows savers to get higher returns by lending their money directly to borrowers via a platform, either for personal or business loans, and Lending Works said it would be launching its IFISA ‘imminently’ after becoming the first major firm to be fully regulated by the FCA.
Interest rates on offer are higher than those available through banks, but it is riskier, and investors’ money is not protected by the Financial Services Compensation Scheme.
Lending Works said savers would be able to access identical rates within the IFISA to other investors on its platform; rates change every week, but currently investors who lend for three years get 4.2%, and those who lend for five years get 5.2% – within the ISA wrapper this is tax free.
Lending Works’ relatively simple structure and smaller size is believed to have made it easier and quicker for the regulator to assess but several others are expected to be hot on its heels.
Nick Harding, CEO of Lending Works, said it was a ‘momentous day’ to finally receive FCA approval: ‘This achievement is the culmination of what has been an intensive journey for us over the past year and vindicates all that we do and stand for as one of the UK’s leading P2P platforms. Fair and accessible financial services that uphold the highest standards in both service and governance is a guiding principle of our business. Therefore, we have always supported greater regulation in this sector and welcomed the FCA’s review. The authorisation process is a positive move that will give better protection to consumers, ensure greater transparency and accountability in our sector and will ultimately help grow the profile of peer-to-peer lending in the UK as a genuine, strong and competitive alternative to mainstream, traditional lenders.’
Harding said that full authorisation meant a quick launch for their IF ISA – a product they have been working on for many months.
Fair and accessible financial services that uphold the highest standards in both service and governance
‘Given the great benefits this new tax-free wrapper will bring, the level of enthusiasm among our lenders, and indeed consumers within the wider sector, for the new IFISA has been substantial. We very much look forward to delivering this new product imminently.’
Lending Works launched in January 2014 and is a member of the UK P2PFA. The online lender currently facilitates over £2 million in loans per month between lenders and borrowers around the UK. As of September 2016, Lending Works had lent a total in excess of £35 million.
The FCA is believed to be processing applications from another 85 firms, some of which had interim regulation and others that are currently unregulated.
Several of those awaiting regulation are larger, well-established, firms that already have thousands of customers, with a number stating that they are confident of achieving regulation by the end of the year.
Larger platforms should ‘expect progress soon’, according to Christopher Woolard, director of strategy and competition at the FCA earlier this week.