When George Osborne announced the development of the Innovative Finance ISA (IFISA) back in 2015 there was huge excitement across the peer-to-peer (P2P) lending industry.
It was widely believed that saver-investors would be snapping up these accounts once they launched in April 2016, as research from the Peer2Peer Finance Association had found that 62% of P2P lenders said they would “definitely” invest in one.
Nearly a year after launch just a handful of companies including Lending Works, Abundance, Crowd2Fund, Crowdstacker and LandlordInvest offer IFISAs, with bigger names like Zopa, RateSetter and Funding Circle noticeably absent from the lineup.
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Am I missing something?
There’s no shortage of investors to snap IFISAs up.
Recently published figures from the Peer-to-Peer Finance Association show that its eight members – including the UK’s three biggest providers – collectively lent £843.9 million in the final quarter of last year, with a total of almost £3 billion lent across the whole of 2016.
Commenting on the data, Robert Pettigrew, director of the P2PFA, said: “2016 has been another year of impressive growth in peer-to-peer lending in the UK: further consolidating the sector’s position in the future of financial services.
“Whilst uncertainties in the broader economy attract much comment, it is clear from the robust growth in levels of peer-to-peer lending that P2PFA platforms and their investors are positive about the future.”
So, there’s demand, huge growth in the industry, the chance to earn tax-free returns on the investment. So where the hell are all the IFISAs and why don’t more of us have them yet?
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Where are all the IFISAs?
We spoke to Neil Faulkner, managing director of 4thWay, a comparison and information site devoted to P2P. And we asked a simple question: ‘What the hell is happening with Innovative Finance ISAs?’
“They’re coming, they really are,” he says. “There are currently four platforms offering them; Abundance, Crowd2Fund, Crowdstacker and LandlordInvest, and there are two more coming very soon, both Lending Works and Landbay have their approval.”
Since talking to Neil, Lending Works has now launched their IFISA. Read more about it here: Lending Works review: the safest UK peer-to-peer lender around? And we’ve got wind that another platform called LendingCrowd will be offering an IFISA next week.
Neil predicts that over the next year or so we’re likely to see a new platform a month announcing it is ready to offer IFISAs. So… why has it taken so long when the tax-free wrapper was supposedly launched last April? Is there simply no demand?
“There’s one major reason,” he says. “Platforms can’t offer IFISAs without permission from the Financial Conduct Authority and it has not been able to give that permission to many platforms just yet."
The FCA has said it is “keen to promote effective competition” in the market and that it needs to take a proportionate approach to regulation.
It has stated: “It is important that applications from firms wishing to be fully authorised are properly considered and that the firms meet rigorous statutory standards."
The FCA also told us that the time an application takes depends on a variety of factors, including how ready the firm applying is.
Typically the process takes six to 12 months, however, the FCA stressed that what matters is that applications are properly considered.
Permission to land
“A large part of that is that the FCA is clearly overworked,” Neil says. “Platforms tell me that they have been asked a simple question, provide a simple answer but then weeks go by. Quite often it turns out that the people they have been talking to at the FCA have changed and there’s a new person to get up to speed.
“Secondly, the FCA has had a big learning curve with this; it’s a brand new type of investment. The regulator is trying to learn exactly how it works and do due diligence, which is obviously very important.
“The third reason is that the platforms themselves have had a lot to do; what’s really slowing the process down is that some don’t have what the FCA wants. For example, many don’t offer contracts between a specific borrower and lender, which can cause problems for simply qualifying as P2P.
“Many platforms have lent their own money in advance, they prefund the loan and then sell the loan parts on to individuals, but the regulator doesn’t like that. Other issues are how they try to lower the risk.
“Take reserve funds, for example, some platforms are having to change how those are structured to comply. Those are just examples, not the main reasons but the kind of regular difficulty that’s going on.”
Interestingly, Neil hypothesises that the reason none of the ‘big three’ P2P platforms – Zopa, RateSetter and Funding Circle – have yet been approved is that the regulator will wait until they are all ready for approval so as not to give one a competitive advantage.
It is certainly true that those three platforms provide a huge chunk of the market and that, when they finally begin providing IFISA investments demand is likely to soar.
Is the IFISA an omnishambles?
So, hang on a minute. The Government announced IFISAs back in 2015. It launched them in 2016. It is now 2017 and the majority of platforms have still not been approved. Can we at least scoff at the Government for not getting its ducks in a row?
“No,” says Neil simply. “The last Government really backed it and moved it along at a real pace. The people I have spoken to in the banking industry say that they have never seen the industry move so fast with something new. The new Government may be distracted by Brexit but it’s not putting any barriers in the way, it’s still supportive.
“It’s just new and these things take time. But 2017 is likely to be a big year.”
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