Peer To Peer Platforms and Innovative Finance ISA

The government has introduced Innovative Finance ISA (IFISA) to the peer-to-peer lending market. IFISA will allow you to lend up to an annual allowance of £15,240 to individuals or SMEs through a P2P platform within an ISA wrapper, so interest on that portion of savings will be free of tax.

All companies that offer IFISA must be registered with the Financial Conduct Authority (FCA) and HM Revenue & Customs (HMRC).

94 P2P lending platforms have sought approval from the FCA to offer an IFISA. But because of the regulator’s rigorous checks, only two peer-to-peer lending platforms have been given the all clear by HMRC to provide the IFISA — Crowdstacker and Crowd2Fund.

While six platforms have been granted FCA-approval – GO2 Partners, Funding Tree, Formax Credit UK, Resolution Compliance, Clasp Investment and EdAid. The six platforms must now seek approval from HMRC before they can launch their IFISA offerings.

What’s causing the delay?

According to the FCA, it takes almost a year for most P2P lending platforms to accomplish the whole approval process. The time it takes for an application to be given the go-ahead depends on the complexity of the business and its compliance with regulatory requirements. The launch of IFISA products from those firms also depends on when they started their approval process.

An FCA spokesperson said that applications from these firms that are wishing to be fully authorised must meet “rigorous statutory standards”.

A spokesperson for the Treasury also said that companies need to meet such rigorous standards before they start offering IFISA products “to protect consumers”.

How does the Peer to Peer Platform – IFISA work?

Just like crowdfunding, IFISAs have no financial middlemen between the lender and the borrower. Therefore, the interest paid on the loan and the original capital go directly to the lender, with the platform taking a small charge.

Unlike cash ISAs, IFISAs are risky since the money you put into the ISA is lent directly to individual borrowers or SMEs, therefore your capital isn’t guaranteed if your investments don’t thrive.

IFISA is subject to the same rules as all other ISAs, such as their maximum tax-free allowance of £15,240 per year.

Watch this space for more information.