The Innovative Finance Isa has been criticised by a peer-to-peer technology provider for giving investors access to just one provider and failing to allow them to spread risk.
In a letter to HM Revenue & Customs, Jake Wombwell-Povey, managing director of P2P platform technology provider Goji, urged the tax office to amend the draft legislation so that investors can spread their risk across different P2P lenders.
He argued the proposed legislation fails to meet the government’s intention to “increase choice for Isa investors by introducing a new form of tax-advantaged account”, as explicitly stated in the draft memorandum to the Isa amendment regulations.
In his letter to HMRC, seen by FTAdviser, Mr Wombwell-Povey said: “It seems that this choice will be greatly limited by requiring an Isa investor to only gain an exposure to the investments offered through a single authorised P2P provider.”
He suggested the new Isa, which will be introduced in April, should allow investors to choose from a number of P2P lenders through an ‘aggregator platform’, similar to existing arrangements in place for stocks and shares Isas.
In the letter, Mr Wombwell-Povey said amending the legislation in this way would:
| 1. Encourage price competition and innovation between P2P providers; |
2. Spread investor risk by allowing investments into loans provided by different P2P lenders; |
3. Reduce the risk if a P2P provider failed; |
4. Reduce the burden on P2P lenders for arranging transfers, therefore allowing them to focus on the quality and technical proficiency of their P2P business; |
5. Allow consumers to compare different P2P offerings easily and in one place; |
6. Create greater alignment with the current Isa regime; |
7. Enable existing Isa managers to offer P2P investments, therefore improving the distribution capability of the P2P lenders; and |
8. Help smaller P2P providers grow and avoid being squashed by existing larger ones. |
The Goji co-founder said while the government’s intentions with the Innovative Finance Isa are well meaning, the practical application of the proposed rules will not enable the policy intentions underlying the proposed arrangements to be met.
He argued only allowing individual access would “stifle investor uptake” and stated the legislation must be amended to enable investor platforms to create the market choice that is key to the new product’s success.
“The new Isas have the potential to add billions of pounds worth of value to the British economy, but under the current proposals, it will be challenging for investors to take advantage of this opportunity.”
A spokeswoman for HMRC responded: “The inclusion of P2P loans within (the) Isa will increase the choice and flexibility available to savers and that the government is still consulting on the detail of the draft regulations – welcoming responses from savers and other interested parties.”
Last month, advisers said they would steer clear of the new Isa because they were wary of the risks involved.
Claire Walsh, chartered financial planner at Brighton-based Aspect 8, said: “I am aware peer-to-peer has seen a lot of growth in recent years, but as peer-to-peer isn’t covered by the FSCS I am wary.
“When clients do ask about it and I explain, they mostly say they would rather keep their money in cash deposits or investments, which are covered by FSCS.”
katherine.denham@ft.com
