Investments 

FCA to ban commission for Innovative Finance Isa advice

FCA to ban commission for Innovative Finance Isa advice

Consumers looking to use the incoming Innovative Finance Isa for certain peer-to-peer (P2P) lending agreements should receive information on issues including the potential tax disadvantages of the loan not being repaid, the FCA has proposed.

In a consultation paper, the regulator proposed to “add further guidance on the information firms should provide to consumers, which will apply when P2P agreements are to be held in an Innovative Finance Isa wrapper”.

The Innovative Finance Isa is set to be introduced from 6 April.

The proposed guidance would clarify that firms, where relevant, should disclose details about issues including the potential tax disadvantages of a consumer investing in a P2P agreement that was not repaid, and of a scenario where the firm operating the platform involved were to fail.

The guidance would also look at the procedure for transferring some or all of the P2P agreements held in the wrapper from one Isa manager to another, and how long this may be expected to take.

As part of its proposals, the FCA will look to apply rules banning the payment or receipt of commission by firms in relation to recommendations involving advice on P2P agreements.

The regulator also wants to “ensure that financial advisers who advise on P2P agreements are appropriately supervised and assessed as competent to carry out that activity, including attaining an appropriate qualification”.

Those wishing to respond to the latest consultation paper must do so by February 15 this year.

Last month peer-to-peer platforms told FTAdviser they are not fazed by reluctance among advisers to push the Innovative Finance Isa, but admit work needs to be done to persuade the intermediary community to embrace it.

When advisers were asked by FTAdviser if they would consider offering the new product to clients, many said they were wary that P2P lending is not currently covered by the Financial Services Compensation Scheme.

They also warned it is not clear what the default rate for P2P loans would look like in a stressed economic environment and their clients had as yet shown no interest in the product.

However, P2P lenders RateSetter, ThinCats, Funding Circle and Zopa told FTAdviser there has been strong interest in the Innovative Finance Isa from both new and existing customers.

Colin Hodges, head of investor operations at RateSetter, said: “We recognise that we as an industry need to work to persuade advisers to embrace peer-to-peer lending.”

Kevin Caley, managing director of ThinCats, said advisers have “a right to be cautious” given that P2P is a new area and that it is important nobody is frightened by rushing into unknown territory.