Regulation 

FCA denies their Isa rules contradict HMRC rules

FCA denies their Isa rules contradict HMRC rules

The Financial Conduct Authority has denied it produced draft rules for the Innovative Finance Isa that contradict those produced by HM Revenue & Customs.

Earlier this month the FCA released a consultation paper on the Innovative Finance Isa.

Jake Wombwell-Povey, chief executive of peer-to-peer technology provider Goji, argued in the consultation paper the FCA appears to “directly contradict” information recently provided by HMRC on how the Innovative Finance Isa will work.

Regulation drafted by HMRC reads: “In relation to an innovative finance account, the person who has the right to exercise the rights and duties of the lender [...] shall be the account manager,” which Mr Wombwell-Povey interprets as meaning only peer-to-peer lending platforms can manage the Innovative Finance Isa.

The FCA’s consultation paper states: “If 10 per cent of [existing Isa managers] were to offer their clients an Innovative Finance Isa component this would add an additional 50 firms to the estimated 50 to 70 firms operating loan-based crowdfunding platforms.”

Mr Wombwell-Povey said this suggests the FCA believes non-peer to peer lenders will become Innovative Finance Isa managers while HMRC only permits P2P lenders to manage the new savings vehicle.

Mr Wombwell-Povey reckoned HMRC is stifling competition.

According to the Goji co-founder, the FCA’s document highlights there is a “nuanced, but potentially substantial, disconnect” in the understanding between the way the FCA and HMRC believe the Innovative Finance Isa should work.

He said the FCA’s goals on consumer protection and competition will not be met by the legislation for the Isa that HMRC has proposed.

An FCA spokesman disputed these claims, saying both the City watchdog and HMRC were in agreement about how the Innovative Finance Isa should work.

The spokesman said the FCA just used different terminology to make it more “consumer friendly”.

He said: “We are saying exactly the same thing and we can’t say anything different because it is legislation.”

The FCA spokesman added people could have multiple Isas with multiple P2P lenders, which Mr Wombwell-Povey refuted, saying “it is just not the way it works; consumers want everything in one place”.

“Regardless of whether you diversify the products, you are still highly exposed to a single P2P platform,” Mr Wombwell-Povey said. “People are going to look pretty stupid if one of the platforms goes bust and the whole P2P portfolio is on it.”

When asked if the tax office’s view of how Innovative Finance Isas should work was different from the regulator’s view, a HMRC spokeswoman said the government is “carefully considering” responses to the draft legislation.

The draft legislation which includes proposals on how P2P loans will become eligible for the new Innovative Finance Isa from April 2016.

“This includes responses concerning the potential role that aggregators might play in offering this new Isa product,” she said, adding further details will be available shortly.