Platform giants beaten to Innovative Isa approval

Platform giants beaten to Innovative Isa approval

A small peer-to-peer lending platform has been given the green light to offer the Innovative Finance Isa on 6 April, as the bigger players still wait for regulatory approval.

Abundance has confirmed its Isa will be open for investment on the first date it can be offered to the public, making it the first peer-to-peer lending platform to be accepted under the new Isa regime.

Announced in last year’s Summer Budget in July, the Innovative Isa allows customers to invest in peer-to-peer loans and benefit from tax-free returns.

Over recent months, providers have revealed the rates for their new Isas, with Ratesetter beating the rest of the market to the post. But they have yet to get FCA go-ahead for the products.

From 6 April through to October, the ‘Abundance Isa’ will pay investors a return of 2 per cent per annum.

Abundance differs from other P2P lending platforms in that after this initial six-month timeframe - which is subject to approval - customers must choose from a range of renewable energy projects in order to receive a potential return somewhere between 6 and 9 per cent.

But despite government backing for the innovation Isa, it has been the subject of fierce criticism, with some advisers shunning the new offering, which is not covered by the Finanical Services Compensation Scheme.

Lord Adair Turner also heavily criticised the IFISA, saying P2P lending will “make the worst bankers look like absolute lending geniuses”, which the sector later responded to.

Bruce Davis, cofounder of Abundance, said: “Being first into the IFISA market has been a five-year journey that started back in 2009 before we launched, when we chose to pursue a regulated route to market.”

He described the two-year process to become the first regulated P2P lending platform as “costly”, but said it “seems appropriate” that the Abundance platform is now set to offer the first IFISA available.

“We want to see more providers offering the IFISA very soon, but you can never underestimate the challenges of becoming authorised and the high level of scrutiny with which the regulator treats each application.”

Payments to investors will be made twice a year, with each made up of a small part of the original capital invested and part return, so that all capital is repaid at the end of the term.

Investors who want to cash in early can sell their holdings through the Abundance website and not be charged extra.

Paul Lindfield, director of wealth management at Sedulo Wealth Management, echoed earlier reservations from advisers by saying most IFAs would be concerned about the new Isa not being covered by the FSCS.

Since April 2014 the peer-to-peer industry has been regulated by the Financial Conduct Authority (FCA), which gives savers an element of protection, but money invested in P2P services isn’t covered by the industry’s compensation scheme.