Heads of peer-to-peer lending platforms have criticised the regulator and government for their handling of today’s (6 April) Innovative Finance Isa launch, with only a handful approved in time to offer the savings product.
The new Isa - which lets P2P lenders invest in small businesses using the tax-free wrapper - was announced in the Summer Budget and heralded as a boost for both savers and industry.
But only two P2P lending platforms have received all the necessary permissions to offer the Isa from today’s launch.
Stuart Law, founder of P2P platform Assetz Capital, said the regulator is “doing its best, but their best isn’t good enough”.
P2P lending opens up investors to new risks from the wide variety of businesses they can back under the Innovation Isa, and platform providers have supported strict authorisation criteria by the Financial Conduct Authority.
Providers have to go through a two-step regulation process: they must be licensed by the FCA – a process which can take up to 12 months – before applying to HM Revenue & Customs for Isa manager status – which takes an additional two weeks.
There has been the added complication of the FCA being made responsible for 30,000 consumer credit firms in 2014, meaning platforms have had to apply for new licences.
Mr Law said this handover has “completely drained the FCA”, suggesting P2P platforms have been pushed to the bottom of the authorisation pile as a result, an assertion firmly denied by an FCA spokesman.
In 2014, the FCA upped its employee headcount by an extra 200 people in a bid to help with the consumer credit transfer.
“The FCA has been dealt an impossible task,” Mr Law said. “But it’s going to become our problem when it’s not our fault, because there has not been enough time for platforms to be authorised.”
He said there was a wide-spread concern across the industry that some of the bigger players are going to be fast-tracked.
“If a handful of platforms are given permission, they could suck a lot of money out of the industry very quickly, which could de-stabilise the entire P2P market.”
In a letter sent to 31 platform providers and seen by FTAdviser, the regulator told them they might have to wait longer, due to regulatory changes that have made them “unable to make authorisation decisions”.
Bruce Davis, cofounder of Abundance, the first P2P platform to complete all the necessary permissions, said the delay in completed applications was partly due to the FCA having to process a large number of submissions.
He also said platforms might have underestimated the scrutiny they were going to go under and expected to go through the application process a lot quicker than 12 months.
Abundance issues long-term securities called debentures which are regulated investments, meaning it comes under a different regulatory framework from most other P2P platforms.