InvestmentsApr 6 2016

FCA under fire for Innovative Isa approval delays

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FCA under fire for Innovative Isa approval delays

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.

“It’s not our fault because there has not been enough time for platforms to be authorised.” Stuart Law

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.

Mr Davis said while the process is “frustrating”, it’s also necessary: “The regulator doesn’t tell you how to do your business; it tells you if what you are doing conforms to the rules.”

Zopa, one of the largest P2P platforms, applied in January and a spokesman said it was unlikely they would be authorised in time for the launch. “For us we would rather get it right,” he said. “If it takes a bit longer than expected, then provided consumers are informed of the process then it’s fine.”

James Meekings, UK managing director of Funding Circle, said it’s a shame that so few platforms will be ready in time, but added it’s a good message to consumers that the FCA are taking the process seriously.

“The worst thing for the industry will be a series of platforms failures, so if this process helps to weed any of those potentials out, then it’s positive.”

Meanwhile, another big platform, RateSetter, submitted its application in October and chief executive Rhydian Lewis hopes to become fully authorised “very soon”.

Despite only two firms being authorised so far, a spokesman for HM Treasury said it expected a number of firms to be in a position to offer the new Isa, pointing out that others are in the pipeline and are working with the FCA to ensure they meet the right regulatory standards.

“It is right that firms are required to meet these standards before they start offering Innovative Finance Isas. This is important to protect consumers.”

Susan Tague, chief executive of Uxbridge-based Altero Financial Services, said she would not consider recommending the new Isa to clients on 6 April because there is insufficient choice and no track-record of performance.

“My feeling is they may be suitable for someone wanting more investment risk, although the original idea was they will be for someone wanting less investment risk compared to a pure equity based Isa.

“So until they are more widely available in the marketplace and have a track record it is difficult to know whether or not they work in practice.”

katherine.denham@ft.com