HM Treasury’s head of business lending has admitted the Innovative Finance Isa has been slow to get off the ground, but said he is confident the rules are ready to include crowdfunding in the Autumn.
Announced in the 2015 Summer Budget as a way to spark investment in small businesses, the Innovation Isa allows savers to invest in peer-to-peer lending arrangements without paying tax on the gains.
But its launch on 6 Apil was mired in criticism, with 80 peer-to-peer lending platforms still waiting for approval from the Financial Conduct Authority a fortnight after the Isa had been officially introduced.
Speaking during a conference hosted by the Tax Incentivised Savings Association, HM Treasury’s Fayyaz Muneer admitted with such a large number of firms still waiting for approval, the Isa has “not exploded” in the way the industry thought it would.
Problems with access to the Isa have been coupled with unease among advisers about reccommending products investing in unknown, unlisted companies, as they are liable for the due diligence and suitability of the diverse range of P2P investments.
FTAdviser asked Mr Muneer whether the government should give the existing rules time to bed in before introducing crowdfunding as another eligible investment in the Innovation Isa later this year.
He said the Treasury “would hope” there was enough time between now and Autumn for the existing arrangements to settle.
Fresh rules announced by the chancellor in his Autumn Statement mean debt securities offered by crowdfunding platforms will also be allowed in the new Isa alongside peer-to-peer loans later this year.
Referring to the delays in authorisation for firms wanting to offer the Innovation Isa, Simon Turner, lead technical adviser at HM Revenue & Customs’ savings office, pointed to confusion over the rules.
First draft regulations did not say P2P lending platforms needed full permissions to offer the new Isa. However, this was amended to restrict firms offering the new savings product on interim permissions, with the risk being that investors might lose their entire Isa investment.
Mr Turner said this would not have been “a palatable start to the scheme”, adding HMRC took the view that “was not a sensible way to launch”.
He also highlighted the regulatory framework which peer-to-peer lending platforms come under, known as Article 36H, was recently redrafted.
“The fact this was given a major redraft so late in the day meant we couldn’t finalise our regulations because the definition we wanted to pin to was in a state of flux.”
Colin Hodges, head of investor operations at P2P giant RateSetter, said: “Getting the plan right at the outset would have been very helpful.”
He said RateSetter received guidance from the FCA “as recently as December” outlining the risks of only having interim permissions to offer the new Isa.
“Someone somewhere has the responsibility for not having planned this process particularly well, and it’s a shame for consumers.”