By the time the new Isa had launched in April, just eight out of 86 peer-to-peer lending platforms had been granted the necessary permissions to offer the savings vehicle, according to the industry body.
Heads of a number of lending platforms subsequently criticised the regulator and the government for their handling of the Innovative Finance Isa launch, arguing the whole process should have been paused while the Financial Conduct Authority worked through its backlog.
The FCA has recently announced review of the sector, looking at how well it is understood by consumers.
But speaking to FTAdviser, the P2P Finance Association’s chair Christine Farnish said the delays were not such a big deal, because investors’ money can be put into the Isa at any point.
“It’s just a question of a small amount of time in the overall scheme of things,” she said, adding Isas are designed to be a long-term savings product.
None of the eight members of the association – which include the likes of Zopa, RateSetter and ThinCats – have yet received full permissions from the FCA, despite it being more than three months since the launch of the Isa.
However, Ms Farnish said she expected “a number” of the member firms to receive approval next month.
The delays were partly a result of the FCA being made responsible for 30,000 consumer credit firms in 2014, and Ms Farnish said the peer-to-peer sector got “put to the back of the queue”.
“It has been a huge bulge of activity for the regulator and we could completely understand the FCA had to sort out consumer credit, because there had been a lot of controversy in that sector.”
Compared with other parts of financial services, it’s probably a very high level of understanding. Christine FarnishWhen FTAdviser approached the regulator for a response to the impact of the delays, a spokeswoman for the FCA declined to comment.
She was also unable to give a timeframe as to when the platforms can expect authorisation.
Kevin Caley, managing director of ThinCats, said he does not expect approval to happen before the end of August, adding he guessed it “may well take quite a bit longer”.
“Under the circumstances this is to be expected and, although it is frustrating, we just have to live with it.”
Ms Farnish also talked about the FCA’s recently announced review of the sector, which is set to examine how well consumers understand the risks of peer-to-peer.
She said the review was not a surprise, adding it was “quite normal” to have a review when the regulator launches something new.
“So far, the evidence on consumer understanding for those who put money on the platforms suggests that 90 per cent of consumers understand what the risks and rewards are with peer-to-peer lending.
“Compared with other parts of financial services, it’s probably a very high level of understanding.”
Ms Farnish added: “As long as people know it’s not a bank deposit and they may not get all their money back, then it’s a good product.
“You don’t get as much in the way of return as some racy equity investment, but you’re not exposed to the same risk. It’s a half way house between risk and reward.”
John Stirling, chartered financial planner and director of Walden Capital, said: “I think most early adopters of peer-to-peer absolutely understand what they are doing, although there is some evidence they underestimate the chances of a default, and overestimate the chances of recovery once a default occurs.
“The wider market on the other hand have very little understanding of what they are doing in terms of the quantum of risk, but also the type of risk they are taking with a peer-to-peer investment.”
On losses through P2P being covered under the Financial Services Compensation Scheme, Mr Stirling said this would be “extremely dangerous” because it would remove all “moral hazard” from the underwriting process, and encourage irresponsible lending at penal interest rates.
“Peer to peer will blow up at some point and once it has we may be able to build some firm foundations for the long-term.
“Until then it’s difficult to work out where the risks sit.”
katherine.denham@ft.com
