Downing Crowd’s Julia Groves says of the IFISA: “It’s the most established brand for the most mainstream savers and investors, and the fact that HMRC have created the new Innovative Finance ISA for P2P loans and Crowd Bonds, is a real signal that debt based securities (issued through an FCA authorised platform) can be appropriate for everyday investors.”
In fact, some in the sector have already reported numerous new investors transferring their cash or stocks and shares ISAs to their newly established IFISA services.
Bearing in mind the IFISA has existed for little more than 18 months and the admission of DBS has been allowed for less than a year, the signs are incredibly positive.
The mainstream familiarity of the ISA brand is not the only positive influence. Following lobbying by the DBS industry, the FCA conditions for IFISA eligibility apply a higher level of regulatory protection than are ordinarily required:
The security must be transferable.
The investment must be arranged by a crowdfunding platform with FCA permissions relating to investment-based crowdfunding (article 25 of the Regulated Activities Order 2001).
The platform must treat the investor as its client.
As a result, there is a single party that is obliged to be involved in the on-going monitoring of the investment.
The platform must also make and receive, on behalf of the investor, investment payments and exercise rights under or in respect of the investment.
This could include appointing a security trustee, with a security agreement which allows the platform to step in to assist investors in the event of serious issues such as default.
Source: Intelligent Partnership’s Debt Based Securities Sector report
In practice, these regulations exclude unlisted bonds, debentures and loan notes which are completely illiquid and that are self-promoted by companies where there is no requirement to be regulated.
It also means that unregulated platforms that have, in the past, been involved with what have commonly been referred to as ‘mini bonds’ cannot participate in the IFISA.
For some people, these have come to mean single corporate bond issues which are not arranged by an FCA authorised business and where the investors are neither clients nor members of a regulated platform.
The reality is though, that, to date, there have been no high-profile DBS platform failures, whereas there have been failures of self-promoted bonds that have resulted in meaningful losses for investors.
Nevertheless, the higher level of regulatory oversight established for the IFISA has to be seen as a substantial indicator of government support for the growth of the sector as both a funding source and retail investment when the right consumer protections are in place.