In view of its decision to proceed with a third ISA to accommodate peer-to-peer loans, the government said it does not currently intend to include peer-to-peer loans in stocks and shares ISAs as eligible investments in their own right. However, it also confirms that, subject to certain conditions, these loans can be held within investments that are currently eligible for a stocks and shares ISA, such as investment trusts. The government agreed to revisit this in the future if there is an increased demand from traditional ISA providers to do so.
It intends to publish draft legislation for technical consultation later this year, with a view to legislating to allow peer-to-peer loans to be held in an ISA from 6 April 2016.
The government will also proceed with its proposal to make advising on peer-to-peer loans a regulated activity. All firms currently authorised to advise on investments will be eligible to elect to have this authorisation automatically conferred upon them.
The FCA has not chosen to include peer-to-peer lending platforms within the scope of the FSCS. Both the FCA and the government said that it is important for the regulatory framework for peer-to-peer platforms to be proportionate and the FCA does not consider that this is necessary at this time. The FCA will review the regulatory framework in 2016 and at that stage, it will consider again whether peer-to-peer should be within the remit of the FSCS.
Andy Caton, Executive Director at Yorkshire Building Society, said:
“ISAs have been a massive success story with around £57 billion a year invested and the addition of P2P, which is already a £1.3 billion sector, can add to the options.
“It is a positive step that the Government listened to the consultation respondents, including ourselves, and plan to create a new and separate type of P2P ISA, which will help to limit potential misunderstanding by consumers.
“It is important that those who opt to invest in the new type of P2P ISA realise how different it is to the existing choices and that they will not receive FSCS protection, ease of access to their money and could lose capital and income.”
Giles Andrews, Zopa CEO and co-founder, said:
“Today’s announcement confirming a third ISA category, the Innovative Finance ISA dedicated to peer-to-peer lending, is a game changer for millions of Brits who have suffered from poor returns since the financial crash. It signals that P2P lending has become a mainstream way for people to invest for their futures.
"We are pleased to see that the Chancellor is open to services like Zopa, allowing consumers to side-step the banks for higher returns. With cash ISA rates from banks at rock bottom, this new IFISA will, I believe, provide reliable, predictable and low risk tax free returns that will beat most other asset classes. We expect huge demand for this new type of ISA and see P2P lending through Zopa becoming one of UK’s most popular and tax effiecient ways to grow your money.”
Nick Harding, CEO of Lending Works, added:
“We are pleased that peer-to-peer lending will be included in the new Innovative Finance ISA from 6 April 2016. However, it’s a shame that the Treasury and the FCA have decided against the creation of a Lending ISA.
“Separating peer-to-peer lending into its own ISA wrapper would have enabled the industry to ensure that both the rewards and the risks of peer-to-peer lending are clearly defined and communicated to our customers. This is what 95% of peer-to-peer lenders were calling for, alongside us and our industry peers.
“Despite this, the inclusion of peer-to-peer in ISAs should be celebrated. It will enable lending platforms like Lending Works to continually grow, maintain high lending capital volumes, and so be able to offer market-beating interest rates to lenders.
"Until banks and building societies are able to provide similarly high-interest, low-fuss investment options, we welcome all government support that incentivises individuals to make peer-to-peer lending a part of a diversified (tax-free) investment portfolio.”
Hannah Maundrell, Editor in Chief, money.co.uk commented:
“The Government has been toying with the idea of allowing people to invest their ISA allowance in peer to peer products for some time now and I suspect today’s announcement will be the ‘shot in the arm’ the industry needs to see accelerated growth. In fact, our research shows that 40% of consumers claim they would invest in a P2P product if they could do so under their tax free ISA allowance.
“People might be put off by the fact that many of these products are quite complicated. If they are really going to take off, I think that simplification is key. You can’t escape the fact that there are some great returns on the table but, as with all investments, these accounts are not without an element of risk. Consumers shouldn’t plunge their life savings in without understanding exactly how their money will be used. Equally, they are not covered by the FSCS.”
