The Innovative Finance #ISA

The Treasury has announced the details of its commitment to extend tax-free Individual Savings Accounts (ISAs) to include peer-to-peer loans from 6 April 2016, effectively adding a third basket for your nest eggs. The enabling regulations will be published later this year. In the meantime, the government is also consulting on adding certain 'crowd-investment' instruments to ISAs in due course.

From April 2016, there will be a new "Innovative Finance ISA" in which individual investors will be able to hold P2P loans (formally known as 'article 36H agreements' in article 36H of the FSMA (Regulated Activities) Order 2001, and "P2P agreements" in the FCA's Handbook).

Advisers will be able to advise on P2P loans within the scope of their existing FCA advisory authorisation.

For ease of administration, each P2P lending platform is likely to become the ISA Manager for the Innovative Finance ISA that covers P2P loans agreed on its platform. 

P2P platforms (and other relevant ISA managers) will not be required to enable customers to sell their loans or to move their loans to another platform. But platforms may, if they wish, facilitate the sale of loans on their own secondary markets (as some do already) and enable the transfer of the cash proceeds to another ISA manager - indeed customers must be able to withdraw un-lent cash withdrawn within 30 days. However, it won't be possible for you to transfer only part of the money you subscribed in that tax year.

The different rules for P2P loans mean that they won't qualify for Junior ISAs or Child Trust Funds, which are less flexible than adult ISAs.

FCA Clarifies (A Few) Misunderstandings On #ConsumerCredit

The Financial Conduct Authority has attempted to clarify some of the misunderstandings about who needs consumer credit permission and the interpretation of its rules and guidance on assessing creditworthiness and affordability. This is very helpful, but frankly has barely scratched the surface.

Long standing official resistance to shifting the regulation and supervision of consumer credit to the Treasury/FSA meant there was little time to do more than 'drag and drop' the old Consumer Credit licensing regime operated by the Office of Fair Trading into the FCA's world. But a lot less drag and a lot more drop would have saved great deal of time and expense.

Meanwhile, the confusion over permissions required and the 6 to 12 month authorisation time is driving many new entrants to launch into business lending space even where they would prefer to focus on consumers, sole traders and small partnerships.

The Innovation Hub is a great initiative, and a number of clients have taken advantage of this so far, but let's hope there is a solid programme for clearing the regulatory drag that is inhibiting more competition and innovation.

More Sunlight On #Payment Accounts

The Payments Account Directive (PAD) must be implemented in the UK by 18 September 2016, and the Treasury is consulting on how to do it. You have until 3 August to respond. This post explains the key features of PAD and the likely UK impact, according to the Treasury.

Key Features of PAD

Perhaps the most important feature of PAD is that payment accounts with certain basic features must be made available by banks to all consumers, including the homeless and asylum seekers, within 10 business days after receiving a complete application. Only banks will have to participate in that scheme, rather than other types of payment service providers (PSPs), like payment institutions and e-money institutions (the privileges and state guarantees enjoyed by banks must come at a price, after all). Such 'basic bank accounts' should be free of charge, or subject only to a reasonable fee, taking into account certain criteria, and there will be limits on termination.

PAD will also target the top 10 to 20 types of fee-based services commonly used by consumers in connection with a payment account or current account, and which generate the highest cost. The authorities have to provide that list to the European Commission and the European Banking Authority a year in advance, so they can specify technical and terminology standards in time for implementation by member states. That 'hit list' will be updated every four years.

The idea is we will each get a 'fee information document' in various forms before we sign up to a payment account or current account, as well as an annual statement of fees. We must also be able to refuse any 'packaged' features (like insurance), or get them separately, if we wish.

Member states have to ensure that at least one comparison website compares the fees for the top 10 to 20 types of fee-based services. There are rules to keep the comparison websites honest.

A 'switching service' must enable the prompt transfer between PSPs of information about all or some standing orders, recurring direct debits and incoming credit transfers, and of any positive balances from one payment account to the other, without necessarily closing the first payment account. The information must be available free of charge; and any other related fees that are charged must be "reasonable and in line with the actual costs" of the relevant PSP (except in cases of abnormal and unforeseeable circumstances beyond the control of the PSP, the consequences of which would have been unavoidable despite all efforts to the contrary, or where a PSP is complying with a statutory obligation). Any financial losses incurred by consumers due to switching must be refunded by the PSP without delay.

Similarly, PSPs must facilitate cross-border account opening, which will be interesting to see in action.

The Commission must report on the application of PAD and any proposals for improvements by 18 September 2019.

UK impact

The Treasury reckons about 50 firms are covered by PAD, and while some of the requirements are covered by existing UK initiatives, those firms are facing significant costs associated with standardising product descriptions and statements. The PAD requirements for basic bank accounts also go beyond the UK banks' voluntary bank programme (of course), so regulation is required. Only the UK's Money Advice Service will be expected to act as a comparison site. The 'current account switching service' covers most payment accounts likely to be affected, and PSPs who are not members of it will have to provide their own equivalent that meets the PAD requirements.