P2P #ISAs: FCA's Approach

Although we are yet to see the legislative changes required to include peer-to-peer loans in the new Innovative Finance ISA from April 2016 and regulate advice on P2P loans, the Financial Conduct Authority has helpfully set out its proposed approach for when the law does change. We have until 31 December to respond. Broadly, the FCA proposes to:

• give guidance on how disclosure rules will apply to including P2P loans in an IFISA - particularly where the P2P platform only has interim permission (pre-April 2016) and risks arising if the firm does not get full authorisation;

• consult on applying suitability rules to advice on P2P loans, including changing the application of the rules and banning the payment or receipt of commission in relation to making P2P loans (note that the regulation of advice generally is being reviewed, so those rules could also change in due course anyway); however, because direct holdings of shares and other investment instruments are not included in the list of products that independent financial advisers must consider when making recommendations, P2P loans will also be excluded from that list; and

• ensure any risks related to IFISA inclusion are disclosed, like whether they can be transferred or sold (the FCA considers P2P loans to be "a much higher-risk alternative to buying an annuity" but doesn't mention the risk compared to buying a Lamborghini other types of investment that also compete with annuities).

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.