With a new tax year starting this week, many firms were planning to launch an Innovative Finance ISA, a new ISA that allows savers to put a tax-free ‘wrapper’ around their peer-to-peer (P2P) investments.
But the Financial Conduct Authority (FCA) admitted on Thursday that it had received a large number of applications and there was a big backlog in regulatory approvals, with 86 companies still awaiting a decision on whether they will be authorised to operate P2P lending platforms.
So far, the UK financial regulator has fully authorised eight firms to operate P2P platforms. Of the 86 awaiting a decision, 44 have interim permission and they are able to continue carrying out consumer credit activities before the FCA decides whether to grant full authorisation. However, only P2P loans on platforms operated by firms with full authorisation will be eligible investments for the Innovative Finance ISA.
It’s not clear how long the approval process will take, as the FCA has up to 12 months to reach a final decision.
“It is important that applications from firms wishing to be fully authorised are properly considered and that the firms meet rigorous statutory standards,” the regulator said. “How long it takes to consider an application depends on a number of factors including the completeness of the application, the complexity of the business, and the firm’s demonstrated compliance with regulatory requirements.”
Two large P2P lenders, Funding Circle and Zopa, told the Financial Times that the FCA had informed them on Thursday that they would not receive regulatory permission in time to launch planned ISA products at the start of the tax year.
RateSetter also said it now expected its regulatory permission to be granted some time after 6 April.
And three other members of industry trade body the P2P Finance Association — ThinCats, LendInvest and Lending Works — confirmed they would not be in a position to launch ISAs in time for the new tax year.
Firms in the P2P sector were divided over whether the regulatory delay would see investors looking elsewhere.
Christian Faes, chief executive of LendInvest, told the FT that not being ready to launch the ISA in April would not be a big problem for lenders because most ISA investments are made at the end of the year and not the start.
However, Jake Wombwell-Povey, chief executive of Goji, a platform that offers ISA management services to P2P lenders, said there would be a clear competitive advantage for the first platforms to offer the Innovative Finance ISA.
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