IFISA falls short of expectation

More work is needed for legislation to succeed, says Goji Managing Director and Co-founder Jake Wombwell-Povey.

Related topics:  Special Features
Jake Wombwell-Povey
10th February 2016
Jake Wombwell Povey Goji

The state of play

The Innovative Finance ISA is set to be introduced this year. While this announcement has come with much fanfare, I believe it will almost certainly fall flat.

The new legislation aims to make peer-to-peer financing more appealing to both new and existing investors. The P2P industry has already voiced almost universal support for the initiative, acknowledging the Government’s intention to "increase choice for ISA investors”.

Draft legislation has recently been released to support the consultation process. Unfortunately, the legislation may fall far short of industry expectation. Goji has written a letter to HMRC in response to the draft that expresses concern with the practical application of the proposed IFISA rules.

In short, the draft legislation will not enable the policy to meet expectations in its current form.

Challenges with the proposed legislation

The legislation is crippled by the stipulation that investors may only invest in an IFISA directly through P2P platforms. This restricts investors from participating via their existing ISA managers. Worse still, investments can only be made through a single provider and not across multiple platforms.

Allowing access to the IFISA exclusively through a single P2P provider will severely dampen enthusiasm from both investors and IFAs. It will limit an investor’s ability to diversify and build a balanced portfolio.

Goji is calling for a legislative amendment to permit the use of other distribution channels, such as investment platforms, for the IFISA. Rather than operating P2P lending services, investor platforms make loans available through a wide range of P2P platforms.

Many of these platforms are already trusted ISA managers, making it nonsensical to exclude them. This amend will open up the industry and promote the success of the IFISA.

Investor platforms provide the key

There are numerous reasons to amend legislation in favour of investment platforms.

This change will allow consumers to build a balanced IFISA portfolio, with varied risk ratings. Portfolio balancing will bring the IFISA in line with the current ISA regimes and reduce potential platform dependency.

Investor platforms also allow consumers to more easily compare offerings from different P2P platforms, encouraging choice and competition within the industry. The ability to compare increases accessibility to the industry, which has been a key concern for IFAs.

Without these changes, investors are likely to migrate towards larger industry players. Smaller, niche platforms will struggle to be heard, reducing market competition. In this scenario, both the industry and investors lose.

Opening up the industry through investor platforms is the only way to ensure the IFISA lives up to expectation.

The road ahead

While the IFISA presents the bare bones of positive, progressive industry legislation, the Government must continue to consult with experts to ensure its success.

Goji has been working with a number of third party ISA managers to build solid, sustainable industry infrastructure for the long term. Unless the legislation is revised, however, this simply won’t be possible.

2016 has the potential to be a ground-breaking year for the P2P industry; a year in which the sector receives the credibility and support it deserves. For this to happen though, the industry must pull together and work with regulators towards a common goal.

Our industry is teeming with with talent and enthusiasm. It’s time to exploit these assets and work together. A collaborative approach will ensure new legislation benefits the investment community and our consumers.

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