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Peer2Peer Finance News | August 17, 2017

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Zopa unveils plan to wind down provision fund as it readies for IFISA launch

Zopa unveils plan to wind down provision fund as it readies for IFISA launch
Suzie Neuwirth

ZOPA has announced that it is revamping its account range and will be winding down its provision fund, which will enable it to provide higher returns to investors.

The world’s oldest peer-to-peer lender, which gained full authorisation from the Financial Conduct Authority (FCA) earlier this month, is retiring the Zopa Access and Classic accounts on 1 December and introducing Zopa Core.

Investors in Zopa Core will lend in the same, lower-risk brackets as Access and Classic (A*-C) but will not be covered by the platform’s provision fund, which it calls the safeguard fund. The new account will offer a higher target return of 3.9 per cent, compared to 3.7 per cent and 2.9 per cent for Classic and Access respectively.

From December, new lending will not be protected by the safeguard fund, Zopa said, but all loans that currently have this coverage will continue to receive it. This means that the safeguard fund will be wound down by 1 December 2022, when all loans covered by the fund would have matured.

Zopa, which was recently overtaken by Funding Circle as the largest UK P2P lender in terms of cumulative lending, said that it was shutting down safeguard as a result of its successful campaigning for tax changes. Since 2015, investors can now claim for relief on losses from bad debt, removing the need for Safeguard.

Furthermore, Zopa introduced a new account last year that was not covered by safeguard called Zopa Plus which experienced very high levels of demand, the platform added.

Read more: Metro Bank steers clear of unsecured consumer lending

“Since winning our campaign to change the tax rules, we no longer need safeguard – as customers have proved by flocking to Zopa Plus,” said Andrew Lawson (pictured), Zopa’s chief product officer.

“Now it’s done its job, retiring safeguard allows us to provide greater expected returns to our investors (because on average we over-fund safeguard) whilst making the investor products even easier to understand.”

46 per cent of investor money is covered by the safeguard fund, which currently stands at £13m.

Read more: P2P investing firm calls for end to provision funds

Zopa also announced on Thursday that it will be launching its Innovative Finance ISA (IFISA) on 15 June, subject to HMRC approval, offering target returns of up to 6.1 per cent.

“With demand expected to be high, existing customers will be given priority access ahead of new customers,” it said.

As Peer2Peer Finance News previously reported, Zopa introduced a waiting list for new investors in March to prevent lending queue times from increasing.

Zopa said its tax-free wrapper will be launched in four phases. The first stage will be focused on existing customers who want to open a new IFISA and lend through Core and Plus.

The second stage, in July, will enable existing customers to sell their current loans and re-purchase similar loans in an IFISA wrapper, allowing them to retain safeguarded loans.

The third stage, from August, but dependent on demand for new IFISAs, will allow customers to transfer existing ISA investments with other providers to Zopa.

And finally, once the platform has met the demands of existing customers, it will welcome investments from new customers.