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Peer2Peer Finance News | June 18, 2019

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HMRC warns IFISA providers to stop using e-money services

HMRC warns IFISA providers to stop using e-money services
Marc Shoffman

HMRC has warned peer-to-peer lenders that they shouldn’t be using e-money providers to hold Innovative Finance ISA (IFISA) money.

An alert from the taxman – which applies to all ISA managers – said it was aware that some providers are using e-money and e-wallet firms to receive and hold investor subscriptions pending investment.

However, the alert warns that this is against the ISA regulations as cash must be held by a regulated deposit taker.

Read more: Will 2019 be the year of the Innovative Finance ISA?

“The account with a deposit taker has to be designated as an ISA account for the purposes of the ISA regulations and should be in the name of the investor,” the alert said.

“HMRC does not consider subscriptions held in e-money wallets to meet these requirements.

“ISA managers must ensure that cash subscriptions and other investor funds are held in accordance with the ISA regulations.”

ISA managers who hold ISA funds with e-money providers are being urged to email savings.audit@hmrc.gsi.gov.uk.

The alternative is for P2P lenders to set up a client account with a UK bank, which can be difficult to setup because of anti-money laundering concerns, as Peer2Peer Finance News previously reported.

David Genn, chief technology officer for Goji, which providers the software for many P2P platforms’ IFISAs, said some firms may struggle to find a suitable bank.

“E-money offers investment managers and P2P platforms an easy way to give investors an individual wallet in which they can deposit funds,” he said.

“Many firms, including ISA providers, have used e-money as its simple to use for the client whilst offering providers a high degree of technical sophistication, providing API access and real time updates.

“Goji foresees that based on its experience of the market these firms may struggle to find a traditional banking provider that offers analogous functionality.”

Read more: New ringfencing rules will create ‘two-tier’ protection for P2P cash