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Peer2Peer Finance News | September 23, 2019

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The great IFISA conundrum

The great IFISA conundrum
Suzie Neuwirth

P2PFN investigation reveals several authorised firms are unaware of the product, while the biggest platforms are still awaiting approval

A NUMBER of firms authorised to offer the Innovative Finance ISA (IFISA) are unaware of their status or even what it means, Peer-to-Peer Finance News has learnt.

With most of the major peer-to-peer lenders still awaiting approval to offer the tax-free wrapper, a legal expert said that it “doesn’t make for a level playing field”, while one chief executive of a platform said it gave him concerns that there was a “tick-box approach” to authorisation.

30 companies are allowed to sell the tax-free wrapper around P2P investments to consumers, according to HMRC’s latest list that was updated on 7 February.

But several authorised firms contacted by P2PFN had not heard of the IFISA and had no idea that they were licenced to offer one. In fact, one company director appeared unaware of what an ISA was in general.

It must be emphasised that the majority of IFISA-authorised firms are fully aware of the product and their regulatory responsibilities. A number of well-known P2P lenders have recently gained authorisation and this is in no way to suggest that they were found to be unaware of their obligations to the regulator and to consumers.

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Companies wishing to offer the IFISA to consumers must first receive full authorisation from the Financial Conduct Authority (FCA), before applying to HMRC for IFISA manager status.

The FCA application process can be lengthy and the ‘big three’ P2P lenders are still awaiting authorisation after nearly 18 months. In contrast, HMRC approval is broadly seen as more of a formality and takes a few weeks.

“The HMRC process is quite light, it’s nothing like FCA authorisation, so if you were already FCA authorised it would be quite straightforward,” a legal expert on the sector told P2PFN on the condition of anonymity.

“It’s more like a registration process, so it might just be someone entrepreneurial deploying the licence on the off-chance.

“However, it does feel odd and it doesn’t make for a level playing field.”

HMRC said that it does not reveal the nature of the checks that it carries out on individual applicants for an IFISA licence.

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“On receipt of an application we carry out appropriate and proportionate checks, including considering whether the applicant has the required regulatory permissions and discussions with FCA and the applicant where necessary,” said an HMRC spokesperson via email.

In terms of how HMRC’s ISA authorisation is different from the approval given by the

FCA, the spokesperson said: “HMRC is considering a firm’s eligibility to be an ISA provider, including their ability to discharge all the obligations set out in ISA legislation – in relation to the account holder and HMRC.”

“I’m concerned about the regulatory process,” said the chief executive of one P2P lender still awaiting authorisation. “You’ve got firms that know what they’re doing but can’t offer the IFISA and others that can offer it but don’t know about it.

“It suggests that there’s this tick-box approach, where the box is being ticked without any understanding of being ticked.”

A spokesperson from the FCA said that approval to be an IFISA manager is governed by HMRC and is a tax-related issue.

He added that during the FCA authorisation process, they ask firms if they intend to offer an IFISA. Firms making material changes to their business model post-authorisation are required to formally notify the FCA.

Read more: Revealed: The P2P lenders with IFISAs ready for this tax year