Some 65 peer-to-peer lending platforms have received a letter from the Financial Conduct Authority (FCA) warning them to “act now” to clean up poor practice or face a “strong and rapid” crackdown, The Times reports.
The news comes after the failure of Lendy, which was authorised by the FCA despite known mis-selling concerns and held some £152m of customer investments, and Collateral which operated despite not being licenced by the FCA.
In the seven-page letter seen by The Times the regulator flagged that weaknesses in disclosure to clients was leaving investors with “considerably greater risk than they appreciate” and unclear charging structures were leaving to “headline-grabbing returns in a low interest rate environment”.
The letter also highlighted property platforms are a particular concern for the FCA, some of which have a “range of weaknesses” according to the regulator.
In June the FCA published its new rules for the sector, including a 10% cap on ordinary investors can hold in their portfolio, which were welcomed by the industry.
These rules are due to come into force in December.
Most worryingly, the FCA warned that some platforms had made “significant changes to their business models without notifying us”.
Historical Performance And IFISA Process Guide
That figure is the result of over £17 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.