The Search For FinTech Investment: FCA Pushes Institutional Route
The FinTech sector is agile and far less affected by the horrors of Covid-19 than many more mainstream sectors of the economy. Nevertheless, many FinTechs are seeking niche business models, often involving secured lending (in the case of direct lenders) and are looking for consolidation and to bolster their capital reserves.
- News reaches us from our friends at P2P Finance News that peer-to-peer lenders are being pushed towards institutional funding to boost liquidity, as the regulator’s crackdown on mini-bonds leads to caution among retail investors in the wider alternative finance industry.
The Financial Conduct Authority (FCA) is planning to make a ban on the marketing of mini bonds to retail investors permanent but has also extended the proposal to include speculative illiquid securities, which could hit crowd bond providers.
There are hopes that crowdfunding platforms will be exempt from the ban as they are regulated, unlike mini-bond providers, but the move has already resulted in property P2P lender CrowdLords ceasing regulated activity as it considers its options. It was also revealed last month that the Financial Services Compensation Scheme believes that Basset & Gold mini-bonds marketed by regulated parent company B&G Finance before its collapse were mis-sold.
Mark Turner, managing director in Duff & Phelps’ compliance and regulatory consulting practice, said the FCA’s clampdown on mini-bonds and the way it has lumped it together with warnings about the risks of Innovative Finance ISAs could deter retail investors from P2P lending. The coronavirus crisis has also made many retail investors more cautious, which Turner said means platforms are considering institutional funding to manage liquidity and make withdrawals easier.
Historical Performance And IFISA Process Guide
- Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £21 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.
- Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.
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:
- Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
- Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
- Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.
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.