In April 2016, the Government will introduce the Innovative Finance ISA (IFISA). This will allow for peer-to-peer (P2P) agreements to be included within an ISA tax wrapper. Additionally, the Government intends to make advising on P2P agreements a regulated activity.
To take account of these legislative changes, the Financial Conduct Authority (FCA) is asking for views on updates it is planning to make to its rules and guidance on disclosure and advice relating to P2P agreements.
Guidance
In the discussion paper published today, the FCA outlines plans to introduce guidance on how information should be disclosed in relation to P2P agreements included within an IFISA.
In particular, the FCA is asking whether prospective investors in IFISAs should be given information on:
- what the tax consequences are if the P2P agreement is not repaid
- the tax consequences arising from an investor wishing to withdraw a P2P agreement from an IFISA
- the procedure for switching ISA manager.
In addition, if P2P platforms with ‘interim permission’ are able to offer IFISAs or become ISA managers, the FCA will consider whether further information should be disclosed to prospective investors outlining the risks.
When the FCA took over regulation of loan-based crowdfunding in April 2014, firms operating P2P platforms that had previously held an Office of Fair Trading licence were able to register for an interim permission from the FCA to continue conducting this regulated activity from April 2014. Having an interim permission ensures firms can remain in the loan-based crowdfunding market until their application for full authorisation is considered. Firms operating P2P platforms should have submitted their application for full authorisation by the end of October 2015, and the FCA has said it will take between six and 12 months to consider an application.
Rules on advice
From April 2016 giving advice on investing in P2P agreements will be a regulated activity. Firms providing the service will need FCA authorisation and will need to abide by FCA rules. As a result of the introduction of this new regulated activity, the FCA is considering whether its rules on the suitability of advice should apply to firms giving advice on P2P agreements. If the FCA decides to apply these rules in relation to P2P agreements, advisers would need to ensure that they take reasonable steps to make sure that personal recommendations are suitable for their clients.
In addition, the FCA is considering making advice on P2P agreements subject to rules that ban the payment and receipt of commission. As with other investments subject to these rules, advisers would need to have a charging model for advice to invest that does not rely on the payment of commission. The rule changes would also prevent the payment of commission to platforms such as those run by self-invested personal pension scheme operators.
The FCA is asking those with views on how it should respond to the legislation on IFISAs to send them by the 31 December 2015. The FCA will then consult on any changes once legislation is made.
Notes to editors
- Discussion paper: Possible FCA Handbook changes to reflect the introduction of the Innovative Finance ISA and the regulated activity of advising on peer-to-peer agreements[1]
- CP16/5: Handbook changes to reflect the introduction of the Innovative Finance ISA and the regulated activity of advising on peer-to-peer agreements[2]
- HM Treasury consultation outcome: ISA qualifying investments: consultation on including peer-to-peer loans[3]
- FCA review of the regulatory regime for crowdfunding and the promotion of non-readily realisable securities by other media[4]
- Press release: The Financial Conduct Authority places consumer protection at the heart of crowdfunding[5]
- On 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system, and to promote effective competition in the interests of consumers.
- You can find more information about the FCA[6], as well as how it is different to the PRA.[7]