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I am delighted to welcome Jake Wombwell-Povey co-founder and CEO of Goji to dive into the fascinating subject of –the Innovative Finance ISA. Goji’s aspiration is to take P2P into new investor markets and their first focus is on providing a white-label/back-office IFISA solution to existing platforms.
The IFISA might be unknown off these shores but here it’s generated plenty of excitement in the P2P community. There are direct impacts of the IFISA (which I had spotted) and some indirect impacts (which I had spotted less).
But for those offshore folks who don’t know what an ISA is, basically UK tax payers have been able to shelter a small amount of investment money every year from tax forever – income or capital gains. It was introduced way back in 1986 by Nigel Lawson under Margaret Thatcher’s government to encourage wider equity ownership. In those days it was called a PEP. Over the past 30yrs the whole thing has got more complicated and changed its name to ISA but the principle of away from the taxman remains. The current limit is £15k per annum.
In the Fintech-emergence year of 2014 George Osbourne announced in his budget that ISA eligibility would be extended to include P2P loans. In the 2015 budget it was confirmed that from 6th April 2016 lenders will be able to hold AltFinance assets in an IFISA.
Since then there has been much work on clarifying where we are – and perhaps preparations are not all entirely in place even a few weeks before the start-line as we will here.
If this all sounds very abstract the excitement stems from the fact that each year it has been estimated that approximately £50bn is invested in ISAs. And you can imagine how keen platforms are to get there paws on a percentage of that.
Topics discussed include: – Jake’s journey from running nightclubs in Manchester through accounting/consultancy to Fintechland
– the IFISA rules are 300pp long (!!)
– the hint in the name that the range of the IFISA might be extended in the future from P2P to other “alternative finance” assets such as equities or minibonds
– the IFISA as the third type of ISA after cash and equity assets
– the IFISA as “government imbued credibility” upon P2P assets
– this also leading to political pressures upon the FCA to approve firms in order for it not to be a damp squib
– the current state of P2P authorisation and residual undefined details to be clarified (the legislation is still draft (!!))
– for the investor the proposition will be very similar in terms of investment mechanics
– the detailed structure of the ISA compared to existing ISAs – wrappers, nominee structures et al
– what is a wrapper?
– transferability/portability of IFISAs – practicalities and liquidity implications
– how this will increase the focus on the fact that P2P assets are illiquid
– the seasonality of ISA investment (mostly end/beginning of the year) and how platforms will adjust to it
– currently you are only allowed to put your IFISA slug of your annual ISA allowance (anything up to 100%) with only one provider
– platform diversification difficulties and whether this will change going forwards
– a greater need to understand the comparative risk in various platforms – currently next to impossible
– the comparative transparency of equity funds (daily pricing, volatility measurement etc) vs P2P assets
– “we are all on the edge of the great unknown” – no idea whether the IFISA will produce a flood or a trickle
– Goji is growing fast joining from firms such as ex Monitise, IG, Lloyds Bank, Worldpay
– the challenge of growing in a very volatile regulatory environment
– just closed their seed round – going for £400k
– a number of clients signed up already
– future SIPPs, IFAs et al
– in summary the twofold nature of the IFISA is of most note – not just the flow of money into the sector but, in essence, pressure on the industry to get more grown-up in line with existing mature assets classes such as equities.
And much much more 🙂