Regulation of financial offers to the public is both important and necessary. This is especially so in the growing alternative finance sector, where the barriers to entry are relatively low. Part of the reason that mainstream banks are slow-moving and expensive is that it's very expensive and time-consuming to get a mainstream banking licence.So regulation of altfi firms like ours is essential – as is an understanding of the risks that come with certain types of financial offers. Broadly speaking, equity raises fail a lot (around one in three), and debt offering such as our peer-to-peer (P2P) loans need careful vetting. While we as a platform have done due diligence on borrowing companies, the risk is that they may fail or default on a loan. Fortunately, in our case, this only happens (in nearly five years) very rarely.At Money&Co. we have a vigorous after-market in loans. This allows lenders to sell on their holdings if they wish to get out of a loan early (many have three- or five-year terms). So we look with interest on the regulatory proposals reported below by P2P Finance News, but can say that Money&Co. lenders are not and will never be charged an exit fee. Sometimes it might take a while to get out of a loan, but it's simply a question of liquidity in the market.
THE FINANCIAL Conduct Authority (FCA) is considering a ban or a cap on exit fees, as part of a new package of measures designed to make it easier for consumers to switch investment platforms.Some of these measures include a restriction on exit fees, and allowing investors to remain in the same fund while changing to a different platform."While the market is working well for most of its consumers, the package we've announced today should make it less expensive and time-consuming for investors to shop around and move to the platform that best meets their needs," said Christopher Woolard (pictured), executive director of strategy and competition at the FCA."As part of that, we believe it is right that we restrict exit fees, so people can move their money freely."The FCA added that despite some progress, consumers still find it hard to find a platform that better meets their needs, and singled out high and unexpected exit fees as a key reason for this.
A Process Guide To Innovative Finance ISA Investment
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 almost £15 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:
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 2018/19 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.