The fallout from the failure of the Lendy peer-to-peer (P2P) lending platform continues. In the wake of this failure, the Financial Conduct Authority (FCA) came in for a lot of criticism. That criticism can only have been a catalytic factor in persuading the FCA to take a hard look at the P2P sector.As a P2P platform with conservative risk-analysis models Money&Co. welcomes these moves. We have an annualised bad-debt rate of just 0.04 percent over five years, while lenders have achieved average gross returns of over eight per cent, before our one per cent fee. As we constantly repeat: there's no profit without risk, and lenders must understand risk before committing capital.
With that in mind, the FCA will soon make it mandatory for all peer-to-peer platforms to introduce an "appropriateness test" for new investors, according to P2P Finance News.
The purpose of the test will be to weed out any unsuitable lenders, and any potential lenders who do not fully understand the risks associated with P2P. However, opinions differ on what this test will actually look like.
According to FCA guidelines, the appropriateness test should include a range of questions which will assess the investor's understanding of the relationship between the borrower and the platform, and their exposure to the risks of P2P lending. It should also confirm that there is no Financial Services Compensation Scheme (FSCS) protection, that returns may vary and that P2P investments are not comparable with a savings account.
We'll be writing more on this in News and Blogs later.
Loan Latest 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). New loans are expected to land on site soon.
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.
Money&Co. has been lending for over 5 years and has only had one bad debt so far, representing a bad debt rate of 0.04 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.