AltFi: Banking Licence Application Rush Continues
As regular visitors to this news site will know, Money&Co. is looking at all sorts of innovations and the expansion in the alternative-finance (and mainstream) areas. It’s certainly an area of great interest to us. Our friends at Altfi report on the latest in this fast-changing world:
Just four months after submitting its banking licence application, LHV UK has secured £30m in funding via its parent company.
LHV Group has raised the money from an “oversubscribed rights issue”, and a portion of the money will be used to capitalise the new UK bank.
The company said in February of this year that it expects the full process of acquiring the licence to take six to 12 months, and it looks like this money should help move things along in the application process.
“The funds raised are a key step in the UK banking licence application process,” LHV UK CEO Erki Kilu said.
“In tandem with this ongoing process, we continue to scale up LHV UK’s operations.”
LHV UK operates in London, Tallinn and, as of two weeks ago, Leeds.
It is going after a banking licence as part of LHV Group’s plans to separate the business operations of its existing retail bank, LHV Bank, from those of the London-based and fintech-focused LHV UK.
It hopes this will simplify compliance with regulatory and supervisory requirements.
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 £24 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 7 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 2020/21 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.