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March 19, 2014 3:44 pm
Peer-to-peer lending will be allowed within tax-free individual savings accounts (Isas) for the first time in what providers have hailed as a “seminal moment” for the nascent industry.
This rapidly growing form of finance enables consumers and businesses to fund each other. The government has supported the sector, with its business bank directly investing in some of the biggest platforms.
Consumer groups have warned, however, that people may not fully understand the risks involved in investing in peer-to-peer lending. Consumers’ funds are not protected by the Financial Services Compensation Scheme and they could lose all their money if borrowers fail to repay.
There has been a spate of failures in China’s booming peer-to-peer industry – but the UK has not yet suffered a high-profile blow-up.
In the Budget the government said that Isa eligibility would be extended to include peer-to-peer loans to “further increase the choice that . . . savers have about how they invest”. It is also considering whether to include more sophisticated debt securities offered by crowdfunding platforms.
The move comes at a time of greater regulatory scrutiny of peer-to-peer lending. The sector is set to come under the watch of the UK’s consumer regulator, the Financial Conduct Authority, from next month.
Providers welcomed the change announced in the Budget, which is expected to fuel a sharp rise in the number of people who lend money via peer-to-peer sites.
James Meekings, co-founder of Funding Circle, one of the biggest peer-to-peer platforms that recently received a £40m investment from the government’s British Business Bank, said the Isa inclusion was a “huge win for British investors up and down the country, and represents a seminal moment for our industry.”
Through Funding Circle more than 30,000 people have lent more than £240m in the past three years.
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