We've been reading allegations that the regulator doesn't see eye-to-eye with the taxman over the new Innovative Finance ISA (IFISA). FT Adviser broke the story on Tuesday and it was picked up by Crowdfund Insider and Money& Co. yesterday.
This news is worrying, if true. As we reported two weeks ago, lending platforms are going through an obstacle course to get their IFISA offerings approved by both the FInancial Conduct Authority (FCA) and HM Revenue and Customs (HMRC) before the new tax year starts on the 6th April. If the organs of government are arguing over the details, businesses and taxpapers cannot resolve the uncertainty.
So, we did we always do when faced with evidence that doesn't seem strong enough to support a decision: we went and checked the facts. And we began with the law.
IFISAs defined in law
IFISAs are to be enshrined in law by a Statutory Instrument (SI) . Statutory Instrumentsare parliament's preferred way of dealing with the intricate details of the law (like a new tax free investment product.) SIs allow the detailed provisions of an Act of Parliament to be altered without Parliament having to pass a new Act. For more information, we recommend this article about Statutory Instrument's on Parliament's website.
There is a nuanced, but potentially substantial, disconnect in the understanding between how the FCA and HMRC
Goji Holdings is a technology supplier. It claims to offer "the first platform to bring savings and investments products to the peer to peer (P2P) lending market." The speaker quoted above, and in the three news articles, is Goji's CEO, Jake Wombwell-Povey. Crowdfund Insider carries the most detail including this choice quote:
“The FCA and HMRC appear to differ in both their objectives and perception of execution. HMRC is suggesting making the IFISA available to an individual investor through a sole, authorised peer to peer (P2P) lender, stifling competition. The FCA, on the other hand, expects between 50-70 players in the market."
The FCA denies the allegations. An FCA spokesman told the FT Adviser: "“We are saying exactly the same thing and we can’t say anything different because it is legislation.”" That's how we'd like it to be.
We checked the details
The relevant part of the SI reads:
The Individual Savings Account Regulations 1998(c) are amended as follows.
after paragraph (ia) insert— “(ib )in relation to an innovative finance account, the person who has the right to exercise the rights and duties of the lender under an article 36H agreement shall be the account manager, his nominee, a company which is a 51% subsidiary of the account manager or the account investor or the right to exercise the rights and duties of the lender shall be held jointly by the account investor and either the account manager, his nominee or a company which is a 51% subsidiary of the account manager;... (it continues - the full text is on www.gov.uk)
The Goji CEO's complaint rests on the term 'account manager'. He is quite explicit where his firm's interests are: "If the HMRC view prevails, it challenges Goji’s business model."
The new regulation is an amendment of an existing one, so we went and found the text of The Individual Savings Account Regulations 1998(c). We used a consilidated text on the website of the Tax Incentivised Savings Association (TISA). TISA is the trade association for firms that provide ISAs, so we are relying on a document that the industry relies on; even though it's not the parliamentary original, we imagine it has been read by many skilled eyes and is free from error.
There we learn~
- an “account manager” is a person who fulfils the conditions of these Regulations and is approved by the Board for the purposes of these Regulations as an account manager;
- “the Board” means the Commissioners for Her Majesty’s Revenue and Customs.
So, in plain English, any firm that is approved by HMRC to manage ISAs is authorised to manage an IFISA, should it wish to do so. The FCA and the HMRC are, indeed, saying exactly the same thing
Where does that leaves us all?
We can't imagine anything less deserving of the criticism "HMRC is stifling competition" than a regulation which says any firm aproved as an ISA account manageris approved to manage IFISAs
We imagine the issue will settled when an an approved firm applies to launch an IFISA, and the HMRC and FCA get to follow their own rules in practice. Until that happens, we won't worry.
These things are sent to try us.
It is, sadly, all too easy for a story to be released into the world to serve somebody's interests (in this case, selling a bit of Fintech), and then to spread widely, so that it influences discussions and decisions in ways the original author could not care less about.
That's why we make a point of listening critically to stories we hear, and checking the facts for ourselves, and why we recommend everyone to do likewise.
Investment crowdfunding doesn't require a genius IQ, it just calls for ordinary intelligence to be focused and diligently applied