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Your Questions Answered: Previous Answers

By Ashok Rao on 28th October, 2016 | Read more by this author

To see the most recent question read here (opens in new window).

Question from Simon

“Could you please do an assessment of crowd stacker and crowd2fund? I have a lot of money currently in a stocks and shares ISA that I would really like to move in to an IFISA. Ideally I'd like to put it in Ratesetter, but they seem really slow at actually providing this service and I am beginning to think it is on the never never. All the time I am waiting I am losing money, so am thinking of going to one of the 2 only available IFISAs. But I don't know anything about how risky they are….can you help? Or do you have any insight in to when the big 3 are ever going to get their IFISAs approved? Perhaps now we have a new chancellor they may change policy!”



4thWay's reply to Simon

[Update since responding to Simon: Lending Works' IFISA should arrive in just a few weeks! Read more here (opens in new window).]

We've been talking to CrowdStacker to try to arrange to get enough information from them to be able to measure their risks and get them listed, with all their details, in our comparison tables. A colleague of mine has crowd2fund high up on his list of platforms to contact next, but I'll ask him today to bump it up to the top.

At present, we haven't talked to key people at those two platforms and they haven't provided us with anything like enough information to assess them properly. Sorry I can't give you better news, but we'll really work with them to get them listed as soon as possible.

I'm as frustrated as you are that I can't get my cash into other IFISAs yet.

The delays to IFISAs at RateSetter and the rest are being caused by the financial regulator, the Financial Conduct Authority. Currently, most of the P2P lending platforms are still operating with the regulator's “interim permission”. The regulator needs to upgrade the P2P lending platforms to “full permission” before they're allowed to release their IFISAs. Behind the scenes, the major platforms are all ready to release their ISAs as soon as the full permission arrives.

While the regulator is being slow in giving full permission, my understanding from talking to platforms, the regulator and related businesses is that it is just being thorough. Frustrating though it is, I think that is in investors' interests. There are going to be some platforms that are very weak with not enough appropriate banking skills, so the regulator can help weed those out for all us investors, saving us the effort.

What is the FCAQuestion from Jocelyn

“Would you say that there is a good deal of overlap between 4thway assessment criteria and FCA criteria for offering an ISA?”



4thWay's reply to Jocelyn

The FCA is able get more into the legal nitty gritty than us, such as checking out that the P2P lending companies have set up smooth wind-down plans (in the event a platform goes bust) as described, and also checking the legal contract between borrowers and lenders is as described. They do that in more detail than we do since I don’t think that us duplicating some of that work will significantly increase the chances of spotting fraud or illegal or insufficient structures, and they have the in-house legal expertise to do a better job than us there.

There's a lot of overlap in reviewing people and processes. In that area they probably do more background checks whereas we look at whether they have the experience and processes we'd expect to see as investors and professional risk modellers.

The FCA does a lot more work looking at the marketing of those platforms and ensuring it is accurate and has suitable disclaimers. We just make suggestions to platforms sometimes when they are being heavy handed (and on every occasion so far they have listened to us and corrected it) or we make it clear to our users in the appropriate places when a platform insists on something that is inaccurate or even completely untrue (e.g. some P2P lending companies don’t always make it clear when they have products that are non-P2P, and others claim to be free for lenders whereas the reality is that lenders always have costs: There’s No Such Thing as “No Lender Fee”).

4thWay’s real focus is on how good an investment each platform or product is: its transparency, the underlying risks of the loans, the stability of the platform and so on. In contrast, the FCA doesn't assess how good an investment a platform or lending product is. In this regard, it just considers the industry as a whole when it decides how strictly or loosely to regulate it.

In short, the FCA weeds out most of the really bad eggs and looks to make the better ones have tighter structures/processes, and while we overlap with some of that we move on to a more investment-level assessment.

I like to think that the combination of an FCA-regulated platform that is also then assessed by us based on the basic investing principle that investors should invest/lend with a “large margin of safety” is a fantastic combination. Sorry, I know that sounds salesy!

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