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What’s of note in the UKs Peer-to-Peer and equity crowdfunding sectors

Posted 5 years ago

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We are almost at the half-way point for 2017, which begs the question what is worth noting in the Peer-to-Peer and UK equity crowdfunding markets?

Well firstly peer-to-peer is having a record run of it. The Peer-to-Peer Finance Association (P2PFA) recently released data that showed that in the first 3 months of 2017 the sector lent more than £1 billion for the first time. That lending was across the 9 member platforms and represented the participation of 180,000 investors and 420,095 borrowers. To provide further context, if you need it, of this milestone the P2PFA members show cumulative levels of lending to date of almost £8.5 billion; so the £1 billion lent in the first quarter of this year represents a significant jump in lending volumes.


Could the IFISA be part of this story? Undoubtedly yes. Crowd2Fund reported a record breaking first quarter in 2017 which it attributed to being one of the first platforms to offer the Innovative Finance ISA or IFISA. It announced that 95% of its investments were now through the tax wrapper and a 4,700% year-on-year growth. However, this is still far short of the volumes traded on the big two platforms – Ratesetter and FundingCircle – neither of which offer an IFISA as yet; so whilst IFISA is playing a part it is perhaps not unreasonable to assume that the low rates offered by cash, and investors finding the higher yields that P2P offers attractive, may be playing a bigger role.


This does of course mean that all eyes will be on the impact that IFISA will have when the bigger platforms receive regulatory permission to offer the tax wrapper. At present most of the platforms continue to await approval, but when they are in place will Crowd2Fund’s experience be replicated elsewhere? Time will tell but if it does we may see more interest from financial advisers who have, to date, largely ignored the sector.


The UK equity crowdfunding story is less exciting. Whilst it continues to grow year-on-year numbers are down.  The question is why? 


The general consensus is that the Brexit effect is applying here. Whilst there is political and market uncertainty the desire to invest money in businesses is lower. The number of pitches seen in the last 12 months is certainly more consistent than invested money which appears to back up this assertion.  


However, whilst investment is certainly lower so far in 2017, there were higher levels of investment at the end of 2016, suggesting that the Brexit effect isn't necessarily the only reason that investors are cautious. Perhaps regulatory scrutiny from the Financial Conduct Authority (FCA), announced in December of last year and the conservative Government's announcement in January that Britain would withdraw from the single market have added to investor caution.  


So what next? Well there are two news items pending that will have an impact on both Peer-to-Peer and equity crowdfunding in the UK. Firstly, the Financial Conduct Authority (FCA) is expected to publish further governance for both sectors in May or June. This follows an advisory note that was sent at the end of 2016. The regulator was quite clear in December that it expected more transparency and better processes from both sectors; it will be interesting to note what is applied following this period of consultation with platforms. Secondly, the Treasury is expected to update its rules for EIS in May. Enterprise Investment Schemes (EIS) have been hugely successful in attracting private investment into the UKs small business economy, but will the Treasury see that success as a loss of tax revenue rather than a much needed boon? We will find out later this month.

Tagged: equity crowdfunding equity crowdfunding p2p peer to peer alternative finance IFISA Innovative Finance

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