John Spiers of EQ Investors has expressed deep reservations about the new kind of savings vehicle.
At the March Budget the government announced that it would consult on whether to extend ISA eligible investments to include debt securities and equity offered by companies via a crowd-funding platform. Treasury officials confirmed it on Wednesday afternoon after the Autumn Statement, following a public consultation.
The Innovative Finance ISA (IFISA) will become available from April 2016 to accommodate Peer-to-Peer (P2P) loans. Investors will be able to allocate their entire ISA allowance (£15,240) in any way they like across IF, Cash or Stocks & Shares ISAs.
Mr Spiers said: “I’ve been nervous about this for some time because I don’t feel this is the right time to confer the level of respectability that is associated with ISAs to what is still a relatively new type of investment, untested through a full economic cycle.
“We know that default rates on loans will increase in a recession but we don’t know how much that will affect a typical book of P2P loans yet. Moreover, we don’t know how the collapse of one of the P2P platforms might affect investors.”
George Osborne’s confirmation that debts issued through these platforms will also be eligible for IFISAs, though not until April 2017, “alarms me even more”, he said.
He said: “Virtually all crowdfunding offers are based on early stage ventures and some of the platforms carry out only minimal due diligence.”
Although he said he favoured encouraging innovative ways of raising capital for businesses directly from the public, he added: “I just don’t see the need to muddy the ISA waters.”
The Treasury report stated: “The government has carefully considered all of the responses to this consultation and has decided to extend ISAs to crowd funded debt securities issued by companies.
“This is consistent with the views expressed by the majority of respondents. Draft legislation setting out the government’s approach to implementing this change will be published for consultation following technical discussions with interested parties, with a view to make regulations in time to enable debt securities issued by companies to be held in an Innovative Finance ISA in autumn 2016.”
“The government will work with the crowd funding sector and other interested parties to further explore the case for extending ISAs to equity crowd funding.”
On Wednesday it was also revealed that the ISA annual limit will stay at £15,420 and JISA limit remains the same at £4,080.