There’s been quite a lot going on in the financial world in recent weeks, so here’s a run down of some of the most up to date stories in the media today.
The introduction of tougher rules for peer-to-peer platforms and what this really means
Peer-to-peer platforms (those that offer loans to small firms using cash garnered from investors) that offer loans to small firms using cash garnered from investors will come under tougher rules from December, said the Financial Conduct Authority (FCA).
The regulator’s rule changes last week come in the wake of the demise of Lendy last month, which collapsed into administration with £160m in outstanding loans and with more than £90m in default.
Lendy had spent the last six months on the FCA’s watchlist, and the body has launched a probe into the specifics of its crash. The watchdog’s new rules for the whole of the industry impose stricter requirements on governance arrangements and other controls it operates under. However, the FCA focus on how these firms market themselves, how much investors can spend and how these platforms should be wound up if they fail, has attracted the most industry attention.
The FCA said platforms must ensure they only market to retail clients who:
- are certified or self worth investors’ certified as ‘sophisticated investors’ or are certified as ‘high net
- confirm before a promotion is made that, in relation to the investment promoted, they will receive regulated investment advice or investment management services from an authorised person, or
- will be certified as a ‘restricted investor’; that is, they will not invest more than 10% of their net investible assets in peer-to-peer agreements in the 12 months following certification.
How a crackdown on banking overdraft fees will likely result in an end to free banking in the UK
A dramatic shakeup of the financial sector could herald the end of free banking in the UK, with all customers required to pay a monthly fee to keep their current accounts open.
The financial services regulator has announced a series of major reforms to the overdraft market that consumer rights champions say will stamp out “hideous charges designed to entrap people in debt”.
Once banks and building societies are prohibited from charging customers fees for borrowing money using an unplanned overdraft, it could become the norm for institutions to impose a monthly “management fee” on all current accounts.
Banks and building societies will be banned from charging people who go beyond their overdraft limit fixed daily or monthly fees from 6 April 2020 under the sweeping reforms unveiled by the Financial Services Authority (FCA). However, experts say the new rules mean banks and building societies will be scrambling to find a way to recoup their costs and will likely be considering introducing fees for current account holders.
When it comes to recouping costs, normally a bank or building society would need to review their entire range of banking products – any perks or fees on accounts would be looked at to see if they can be sustained. They might chop the perks they are currently paying out or they could add a management fee onto current accounts.
If that becomes the norm, of course customers will be irritated but that’s unfortunately how banking shakeups work…banking is a service, and banks need to make money.
How best-buy fund lists are under the spotlight in the wake of Woodford troubles
The Financial Conduct Authority has been urged to probe the way platforms run their fund buy-lists amid concerns of potential vested interest.
Shaun Port, chief investment officer at Nutmeg, said vested interests between fund houses and platforms’ best buy-lists should be investigated, while Bella Caridade-Ferreira, consultant at Fundscape, said she believes fund buy-lists should be regulated altogether.
The calls come in the wake of Neil Woodford’s flagship Equity Income Fund closing to investors amid liquidity concerns on June 3rd. Woodford’s £3.7bn Equity Income fund was suspended following a sustained period of underperformance, which prompted investors to pull £9m from the fund every working day in May.
The impact of the trading suspension on Neil Woodford’s Equity Income Fund is much further reaching, though, than just one fund.
While investors who bought the Woodford fund based on the recommendations of a best buy list are left wondering when they will be able to redeem their investments, it calls into question the broader appropriateness of best buy fund lists.
As the Financial Conduct Authority highlighted in their 2017 study, there are concerns around links between funds on best buy lists and the platform providers as well as their performance over the long-term. Commentators believe It is time the regulator revisited best buy fund lists and whether they are acting in the best interest of consumers.
How switching saving accounts could save you money
The Telegraph reports that savers are losing £3.5bn a year in interest on account of an inability to summon the energy to switch and many people remaining loyal to high street banks even though these often offer worse rates than smaller, rival firms.
According to the Centre for Economics and Business Research, customers with Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander account for £827bn of the total £1.3 trillion saved in the UK. And while they are set to make £3.4bn in interest on their savings over the next year, this would more than double, to £7bn, if they swapped to better deals with rivals, the study, which was commissioned by savings platform Flagstone, found.
The same is true in many other savings areas,” adds the article. “All the current top rates for one to five -year bonds and ISAs are for deals supplied by non-high street lenders.”
And finally …. vineyards will now qualify for business property relief, so could be a route to saving inheritance tax, for a very few amongst us!
Tax Justice UK has published research showing how some of the wealthiest families in Britain are benefiting from up to £666m a year in inheritance tax breaks.
The current law means that families with agricultural and business property can avoid paying any tax on these assets. The idea is to protect small farms and family businesses that might be asset rich but cash-poor. In the future, vineyards will be included within the category of agricultural and business property.
But research shows that the vast bulk of these tax breaks are going to those at the top and the campaigning group is calling for a cap on the amount of relief available to estates of over £1m in a bid to curb use of the reliefs.
The freedom of information request found that 261 families with agricultural property worth more than £1m shared £208m in tax relief in 2015/16, the latest year for which figures are available, representing 62% of the agricultural property relief given out that year. In the same period, 234 families with business assets worth over £1m shared £458m business property relief, representing 77% of the relief given out that year.
Overall, the group says 71% of these two categories of IHT tax reliefs went to families with farm and business property worth over £1m.
The analysis shows some 62 families with agricultural property worth more than £2.5m shared an approximate tax saving of £107m, which works out as an average saving of £1.7m per estate. At the very top, 51 families with business property assets worth over £5m shared an approximate tax saving of £327m, which works out as an average saving of £6.4m per estate.
The report also points out that there is evidence to suggest these reliefs are open to abuse. In 2017 just 40% of agricultural land was purchased by farmers, down from over 60% in 2011, while investors have flocked to buy agricultural land and property, it states.