The Personal Finance Society (PFS) has urged product providers, financial advisers and the FCA to ensure Innovative Finance ISAs are designed and promoted in a way that “will not exploit known behavioural biases”.

Last week Charles Randell, chair of the FCA, stated in the wake of the failure of London Capital & Finance, the Innovative Finance ISA policy was being reviewed. 

Mr Randell said it was important to ensure that any reviews in this area – including the Treasury’s own review of mini-bond policy – take a broad view, to prevent the skimmers and scammers from resurfacing elsewhere.

Keith Richards, CEO of the PFS, said: “Innovative Finance ISA’s (peer to peer ISA’s) pose a very old problem – products that promise high, very specific returns, for example, 7.5 per cent, but leave capital at risk.

“People register the high return, but don’t read the warnings about capital at risk.

“The same was true of split capital investment trusts and precipice bonds in the 2000s.

“Because people see an interest rate in the same format as a deposit account, they don’t realise that their capital is not protected by the Financial Services Compensation Scheme in the same way a deposit account would be.

“Behavioural bias tends to mean that the markets reward poor behaviour in the short term, but signposting consumers towards professional advisers is a powerful way to combat this.”