FCA to explore crowdfunding concerns

Ryan Bembridge

July 8, 2016

The Financial Conduct Authority will explore crowdfunding risks with a call for input in the sector.

The regulator said the call for input signals its intention to consult on applying the usual mortgage lending standards to peer-to-peer (P2P) platforms.

In 2015 £2.7bn was invested in regulated crowdfunding platforms and there were more than 100 platforms operating in the market or seeking authorisation.

The House Crowd receives FCA authorisation

Christopher Wollard, director of strategy and competition at the FCA, said: “We introduced rules in 2014 to ensure consumers were protected without preventing the market from enhancing competition through expansion and innovation.

“Since then the market has grown rapidly and we want to explore concerns that have been expressed about developments in some aspects of the market.

“We believe now is the right time to consider whether our requirements remain appropriate and that we have the right rules to support the development of this dynamic market by ensuring consumers are adequately protected.”

The FCA is looking for responses to its call for input by 8 September 2016.

The regulator will look at whether platforms should be required to assess investor knowledge and whether whether financial promotions, due diligence and prudential standards are still appropriate for the way the market has developed.

It will also look at whether to mandate in greater detail the disclosure firms are expected to give consumers and the time that the disclosures must be provided.

John Goodall, chief executive and co-founder of peer-to-peer platform Landbay, said: “This call for information is a welcome move by the FCA. Crowdfunding is a broad church, with a rapidly growing congregation; but the umbrella term is being used to describe an increasingly wide range of financial products, and risks misleading investors.

“A clear example of this would be equity crowdfunding and peer to peer lending, which are entirely different forms of investment with completely different risk profiles.

“For peer-to-peer lenders like Landbay, which prioritise quality and security over extraordinary returns, we would encourage clearer definition of the different types of crowdfunding, particularly between the equity and debt varieties.

“We work with credit-worthy borrowers, and all investments are backed by a double-lock level of protection of secured buy-to-let mortgages and a reserve fund. After two years of lending directly to experienced landlords, we are yet to have a single default or late payment.”

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