In February 2015, the Financial Conduct Authority (FCA) published a regulatory review of the crowdfunding industry, including investment crowdfunding and peer-to-peer lending.
This review comes almost a year after the industry initially became regulated in March 2014, so how does the FCA think it’s gone?
The FCA affirmed that it sees “no need to alter course,” as things are working out rather well as they are. A slight anti-climax perhaps, but it’s good news for the industry.
As crowdfunding is still a relatively revolutionary and new financial sector, administrators recognised the importance of taking a ‘light touch approach’ in their regulation to limit intrusiveness.
Ultimately, the FCA wants to encourage the industry’s evolution and growth, while promoting healthy competition and protecting consumers:
“We have seen the crowdfunding market continue to grow rapidly. We recognise that it is still early but, at present, we see no need to change our regulatory approach to crowdfunding, either to strengthen consumer protections or to relax the requirements that apply to firms.”
The review confirms that both sides of the equation are being adequately addressed and that consumer protection remains resilient, whilst rapid growth of new forms of finance continues.
A reminder of the 2014 regulations:
Peer-to-peer lenders are subject to the Principles for Business. These provide an over-arching requirement to act with integrity, skill, care and diligence as well as treat customers fairly.
Typically, these Principles are underpinned by detailed rules or guidance, such as the rules requiring firms to arrange adequate protection for client monies.
All platforms must have plans in place to allow a third party to look after existing loans if a platform goes under.
The platform must hold at least £20,000 as reserve capital.
While responsible platforms, including Assetz Capital, followed them before the regulation, these principles and rules are strict requirements and firms that don’t follow them will face penalties.
While the authority didn’t change anything this time, we’re expecting another, full review in 2016.
Although the FCA is still taking the ‘light touch’ approach, this doesn’t mean that the FCA is sitting on its hands. In fact, the regulator has issued warnings and taken action over platform activity (most recently promotional efforts that have misled customers), which it has deemed inappropriate.
It has also established an on-going communication line with all UK platforms, as sensibly, it recognises that regulation is not a one-way street, and feedback is welcome.
In the closing paragraph, the FCA states: “We will continue to monitor the market in addition to the formal review process and will take any appropriate action.”
What do we think?
The existing regulations should continue to allow the industry to flourish, yet in a controlled way. We are also pleased that the FCA is taking a tough stance on platforms that do not meet its standards, as this could bring the whole sector into disrepute.
The sector’s growth since regulation shows that consumers are more likely to have faith in an industry that is regulated, as they can invest more safely and confidently knowing that platforms follow sensible guidelines.
If you would like more information on the industry, or if you are interested in becoming a borrower or lender, contact Assetz Capital today.