Financial watchdog set to regulate crowdfunding and peer-to-peer lending

Financial Conduct Authority outlines plan to protect investors in fledgling ventures with release of consultation paper

The Financial Conduct Authority (FCA) has today issued its first consultation paper dealing with the fast-growing peer-to-peer lending and crowdfunding investment industry.

Formerly known as the Financial Services Authority (FSA), the financial watchdog signalled its intention to crack down on what it sees as a sector in need of greater transparency and regulation. Proposals in the consultation paper included:

  • A 14-day cooling-off period requirement for investors using peer-to-peer platforms
  • A requirement for a system in which investors’ loans to firms continue to be repaid even if the original P2P lending platform collapses
  • A requirement to explain the key features of P2P lending to investors using such websites, including bad debt ratios
  • A limit on direct promotion of investment-based crowdfunding to consumers
  • A requirement that, where no financial advice has been provided, consumers are made aware of the risks involve

The watchdog expressed hope that these measures, when implemented, would provide an ‘appropriate and proportionate’ level of protection to consumers whilst continuing to promote competition within the sector.

Creators of crowdfunding platforms, many of whom formed the UK Crowdfunding Association to formalise a code of practice and to promote transparency for investors and investee companies alike, welcomed the news.

Co-founder of Crowdcube Luke Lang told Startups.co.uk he and business partner Darren Westlake were “delighted” as “many of the measures proposed by the FCA are already in line with how Crowdcube operates today”.

“It is critical that equity crowdfunding is more accessible to everyday investors, which today’s consultation goes some way to achieve,” he continued.

Simon Dixon, co-founder of Banktothefuture.com echoed Lang’s sentiments and said: “We at BankToTheFuture.com have always been very careful to make sure that investors understand what investing in private companies means and armed with this information people are able to make investment decisions assisted by the diligence of the crowd.”

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