The Financial Conduct Authority has proposed tough new regulations regarding peer-to-peer (P2P) lending platforms
With ‘growing complexity and poor practices’ since it first authorised trading in the market 18 months ago, the regulator has now proposed a number of changes for loan-based crowdfunding platforms
The changes are designed to address the ways in which the loan-based crowdfunding model has developed since the FCA last reviewed the sector in December 2016. After observing the variety of loan-based crowdfunding business models, some of which have become increasingly complex, the FCA is now inviting responses to a number of specific proposals to change the rules.
Its new rules include proposals to ensure investors receive ‘clear and accurate information’ about a potential investment and understand the risks involved, as well as proposals to extend existing marketing restrictions for investment-based crowdfunding platforms to loan-based platforms.
The proposed changes also aim to ensure investors are ‘adequately remunerated’ for the risk they are taking, promote good governance and orderly business practices, and create transparent and robust systems for assessing the risk, value and price of loans, and fair/transparent charges to investors.
Through the modifications to its rulebook, the FCA wants to stabilise the market and provide better consumer protection.
In December 2016, the FCA said it was committed to addressing a potential gap in protections for customers buying a mortgage or taking out a home finance product through loan-based crowdfunding.
Fast forward 18 months , and the FCA is now proposing to apply rules which would normally apply to home finance providers, to P2P platforms where at least one of the investors is not an authorised home finance provider.
Christopher Woolard, executive director of strategy and competition at the FCA said: “When we introduced new rules for crowdfunding, we said we’d review the market as it developed. We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals but it’s essential that regulation stays up to date as markets develop. The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections.”
Earlier this year, the Financial Conduct Authority expanded its regulatory sandbox, adding a number of RegTech’s to the initiative’s fourth cohort. The FCA said it received 69 applications to cohort four, an increase on the previous year, with 29 being successful. Its regulatory sandbox allows firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place.
Copyright © 2018 RegTech Analyst
Copyright © 2018 RegTech Analyst
