Following a post-implementation review of its crowdfunding rules, the Financial Conduct Authority (FCA) is opening a consultation on new rules for loan-based crowdfunding platforms.
The changes the authority is proposing are designed to address the methods in which the loan-based crowdfunding model has developed since the FCA last reviewed the sector in December 2016. The FCA has observed the variety of loan-based crowdfunding business models, of which some have become increasingly complex.
As a result of its findings, the regulator is inviting responses to a number of specific proposals to change the rules for loan-based firms which cover proposals to ensure investors receive clear and accurate information and ensure investors are “adequately” remunerated for their risks.
The consultation further suggested that there are transparent and robust systems in place that assess the risk, value and price of loans, along with fair charges to investors. The regulator also wants to promote good governance and orderly business practices, with proposals to extend existing market restrictions for investment-based crowdfunding platforms to loan-based platforms.
In its December 2016 statement, the FCA committed to addressing a potential gap in protections for customers buying a mortgage or taking out a home finance product through loan-based crowdfunding. The regulator is now proposing to apply rules which would typically apply to home finance providers, to peer-to-peer platforms where at least one of the investors is an authorised home finance provider.
The authority has revealed that it has observed some poor practice by some firms in the crowdfunding sector, particularly among loan-based platforms. This is due to a result of poor business practice and risks surrounding certain business models.
FCA executive director of strategy and competition Christopher Woolard 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.”
The regulator is asking for responses to this consultation by 27 October 2018 before publishing rules in a Policy Statement later this year.
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