Crowdfunding probe launched over investor concerns

FCA chief Andrew Bailey said crowdfunding investors need more protection. Picture: Contributed
FCA chief Andrew Bailey said crowdfunding investors need more protection. Picture: Contributed
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The UK’s £2.7 billion crowdfunding market is to come under further scrutiny after the City watchdog found evidence of “potential investor detriment”.

The Financial Conduct Authority (FCA) said that, following a review of the sector, it will consult on a further regulation for peer-to-peer (P2P) lending.

We believe it is necessary to strengthen investor protection

Andrew Bailey

It found it is difficult for investors to compare platforms with each other, to assess risks and returns and financial promotions do not always meet requirements to be “clear, fair and not misleading”.

The FCA is also concerned that there are inadequate provisions in the event a firm goes bust and cannot repay borrowings.

READ MORE: How big is the crowdfunding market in Scotland?

Jude Cook, co-founder and chief executive of Edinburgh-based crowdfunding platform ShareIn, said that today’s statement from the regulator “hasn’t brought with it any big surprises”.

She added: “When crowdfunding regulations came in back in 2014, it had always been the plan to review them in 2016. The statement this morning has highlighted that further regulation may be coming regarding P2P platforms.

“It was interesting to note findings on the anticipated appeal to investors of the new Innovative Finance ISAs introduced this year, which has been generally welcomed in the industry. This could well result in mandatory disclosures but we wait till next year to find out the details.”

Loan-based crowdfunding is growing rapidly, with a report by innovation charity Nesta and the Cambridge Centre for Alternative Finance showing that consumer and business loans totalled almost £2.4 billion last year, up from £1.3bn in 2014.

Over the same period, the equity-based crowdfunding market expanded from £84 million to £332m, while debt securities grew from £4.4m to £6.2m.

A fresh consultation, to begin in the first quarter of next year, will look at strengthening rules on wind-down plans, additional requirements on cross-platform investment and extending mortgage-lending standards to loan-based platforms.

FCA chief executive Andrew Bailey said: “Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers.

“Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.”

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