FCA sets out P2P lending and crowdfunding rules

FCA sets out P2P lending and crowdfunding rules

The UK's Financial Conduct Authority (FCA) has set out rules designed to boost protections for people lending and investing through P2P and crowdfunding platforms.

P2P lending (dubbed loan-based crowdfunding by the FCA) has seen its popularity soar over the last year, with £480 million lent to consumers and business through platforms such as Zopa and Funding Circle in 2013.

With the FCA taking on regulatory oversight of the practice from April, it has now, following consultation, set out rules designed to ensure that potential lenders have access to clear information on the risks that they are taking on and on who is ultimately borrowing their money.

The rules also require P2P platforms to put in place plans to make sure that loan repayments can still be made even if they get into difficulties. New prudential regulations will be introduced "over time" so that these firms have capital to help withstand financial shocks, an important feature because lenders will not be able to claim through the Financial Services Compensation Scheme.

The UK security-based crowdfunding market is far smaller than P2P, raising just £28 million last year but this represented a 600% rise on 2012 and the government is keen to promote takeup as an alternative to traditional high street lending.

To protect amateurs, normal investors will only be able to put up to 10% of their assets into crowdfunding projects. Those who take advice or are experienced investors can put in more.

Christopher Woolard, director of policy, risk and research, FCA, says: "We want to ensure that consumers are appropriately protected - but not prevented from investing. We have been careful to listen to feedback from the market and the rules provide consumer protection, whilst allowing businesses to continue to have access to this innovative method of funding."

With many small firms still struggling to get financing from traditional sources, the government is keen to promote crowdfunding and P2P lending as viable alternatives.

However, Barry James, founder of The Crowdfunding Centre, slammed the rules, particularly the 10% provision: "On a day like today one has to wonder whether our FCA is the worst regulator in the western world. The words that spring first to mind are inflexible, stubborn and unimaginative. Maybe it's time for a change." 

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