The Financial Conduct Authority (FCA) is seeking input on which areas should be considered as part of its upcoming review of the rules surrounding both investment-based and loan-based crowdfunding.
In 2015 an estimated £2.7billion was invested on regulated crowdfunding platforms, up from £500 million in 2013, with more than 100 platforms either operating in the market or seeking authorisation. The FCA introduced rules for the regulation of crowdfunding platforms in March 2014 and committed at the time to a full review of their impact.
Christopher Woolard, director of strategy and competition at the FCA, said: 'The crowdfunding market is an innovative and growing sector and one which we see as part of promoting effective competition. We introduced rules in 2014 to ensure consumers were protected without preventing the market from enhancing competition through expansion and innovation.
'Since then the market has grown rapidly and we want to explore concerns that have been expressed about developments in some aspects of the market. We believe now is the right time to consider whether our requirements remain appropriate and that we have the right rules to support the development of this dynamic market by ensuring consumers are adequately protected.'
In its call for input the FCA is seeking views on a number of issues related to loan-based crowdfunding including:
- considering whether financial promotions, due diligence and prudential standards are still appropriate for the way the market has developed
- whether to mandate in greater detail the disclosure firms are expected to give consumers and the time that the disclosures must be provided
- whether platforms should be required to assess investor knowledge or experience of the risks involved in this type of investment
- whether investors in loan-based crowd funding should be protected by the Financial Services Compensation Scheme in the event of a platform failing.
We are also interested in comments on the effect on competition of the growth of crowd funding.
The FCA is also seeking views on its regulation of investment -based crowdfunding including:
- how conflicts of interest are managed on these types of platform
- whether the due diligence rules for platforms need to be strengthened
- whether to mandate the disclosure of risk warnings in relation to non-readily realisable securities (such as unlisted equities) held within Innovative Finance ISAs.
The call for input also signals the FCA’s intention to consult on applying the usual mortgage lending standards to Peer-to-Peer (P2P) platforms in order to give consumers the full benefit of these protections.
The FCA is asking for responses to its Call for Input by 8 September 2016.