The FCA plans to toughen its rules for crowdfunding firms, with a particular focus on loan-based approaches, such as peer-to-peer lending.
The regulator today issued an update on its review of the loan-based and investment-based crowdfunding market.
The regulator has proposed several new rules for the market, which it will consult on in early 2017.
In an interview with Fund Strategy, chief executive of the FCA Andrew Bailey says loan-based crowdfunding has raised more concerns than equity-based models, pointing out that the former had evolved at a much quicker pace.
“Probably the equity model could draw on more parallels elsewhere in the industry on which to base itself, whereas the loan-based crowdfunding were much more novel in that sense.”
The new rules include more prescriptive requirements on the content and timing of disclosures by both loan-based and investment-based crowdfunding platforms.
For loan-based platforms only, the FCA plans to consult on strengthening rules around wind-down plans, imposing additional restrictions on cross-platform investment and extending mortgage-lending standards to loan-based platforms.
The FCA says it has challenged some firms on client money handling standards, but was unwilling to comment on the number or type of firms.
In its update, the FCA says it has found it is difficult for investors in both loan-based and investment-based crowdfunding platforms to compare crowdfunding with other asset classes because of complex and often unclear product offerings.
It also says it is difficult for investors to assess the risks and returns of investing on a platform and that the way some firms are structured leads to conflicts of interest that are not being managed properly.
Bailey says: “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.”
The FCA expects its research and investigatory work to be finished early in 2017.