UK Financial Conduct Authority Proposes Changes to Rules Governing Peer-to-Peer Lending Platforms

The Financial Conduct Authority has launched a consultation on new rules for loan-based crowdfunding platforms, also known as peer-to-peer lending platforms. The FCA implemented rules regulating FCA-authorized firms operating investment-based and loan-based crowdfunding platforms on April 1, 2014. Investment-based crowdfunding is governed by the Markets in Financial Instruments package and the Alternative Investment Fund Managers Directive, as transposed into U.K. law. The regime for P2P lending is a national one and is less detailed and prescriptive.

The FCA began a post-implementation review of the crowdfunding sector and the applicable regimes in 2016. In the post-implementation review, the FCA identified that harm may be caused to investors as a result of poor business practices and due to the business models that some platforms have adopted. The consultation paper summarizes the FCA's findings from that review and sets out the FCA's proposals to change certain rules and guidance.

The FCA's review concludes that the framework for investment-based crowdfunding is mostly adequate. Where issues have been identified, the FCA proposed clarifications to the existing rules, but no new requirements.

For P2P crowdfunding, the FCA is proposing a package of additional rules and guidance which are intended to formalize requirements and improve standards, without thwarting innovation. The main changes proposed include requiring P2P platforms to:

• provide clear and accurate information about a potential investment to investors;
• ensure investors are adequately remunerated for the risk they are taking;
• have transparent and robust systems for assessing the risk, value and price of loans as well as fair and transparent charges to investors;
• have good governance arrangements and orderly business practices, including preparing for winding down; and
• comply with the existing marketing restrictions for investment-based crowdfunding platforms.

Responses to the consultation should be submitted by October 27, 2018. The FCA intends to publish a feedback statement in Q2 2019.

View the consultation paper.

View details of the FCA's review.

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