Shearman & Sterling LLP | FinReg | UK Regulator Wants Stronger Wind-Down Plans for Loan-Based Crowdfunding Platforms
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  • UK Regulator Wants Stronger Wind-Down Plans for Loan-Based Crowdfunding Platforms

    The Financial Conduct Authority has published a "Dear CEO" letter addressed to loan-based peer-to-peer crowdfunding platforms requesting the platforms to review their wind-down arrangements. 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's rules require P2P lending platforms to have arrangements in place to ensure that P2P agreements will continue to be managed and administered if the platform ceases to operate. In its consultation in Q4 last year on proposed rule changes for P2P lending platforms, the FCA emphasized that it had observed that wind-down arrangements were sometimes inadequate and proposed reinforcing the rules on wind-down arrangements to ensure the continued provision of services to investors during a wind down. The FCA intends to publish its Policy Statement and final rule amendments in Q2 2019.

    The FCA recently conducted a supervisory review of a sample of firms' wind-down arrangements and found that most platforms' plans did not meet the standard of being workable in practice. The FCA highlights three main areas of concern arising from the review. These are: (i) systems and controls relating to wind down, which need to be firm-specific; (ii) platform funding and remuneration models; and (iii) third-party permissions for wind down, which firms are required to ensure that a third party has where it is intended that the third party will assume the role of operating and administering P2P agreements in the event of a wind down .

    The FCA is asking P2P firms to review their wind-down plans and make improvements, where appropriate. Certain firms will be asked to provide the FCA with details of their revised wind-down plans.

    View the letter.

    View details of the FCA's proposed rule changes for P2P Lending Platforms.

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