On 27th July, the FCA issued a Consultation Paper outlining new proposals for loan-based crowdfunding platforms. The consultation paper can be found at CP18/20: full consultation paper.

Proposed Changes Include:

  • Ensuring investors receive clear and accurate information about a potential investment and understand the risks involved
  • Ensure investors are adequately remunerated for the risks they are taking
  • Ensuring transparent and robust system are in place to assess risk, value and price loans and fair/transparent treatment to investors
  • Promote good governance and orderly business practice and
  • Extend marketing restrictions for investment based crowdfunding platforms to loan based platforms

Why are Changes Proposed?

The FCA have observed poor practice by some firms in the crowdfunding sector, particularly among loan-based platforms. This has arisen as a result of both poor business practice as well as risks around certain business models. Proposals in this consultation seek to improve standards in the sector but in a way that leaves scope for further innovation.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:

“When we introduced new rules for crowdfunding, we said we’d review the market as it developed. We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals but it’s essential that regulation stays up to date as markets develop. The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections.”

Responses to the consultation should be submitted to the FCA by 27th October 2018, revised rules will be issued in a Policy Statement later this year.

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