Dec 9, 2016

UK financial watchdog cracks down on crowdfunding

Crowdfunding platforms that offer home loans should be regulated like mortgage lenders to improve safety and transparency for customers, Britain's Financial Conduct Authority said on Friday.


Crowdfunding or "peer-to-peer" (P2P) operators collect small sums of money from many people online to lend to companies or individuals, or invest in bonds. The size of the market in Britain stood at 2.7 billion pounds ($3.40 billion)last year, up from 500 million pounds in 2013.
The watchdog's recommendation was included in the results of a public consultation into rules it introduced in 2014, which it said needed tightening up because the market was changing rapidly.
"We plan to consult on additional rules in a number of areas," the watchdog said. "These include more prescriptive requirements on the content and timing of disclosures by both loan-based and investment-based crowdfunding platforms."

Firms like Funding Circle, Zopa and Seedrs cut out banks by bringing together lenders and borrowers, or channelling investment into start-ups.
FCA Chief Executive Andrew Bailey said not all platforms were being clear to customers about how they worked, with some "potentially misleading" in the way they presented their investment strategy or the role of reserve funds or provisions for loan defaults.

"It would be wrong to give investors the idea they would never lose money as a consequence of having a reserve fund," Bailey told Reuters.
A core aim of new rules would be to have a clearer boundary between crowdfunding and asset management, he said.

By Huw Jones