UK’s Financial Conduct Authority (FCA) said on Friday it has identified a number of gaps in the regulation for loan and investment-based crowdfunding in the country and the rules that apply for market participants need many improvements.
Following a call for input where market participants provided feedback and raised a number of issues, the UK regulator made a review of the crowdfunding market which showed what rules need improvement.
Based on a review of the feedback received, issues seen during the supervision of crowdfunding platforms currently trading and consideration of applications from firms seeking full authorization, the FCA believes it is appropriate to modify a number of rules for the market, the statement read.
“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,” FCA head Andrew Bailey said. “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,” he added.
The FCA plans to consult on additional rules in a number of areas in Q1 2017. It seeks to collect more information about the strengthening rules on wind-down plans, additional requirements or restrictions on cross-platform investment, and extending mortgage-lending standards to loan-based platforms. The regulator’s research and investigatory work is expected to be completed in early 2017 after which it will complete the post-implementation review and determine whether further consultation on rule changes is needed.
The FCA’s initial findings from the received feedback indicated the following weaknesses in the crowdfunding regulation:
Loan-based and investment-based crowdfunding
- it is difficult for investors to compare platforms with each other or to compare crowdfunding with other asset classes due to complex and often unclear product offerings
- it is difficult for investors to assess the risks and returns of investing on a platform
- financial promotions do not always meet our requirement to be ‘clear, fair and not misleading’ and
- the complex structures of some firms introduce operational risks and/or conflicts of interest that are not being managed sufficiently
- certain features, such as some of the provision funds used by platforms, introduce risks to investors that are not adequately disclosed and may not be sufficiently understood by investors
- the plans some firms have for wind-down in the event of their failure are inadequate to successfully run-off loan books to maturity
- we have challenged some firms to improve their client money handling standards
The UK crowdfunding market is regulated in the UK since April 2014 by FCA. To see some of the largest UK crowdfunding platforms by raised funds, please click here.
Earlier this week, the FCA proposed alterations to the forex market regulation, too. It intends to set a leverage cap of 50:1 (25:1 for inexperienced traders with less than 12 months of trading) and to ban bonuses or other benefits to promote risky trading instruments. The changes were triggered by the recommendations and guidelines of the European Securities and Markets Authority (ESMA).