Investors and borrowers face dealing with new rules for peer-to-peer crowdfunded loans.
The industry regulator has stepped in with proposals to update rules for lenders raising funds from crowdfunding, which were last reviewed in 2016.
The Financial Conduct Authority has opened a consultation listing five rule changes for crowdfunded lending:
- Because deals are becoming more complicated, the FCA wants lenders to provide clearer and more detailed information about investments and any associated risks
- New rules to make sure investors are paid appropriately against their risk
- Crowdfunding firms should have systems for fairly assessing the risk, price and value of loans that is fair and transparent to investors
- Lenders should promote good business practices
- Marketing restrictions already imposed on investment-based crowdfunding should extend to loan-based platforms
The financial watchdog also wants to apply lending rules for mortgage and secured loan lenders to peer-to-peer platforms if one or more of the investors is not an authorised home finance provider.
The FCA explained poor practice by some firms in the P2P lending sector had been uncovered and the new proposals aim to improve standards for investors and borrowers.
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.”
Over complicated deals
The paper follows an inquiry in 2016 in which the FCA discovered investors were facing several issues with P2P lending platforms raising money to lend from crowdfunding.
These included misleading advertising, over-complicated deals, problems comparing investment opportunities with other P2P lenders or asset classes and problems working out potential investment returns.
At the time, the FCA, said: “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. Based on our findings to date, we believe it is necessary to strengthen investor protection in several areas.”
The consultation is open until October 27, and will be followed by a policy statement later in the year.