What we talk about when we talk about crowdfunding and P2P
Following Peer2Peer Finance News’ Regulation Breakfast Briefing, UK Crowdfunding Association directors Bruce Davis and Atuksha Poonwassie explain the importance of nimble regulation in a growing sector…
IT HAS BEEN 15 YEARS since the launch of Zopa and nearly 10 years since the idea of regulated crowdfunding was first introduced to the Financial Conduct Authority (FCA). We have come a long way since then.
Since 2016, the FCA has worked hard to try to understand a sector which has innovated and grown hugely since 2014. The regulator has engaged independent researchers (including the Bauman Institute and the Cambridge Centre for Alternative Finance) and platforms have provided huge amounts of data and management time to make sure that any recommendations are based on solid evidence and an understanding of business impact.
It is hard to think of another sector in the financial services world which has engaged so openly and willingly with the regulator – surely a reflection of its maturity and pro-regulation stance.
At the P2PFN event, the panellists’ responses focused on the big discussion from the review, the application of categorisation and appropriateness for P2P loans (already a requirement for investment in crowdfunding) and the additional guidance for wind down plans and target returns. We are sure that the debate and Q&A following the panel discussion gave the regulator and policy observers food for thought.
At the UKCFA we fully recognise the efforts of the team to engage and understand this process as well as appreciate the often frank and candid discussions about the need for balance between consumer protection and innovation. We hope to continue that regular dialogue with the regulators, industry and government as we implement the rules and continue to develop the sector.
The important thing now is that the implementation of the rules remains true to the original spirit of the UK’s crowdfunding regulations, which are principles based. It is important that the implementation of the rules does not become a prescriptive exercise and keeps as much as possible the responsibility with platforms to deliver. In particular this means making sure that the appropriateness test is carried out in a way that is meaningful to the particular investment process of an individual platform and not a tick box exercise for all to comply no matter what business model is being used.
There was also some debate about the recent issues at London Capital & Finance and Lendy and no small frustration that those who follow the regulations (and actively work to support their development) would be affected by the failure to identify and act on situations of potential lack of competence or even alleged fraudulent activity.
All markets are based on confidence and we need confidence that the regulator has the resources and the powers to act if individuals or companies break the rules or the law.
No doubt there will be issues arising as platforms understand the detail of the recommendations, and the devil is always in the detail.
Hopefully, the sector can continue to grow and innovate in the interests of customers, to keep the crowd in crowdfunding and ensure platforms build their businesses in a way that puts the appropriateness of their investments front and centre.
This article featured in the August issue of Peer2Peer Finance News, now available to read online.