THE FINANCIAL Conduct Authority (FCA)’s interim feedback from its crowdfunding review signalled that it will take a tougher stance when overseeing the sector, amid concerns that it is evolving too quickly at the detriment of consumers.
At what point is innovation a good thing and at what point does it become a dangerous concept?
Simmons & Simmons’ fintech team published its response to the FCA feedback on Tuesday and it thinks the FCA has found regulating P2P tougher than expected.
“The FCA states that it is concerned about the pace of innovation,” the City law firm said. “As this is a different stance from that of Project Innovate it may be an indication that the FCA is finding supervising this relatively new market to be challenging.”
This is a view echoed by Gillian Roche-Saunders, who runs Bates Wells Braithwaite’s financial services regulatory consultancy BWB Compliance.
“The FCA is worried about the pace of innovation within the P2P sector, as it can’t keep up,” she said. “The FCA’s tone was quite punchy, which surprised me, as did the timing of putting these messages out there before deciding on the new rules.”
Another fintech lawyer has privately expressed that the FCA’s concerns about P2P innovation could stem from complaints about the sector. “Sometimes when a regulator comes down on a particular industry, it’s because they’ve seen signs of problems,” the lawyer said.
Indeed, concerns about P2P innovation jar slightly when compared to Project Innovate, the FCA’s recent initiative to help fintech start-ups bring innovative products and services to the market. It includes a regulatory sandbox, aka a ‘safe space’ where businesses can test out innovative products.
On the FCA’s website, it states: “we want new and established businesses to be able to introduce innovative financial products and services to the market”. Just not when they’re too innovative, apparently.
“The crowdfunding feedback was big news and I don’t think anyone was expecting it,” said Judith Rinearson, partner at K&L Gates.
“It’s frustrating when regulators try to put boundaries on innovation, but I think they recognise the positives as well as the negatives.”
The FCA was contacted for comment.