The UK Crowdfunding Association (UKCFA) has argued that P2P investors already have a good understanding of risk so additional City regulator rules in this space could only serve to push out platforms and companies supplying their loans into the unregulated space or overseas.
The UKCFA surveyed 2,512 investors on their view of the asset class, collecting more than 1,000 comments, and used this to respond to the Financial Conduct Authority’s (FCA) discussion paper on proposals for strengthening financial promotions.
Bruce Davis (pictured), managing director of Abundance and a director of the UKCFA, said the survey found that lenders investing in regulated crowdfunding or P2P platforms have a good understanding of risk and that many were against the idea of being restricted from seeing certain investments altogether.
“While industry always want to learn, we should celebrate this positive outcome for customers, that they understand risks and are making those investments in the appropriate way,” he said.
Davis said that the potential impact of the FCA extending restrictions is it has the danger of pushing regulated platforms and companies offering the loans to these platforms, into the unregulated space where consumer harm is more likely, or overseas.
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“They talked about should they extend rules for certain investments, our view is the arbitrage we see happening is not within the regulated sector but between regulated firms that have to comply with the rules and unregulated forms of investment that don’t,” he said.
“The potential impact is it can ultimately increase amount of investments offered to consumers with lower protection through the unregulated space rather than under the aegis of a regulated firm.
“The significant evidence of consumer harm is still very much those investments issued by unregulated products or without the involvement of a regulated firm.”
Davis added that by labelling further types of investments as ‘speculative illiquid securities’ even more companies will opt to simply move into the unregulated space or go offshore.
“Either the UK loses financial services business to Europe or elsewhere or we see more investments being issued by unauthorised firms or through unregulated products. It’s the companies issuing the investments to platforms,” he said.
“We’ve seen examples of companies raising finance outside of the UK because of this but also examples of bonds being issued as unregulated products.
“The FCA can do something about it, they can support the efforts of the Treasury to come up with legislation that will restrict or regulate non-transferable debt securities for example, but until that happens their focus seems to be on increasing restrictions for high-risk investments through regulated firms and we think that’s counterproductive.”