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You can find the current article at its original source at https://www.theguardian.com/business/2016/dec/09/fca-crowdfunding-peer-to-peer-lending
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| FCA to crack down on crowdfunding | FCA to crack down on crowdfunding |
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| The City regulator has announced a crackdown on crowdfunding – the fast-growing sector that lets businesses and individuals raise money from online investors. | The City regulator has announced a crackdown on crowdfunding – the fast-growing sector that lets businesses and individuals raise money from online investors. |
| The Financial Conduct Authority said it had concerns about loan-based businesses, also known as peer-to-peer lenders, and investment-based platforms. It said it was examining online alternative finance to take account of the UK market’s rapid growth from £1.7bn of loans, investments and donations in 2014 to £3.4bn last year. | The Financial Conduct Authority said it had concerns about loan-based businesses, also known as peer-to-peer lenders, and investment-based platforms. It said it was examining online alternative finance to take account of the UK market’s rapid growth from £1.7bn of loans, investments and donations in 2014 to £3.4bn last year. |
| Peer-to-peer operators, including Zopa and Funding Circle, cut out banks by matching borrowers and lenders. Investment-based platforms such as Crowdcube let companies sell shares and bonds to investors who are often enthusiasts for their products. BrewDog, the self-styled punk brewer, has raised £26m from UK beer drinkers using crowdfunding. | Peer-to-peer operators, including Zopa and Funding Circle, cut out banks by matching borrowers and lenders. Investment-based platforms such as Crowdcube let companies sell shares and bonds to investors who are often enthusiasts for their products. BrewDog, the self-styled punk brewer, has raised £26m from UK beer drinkers using crowdfunding. |
| The FCA said it was difficult for investors to understand the risks and returns of crowdfunding, marketing material was sometimes unclear and misleading, and some firms did not manage risks and conflicts of interest properly. | |
| Peer-to-peer lenders’ use of provision funds to cover loan defaults may give investors the incorrect belief their money is protected and some firms do not have solid plans in place if they fail, the FCA said. The regulator has told some lenders to improve how they handle clients’ money. | Peer-to-peer lenders’ use of provision funds to cover loan defaults may give investors the incorrect belief their money is protected and some firms do not have solid plans in place if they fail, the FCA said. The regulator has told some lenders to improve how they handle clients’ money. |
| Andrew Bailey, the FCA chief executive, 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 a number of areas.” | Andrew Bailey, the FCA chief executive, 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 a number of areas.” |
| Bailey said the FCA would take soundings next year on new rules to address the problems it had found. It proposed higher standards of disclosure by all crowdfunders and stricter rules on wind-down plans for peer-to-peer lenders. | Bailey said the FCA would take soundings next year on new rules to address the problems it had found. It proposed higher standards of disclosure by all crowdfunders and stricter rules on wind-down plans for peer-to-peer lenders. |
| Crowdfunding is used by people and businesses to raise money from the public on the internet to support a business, campaign or project. The FCA has warned before that investment-based crowdfunding is hazardous and has warned consumers they are likely to lose all their money because of the failure rate for new businesses. | Crowdfunding is used by people and businesses to raise money from the public on the internet to support a business, campaign or project. The FCA has warned before that investment-based crowdfunding is hazardous and has warned consumers they are likely to lose all their money because of the failure rate for new businesses. |
| The FCA’s action on crowdfunding is the latest in a series of interventions by the regulator since Bailey took over as chief executive in July. It has proposed measures to increase competition between fund managers, tougher regulation of high-cost consumer credit, and a clampdown on the spread-betting industry. |