Crowdfunding platforms, or peer-to-peer (P2P) lenders, are going to face tougher regulations in the U.K. through the Financial Conduct Authority (FCA), according to a report by Reuters.
The new rules will start in December, and are a response to the FCA forcing P2P lending platform Lendy into administration, which is when a company is insolvent and in trouble with creditors. An investigation into the company is ongoing.
The regulations involve a requirement to be more specific about governance arrangements, systems and necessary controls. Lending outfits will also have to provide detailed plans on how they’ll handle a shutdown.
“These new rules are designed to help better protect investors and allow firms and fundraisers to operate in a long-term, sustainable manner,” the FCA said.
The FCA put out draft measures for public consultation last July to develop the new rules, and they were published on Tuesday (June 4). The proposals were designed to make sure consumers were protected and that the P2P market was supported.
“In particular, additional guidance has been provided to make it clear that platforms will not be prevented from including information about specific investments in their marketing materials,” the FCA said.
The requirement that P2P platforms be authorized by the FCA is not new, however. One FCA official said Lindy going into administration was a “car crash” and may have been the catalyst for the newer, tougher rules. Already, the official said, firms are relying less on retail investors and paying more attention to institutional ones.
Yann Murciano, the chief executive at P2P property lending platform BLEND Network, said it was already making sure its platform was right for investors.
“We believe these measures will have a significant positive impact on the P2P industry, particularly on the way that loan risks and platform business models are assessed,” Murciano said in the report.
In 2018, Murciano said, BLEND loaned 3 billion pounds to smaller firms and developers of property, with a total of 15 billion pounds since 2005.