December 9, 2016 / 7:32 AM / 3 years ago

FCA says to toughen up crowdfunding rules

LONDON (Reuters) - Crowdfunding platforms that offer home loans should be regulated like mortgage lenders to improve safety and transparency for customers, Britain’s Financial Conduct Authority said on Friday.

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

Crowdfunding operators collect small sums of money from many people online to lend or invest in companies or individuals. The size of the market stood at 2.7 billion pounds last year, up from 500 million pounds in 2013.

The FCA was announcing the results of a public consultation into rules it introduced in 2014.

“We plan to consult on additional rules in a number of areas,” the watchdog said in a statement.

“These include more prescriptive requirements on the content and timing of disclosures by both loan-based and investment-based crowdfunding platforms.”

The FCA said it will consult next year on additional rules to strengthen “wind-down” plans, additional requirements or restrictions on “cross-platform” investment, and extending mortgage-lending conduct standards to loan-based platforms that offer home loans.

FCA Chief Executive Andrew Bailey said not all platforms were being clear to customers about how they worked, with some “potentially misleading” in the way they present their investment strategy or the role of reserve funds.

“It would be wrong to give investors the idea they would never lose money as a consequence of having a reserve fund,” Bailey told Reuters.

A core aim of new rules would be to end the “greyness” in the boundary between crowdfunding and asset management, he added.

The announcement comes as the watchdog assesses applications for full authorisations from numerous platforms. To date, it has received 377 applications for licences, with 16 platforms fully authorised, and of the 77 still being assessed, 36 have an interim licence.

Over 280 applications have been withdrawn.

“They got the wrong idea of what this is all about,” Bailey said.

Some in the sector criticise the watchdog for being slow in authorising firms, but Bailey said business models were continually changing, making it more time-consuming for the regulator to vet applications.

The FCA said its review found in both loan and investment crowdfunding that it was hard for investors to compare platforms with each other, or compare crowdfunding with other asset classes.

Financial promotions were not always clear, fair and not misleading, and the “complex structures” of some firms created operational risks.

“It is difficult for investors to assess the risks and returns of investing on a platform,” it said.

The watchdog said it has “challenged” some firms to improve standards in handling customer money.

Reporting by Huw Jones; editing by Rachel Armstrong and Jason Neely

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