The Financial Conduct Authority, which regulates financial services in the UK, today announced new measures to protect consumers who engage in crowdfunding and peer-to-peer (P2P) lending.
P2P lending gives multiple investors the opportunity to lend small amounts of cash to businesses.
P2P platforms will be forced to make it clear to lenders what they are getting involved with and to not downplay the risks involved. There will also need to be resolution plans in place to ensure investors receive their owed returns in the event that the platform collapses.
The rules are an extension of the the P2P Finance Association’s code of conduct, which suggests the major players in the market will already comply with the new rules.
James Meekings, co-founder of Funding Circle, the online marketplace for business loans, commented: “Regulation will help to cement the long-term position of peer-to-peer lending in the financial landscape.
“The industry has been in conversation with regulators for many months and today’s outcome is very positive. The FCA has shown foresight in striking the balance between enabling the industry to continue to flourish while ensuring the protection of consumers and businesses.”
The FCA also cemented rules which will force crowdfunding platforms will be forced to ensure their investors are well-informed enough to be involved.
Christopher Woolard, the FCA’s director of policy, risk and research, said: “Consumers need to be clear on what they?re getting into and what the risks of crowdfunding are. Our rules provide this clarity and extra protection for consumers, balanced by a desire to ensure firms and individuals continue to have access to this innovative source of funding.
Darren Westlake, CEO of Crowdcube, said: ?We are delighted that many of the measures proposed by the FCA are already in line with how Crowdcube operates today.
“It is critical that equity crowdfunding is more accessible to everyday investors, which today’s consultation goes some way to achieve. We shall respond to the FCA consultation directly to ensure that the crowd remains in crowdfunding and the industry can continue to flourish.