FCA Feedback Statement, Loan Based Regulations & New Innovative Finance ISAs

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The FCA published the planned interim feedback statement following the call for input to the post-implementation review of the rules for crowdfunding.

Today’s feedback statement hasn’t brought with it any big surprises. When crowdfunding regulations came in back in 2014 it had always been the plan to review them in 2016. The statement this morning has highlighted that further regulation may be coming regarding P2P platforms.

The aim was to set a proportionate framework of rules that ensured investor protection without impeding innovation and growth in the market. Loan-based and investment-based crowdfunding are two very distinct markets subject to largely separate regulatory regimes.

The rules reflected that the crowdfunding market was new and had the potential to improve competition by helping to provide alternative sources of finance for individuals and businesses seeking to raise funds.

At the time the rules were introduced the FCA adopted a pragmatic approach and stated that they would conduct a full post-implementation review of the regime in 2016. This has meant that the UK has been in a very fortunate position to be leading the world in loan and investment-based crowdfunding.

Today’s feedback statement summarises the feedback received by the FCA when they invited views on possible risks that may be emerging for investors and the market.

Loan based market likely to have increased regulation

In light of the feedback received some concerns have been raised particularly in the loan-based market (P2P). Three areas in particular have been highlighted for further review:

  • strengthening rules on wind-down plans if platforms fail
  • additional requirements or restrictions on cross-platform investment
  • extending mortgage-lending standards to loan-based platforms

While investment-based crowdfunding is facilitated entirely by fully-authorised firms, most loan-based crowdfunding firms, including the largest ones, have so far operated under interim permissions.

Innovative Finance ISA looks set to appeal to a significant number of investors

Earlier this year it became possible to hold loans and debt based securities facilitated by fully-authorised platforms in Innovative Finance ISA (IF ISA) wrappers. The FCA are undertaking research into investors’ knowledge, experience, expertise, behaviour and expectations. From evidence to date it is believed the Innovative Finance ISA is likely to appeal to a significant number of investors, primarily those already engaged with the sector. It is likely the Innovative Finance ISA will compete for funds with both cash ISAs and stocks-and-shares ISAs as investors search for yield. The main issue highlighted in today’s statement focuses on whether mandatory disclosures for IF ISAs should be imposed.

The FCA plans to consult next year on new rules to address findings of the call for input and publish a Consultation Paper in the first quarter of 2017.

 

ShareIn quotes have been included in The Scotsman’s article.

 

Image by Jon Rawlinson via Flickr.

jude@sharein.com'

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