The FCA has published a “Call for input to the post-implementation review of [its] crowdfunding rules“. Some will think this is code for “move along please, there’s nothing to see here” – and that would be understandable. But anyone who falls for that will be missing a trick because the FCA is giving us an insight into its most immediate concerns; the rules it’s most likely to change; and the areas where potential enforcement action is most likely to follow – not only because the FCA is expressly asking for evidence of problems, but because it’s making it clear that it’s about to carry out a detailed investigation of its own, and that regulatory action could follow, if it doesn’t like what it finds.

Peer-to-peer lending:

The FCA is keen to find out:

  • whether those platforms that ask their investors to contribute to a “loss provision fund“, and use the money to (a) off-set the cost of borrower defaults; or (b) allow lenders to withdraw their money on (say) 30 days’ notice, before the loans they invested in, have matured, are:
    • unlawfully managing alternative investment funds;
    • indirectly exposing every investor on the platform to every loan on the platform, without being sufficiently transparent about this; and/or
    • adequately managing the conflicts of interest and maturity mismatch risks they’re likely to be creating for themselves and their investors;
  • whether institutional investors are getting more “favourable treatment in investing compared to less knowledgeable or less experienced retail investors – for example, the chance to review and invest in loans before retail investors can do so“;
  • whether the existing rules deliver an appropriate level of lender and borrower protection, even when the platform is arranging or facilitating pawn broking, guarantor lending and hire-purchase;
  • whether platforms are experiencing commercial pressure to diversify into near-prime or sub-prime lending, and to relax their credit-worthiness checks;
  • whether disclsoure standards could be improved, so that potential investors can more easily find out about default rates; whether, and if so how, the rate of default differs according to the age of the loan; and whether a platform has maintained its underwriting standards over time;
  • why the FCA continues to see so many financial promotions that are not rule compliant across all types of media; and
  • why more than a fifth of platform operators think the FCA’s approach to financial promotions is “excessive and too strict“.


A similar set of issues arises in this part of the market too. For example, the FCA is keen to find out whether venture capital firms investing through crowdfunding platforms are being treated more favorably than retail investors; and whether the FCA’s rules are still sufficient, when so many new financial instruments (eg mini-bonds, convertible notes, real estate investment trusts and accelerator funds) are available to crowdfunding investors.

The FCA is also considering:

  • whether platform operators should be required to satisfy minimum due diligence standards; and, if so, how those standards could be delivered;
  • whether more rules or guidance would help crowdfunding platform operators (a) to carry out the appropriateness test, to check every client’s investment knowledge and experience; and (b) to properly classify their clients as high net worth, sophisticated or self-certified sophisticated investors;
  • whether it ought to require more, or more standardised, disclsoure to help investors better to understand the risks associated with particular investments – for example, “how many businesses that raised funds have since failed and how many have had successful pay-outs”; and “when setting out the money raised so far on a pitch, [requiring firms] only to include money contributed on the platform from persons unconnected to the business“.


There are so many different peer-to-peer lending and crowdfunding platforms in operation today, and they are taking so many different approaches to each of these things, that the FCA is almost bound to find something it doesn’t like; and it will almost certainly want to make new rules and guidance quite soon. For some platform operators, the FCA has just raised a warning flag. For others, it’s just delivered a road map that will enable them to steal a march on their competitors, or set industry standards for the future. Good luck, whichever side of the line you fall on.

The call for input is open until 8 September 2016. Submissions can be by email to [email protected]