The FCA is considering changing its rules on the segregation of client money held by firms operating loan-based crowdfunding platforms and on 21 January 2016 it published a consultation paper on this subject. The FCA is proposing rules to simplify the requirements for firms operating electronic systems relating to peer-to-peer (“P2P”) lending platforms which hold both regulated and unregulated client money accounts.

Current position

Currently, money held by firms in relation to P2P agreements is subject to the FCA's client money rules which are set out in chapter 7 of the Client Assets Sourcebook (“CASS 7”).  As such, money to be lent or received in repayments must be segregated from the firm’s own money, including money relating to unregulated business to business lending (“B2B”) agreements.  Money held in relation to B2B agreements is not subject to client money rules in CASS 7.

The FCA’s proposals

In its consultation paper the FCA proposes as follows:

  • to allow firms which hold money in relation to both P2P and B2B agreements to elect to hold all lender money under CASS 7 rules. Firms would then be able to hold P2P and B2B money together, segregated from the firm’s money, without breaching the CASS rules and without having to distinguish between P2P and B2B agreement money.  However, if a firm does elect to hold all P2P and B2B client monies under CASS 7, then all lender monies in relation to B2B agreements would need to be held as client money under CASS 7 rules, and firms would not be able to rely on the professional client opt-out;
  • to extend its existing restriction against firms taking on full ownership of lender monies under title transfer so that it covers the scope of the election; and
  • to issue guidance for clients which clarifies that when a firm operating a loan-based crowdfunding platform holds money that has not yet been invested for a client, such money should be treated as client money, unless such money could never be invested in relation to a P2P agreement (for example, under an agreement with the client that its money would only be lent under a B2B agreement).

The consultation will end on 11 February 2016.