* FCA proposals for new rules to be considered in Q1 2017
* Better "wind down" plans a key priority
* Industry says better enforcement, not new rules needed
(Adds industry reaction)
By Huw Jones
LONDON, Dec 9 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.
Crowdfunding or "peer-to-peer" (P2P) operators collect small
sums of money from many people online to lend to companies or
individuals, or invest in bonds. The size of the market in
Britain stood at 2.7 billion pounds ($3.40 billion)last year, up
from 500 million pounds in 2013.
The watchdog's recommendation was included in the results of
a public consultation into rules it introduced in 2014, which it
said needed tightening up because the market was changing
"We plan to consult on additional rules in a number of
areas," the watchdog said. "These include more prescriptive
requirements on the content and timing of disclosures by both
loan-based and investment-based crowdfunding platforms."
Firms like Funding Circle, Zopa and Seedrs cut out banks by
bringing together lenders and borrowers, or channelling
investment into start-ups.
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 presented their
investment strategy or the role of reserve funds or provisions
for loan defaults.
"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 have a clearer boundary
between crowdfunding and asset management, he said.
The UK Crowdfunding Association, with many members from the
investment side of the sector, said issues raised by the FCA
highlighted the need for better enforcement of existing rules
rather than new ones.
The watchdog is assessing applications for full
authorisations from numerous platforms, a process that has
thrown up many of the concerns it has identified.
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
"They got the wrong idea of what this is all about," Bailey
Some in the sector have criticised 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.
Christine Farnish, chair of P2PFA, an industry body, said it
was not easy for a regulator to grapple with new market entrants
when they are disrupting traditional business models.
"We trust that the critical consumer outcomes test - based
on a balanced and evidence-based assessment of benefits and
risks - will be applied as the review moves forward," Farnish
The regulator said it would 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.
The watchdog's review found that in both loan and investment
crowdfunding it was hard for investors to compare platforms, 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
"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.
($1 = 0.7942 pounds)
(Reporting by Huw Jones; editing by Rachel Armstrong, Jason
Neely and Jane Merriman)