Chris Maule, chief executive and founder of fully authorised P2P bond auction platform UK Bond Network, argues that the FCA has got its approach exactly right
Since the FCA took the regulatory reins of the peer-to-peer lending and equity crowdfunding sectors in 2014, Britain quickly became a world centre for fintech innovation.
The regulator’s considered, softly-softly approach to their rules ensured investor protection without curbing innovation and growth and blazed a trail for regulators across the world to follow.
In December, however, the FCA published interim feedback in an ongoing review of its crowdfunding rules. The interim report is particularly timely given the Innovative Finance ISA, launched in April 2016, is opening up P2P to a number of new investors. For the foreseeable future, I believe that take-up will primarily be among existing P2P investors, who already have good knowledge of the sector.
UK Bond Network is likely to launch an IFISA, having taken up direct authorisation under the FCA in October 2016 and ISA manager status at the start of this year. Approval from the regulator is certainly a landmark for the company and follows the successful completion of the FCA’s authorisation process over several months to ensure regulatory standards – such as sound management and robust technical systems – are met.
The FCA is increasingly concerned about the speed of change in the investment-based and loan-based sectors and about the potential for arbitrage with other financial services such as asset management.
Concerned that communication standards do not measure up, for example in financial promotions, the regulator is consulting on tougher rules on the content and timing of disclosures.
Plans will be considered to curb cross-investment too, where a platform raises funds on another’s site, to avoid situations where one failing platform can bring down others. However there is less worry over aggregators, which allow investment in loans originated on other platforms.
The FCA also believes that the procedures that firms must have in place in the event of failure should be improved, to reduce the risks to investors if winding-down plans do not operate as expected.
Consultations taking place early this year are part of an ongoing review of rules to address some more immediate FCA concerns.
In my view, the key issues are investor suitability and clarity of information. The two are of paramount importance and should work in tandem to ensure that investors are provided with enough balanced information, in sufficient detail, to make an informed investment decision. This includes full disclosure of the platform risks not only for new investors, but also on an ongoing basis and the disclosure of the specific risks of each new investment opportunity.
The FCA’s balanced approach so far has been exactly right – seeking maximum protection for investors while encouraging activity and engagement among all stakeholders. We know that
authorisation is a big spur for responsible behaviour – that’s why it’s so actively sought by platforms such as ours.
While it is important to recognise that no regulatory system is fool-proof, recent work to build international fintech relationships with other leading regulators is further evidence of the proactive mindset of the FCA.