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Alternative Finance blog


The FCAs consultation paper released Friday 27th July

The FCAs consultation paper released Friday 27th July

25 days ago


Sacha Bright, CEO of Business Agent.com comments on today’s important consultation document from the regulator on the P2P and equity crowdfunding sectors.

“The FCAs consultation paper released on Friday for the Loan-based (‘peer-to-peer’) and investment-based crowdfunding platforms, comes to some pretty damning conclusions for the industry. Whilst it may be more focused on P2P than equity crowdfunding, its conclusions around disclosure and putting the consumer before self-interest, apply to both sectors equally*. It is a wake-up call for platforms to start putting their customer’s interests more to the fore. One way for them to demonstrate their desire to do so would be to work more closely with aggregators like businessagent.com and analysts like crowdrating.co.uk to provide and publish consistent and comparable data. This will help customers make more informed decisions***** and keep better tabs on the ongoing performance of the sector. This in turn will make these types of alternative finance more transparent and as such more attractive to advisers in the sector who may have steered clear to date because it was too opaque.”   

On Peer-to-Peer (P2P)

“The consultation suggests measures that will have a significant impact on the P2P industry, particularly in relation to the way that the risk of loans and platform business models are assessed. Whilst this is a consultation document and we would expect some changes before implementation what is very clear is that the FCA believes some platforms are over-charging, under-delivering and failing to disclose the right information – whether that relates to risks or the performance of the underlying loans. We have been calling for standardised and comparable disclosure of default rates and data that shows yields achieved not just estimated for years now. It is not difficult for the platforms to provide this information. Working with aggregators they could do so within weeks and we hope that they highlight their commitment to investors by not waiting for rule changes to do so.”

On Equity crowdfunding

“We understand that due diligence standards can be assessed retrospectively and be seen to be lacking when at the time they were not. However, the FCA is clear here** that platforms are not providing sufficient due diligence, something that is already causing harm to equity crowdfunding investors and needs to be tightened up. The consultation paper also made clear that the sector can be accused of providing inaccurate or insufficient information for investors to make more informed decisions***. Again, this is something we have been saying for many years now and we felt the FCA made clear that improvements were required back in its December 2016 interim paper and yet the equity crowdfunding sector has failed to implement some fairly simple changes that would make a significant dent in this criticism. We would like to see steps taken sooner rather than later by the platforms to improve this, something that we believe will benefit consumers and platforms by creating a much more efficient, data rich market place.”                                                                              

Consultation paper references listed below

*4.14 Across all types of platforms, we have found that some platforms are not giving investors enough information to make an informed investment decision.

**4.17 If a platform does not collect sufficient information and conduct appropriate due diligence on an underlying business or individual it is considering placing on its platform, this can lead to harm to investors.

***4.18 On a Conduit or Pricing platform investors may be making decisions about which underlying asset to invest in based on incomplete and/or inaccurate information, if the platform does not have the systems and controls necessary to ensure that investors are given the right basic information about a borrower or company raising funds, or to check that this basic information is accurate.

****4.21 It is our view that it will be unlikely that a platform could argue that it has met its obligations under Principle 214, Principle 6 (PRIN 2.1.1R)15 and the client’s best interests

*****4.23 Some investors may also wish to undertake due diligence of their own before making an investment decision. The platform should ensure it provides enough information about the offer to allow investors to do this, and to make informed decisions.


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