peer to peer lending Legislation

Britain’s FCA to set rules to guard crowdfunding borrower’s interests

Later this month, UK financial watchdog, Financial Conduct Authority (FCA), could announce detailed rules to protect borrower’s interests in the crowdfunding sector. It has already got tough on the payday lenders and next in the hit-list could be lenders in the crowdsourcing sector. The crowdsourcing industry grew by 81 percent globally in 2012 to $2.7 billion, according to research and advisory firm Massolution. Crowdfunding and Peer-to-Peer lending (P2P) have emerged as the second best option as banks exercise restraint against lending due to tough regulation.


Interestingly, the crowdfunding industry was already calling for regulation as it adds more confidence in their business model; but it also expresses concerns against excessive regulation which would then restrict even the legitimate players. Luke Lang, co-founder of Crowdcube, hopes that the crowd is retained in crowdfunding and it doesn’t remain limited to sophisticated or high net-worth individuals. Ever since it started its operations in 2011, Crowdcube has more than 46,000 registered investors and has raised more than 12 million pounds for firms. Some sites like Crowdcube are authorised by the FCA and allow investments as low as 10 pounds in small companies in exchange for shares


FCA will regulate P2P lenders, like Zopa and Funding Circle, from April next year but it has already laid down rules whereby the P2P sites will have to assess the creditworthiness of borrowers. Additionally the people will have 2 weeks to change their decision on taking a loan. Industry leads expect that there could be a ceiling on the amount that can be invested as a percentage of their net worth, or the minimum investment level could stay on higher side to discourage those with low savings. A minimum of 1,000 pounds is speculated to be minimum investment level but it would limit diversification of risk across investments, said Dean-Johns co-founder of peer-to-peer site Zopa. The industry is looking forward for a second set of proposals later this month, specific to P2P and crowdfunding industry.


The United States is in the process of setting rules to govern crowdfunding whereas European Commission is already considering a pan-European regulation. The regulation considered by FCA would be applicable for Equity crowdfunding and P2P sites, due to their perceived risky nature, and not crowdfunding meant for charitable donations or creative projects in return for a non-financial reward. As a part of its efforts to stimulate the economy the British government has assured to lend 85 million pounds through non-bank lenders which also include P2P sites. But, the sector’s rapid growth has compelled the government to take measures as not all individuals are aware of the risks involved.