Christopher Woolard, Director of Strategy and Competition at the Financial Conduct Authority (FCA), spoke at the LendIt Conference on the issue of how to regulate the rapidly evolving crowdfunding sector.
Whilst acknowledging that a call for input on changes to crowdfunding regulation has been launched, Mr Woolard began by emphasising that the FCA’s principal objectives remain the same: promoting competition, protecting consumers, and enhancing the integrity of UK markets.
Mr Woolard commented:
“[These objectives] still underpin the logic for the creation of a crowdfunding regime in the UK and what we want to see emerge in this market as a regulator. We want a sector that has capacity to be innovative, for viable firms to challenge established players and business models, without putting consumers at unacceptable risk.”
The FCA director then encouraged firms to see the positive side of what might appear to be an onerous authorisations process, by saying:
“Having a gateway that effectively manages risk helps ensure consumers have confidence in the sector and that all firms are on a level playing field.
“Although it may not feel like it at the time, the gateway is also good for a firm. Where we challenge your business model, pose questions about risks or ask for further information, we are helping to get you on a stronger footing, and hopefully make you better prepared for regulation in the future.”
Mr Woolard revealed that 12 firms had received full authorisation to conduct loan-based crowdfunding activities as of September 30 2016. 39 firms were still operating under interim permission and a “significant number” of new firms were also seeking authorisation to conduct this activity.
He then began to address the issue of the FCA’s review of the crowdfunding rules by saying:
“We are also very conscious that authorisation acts as a deliberate barrier to entry. The question we always have to ask ourselves from a competition perspective is whether the regulations we have in place are proportionate and working appropriately, which is another reason for the post-implementation review.”
According to Mr Woolard in the next section of his speech, key issues firms need to consider include:
• Whether institutional investors are being treated more favourably in investing than retail investors, and whether such a policy meets the FCA’s Treating Customers Fairly principle
• As products such as the Innovative Finance ISA are launched, more retail customers are likely to be attracted to crowdfunding
• Customers must clearly understand the nature of their investments, and how they might perform
• Firms must ensure they do not respond to an increase in demand by lowering their underwriting standards
His most uncompromising remarks came near the end of the speech when he said:
“If you hold deposits like a bank then you should not be surprised if we expect you to be regulated like a bank. We want innovation, but we will not compromise on market integrity or consumer protection.”
Mr Woolard concluded by saying that the FCA expects to issue a feedback statement on the crowdfunding review before the end of the year.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.