LONDON: The UK. Financial Conduct Authority said it’s considering new rules after finding the crowdfunding industry falls short of providing fair and transparent offerings to investors.
It’s “difficult” for investors to assess the risks and returns of investing on crowdfunding platforms that arrange loans or equity investments, the FCA said on Friday in a statement on its website following a five-month review of the industry. The financial regulator also said that some peer-to-peer firms do not comply with requirements to be “clear, fair, and not misleading” in their promotions.
The report comes as the biggest peer-to-peer lending platforms in the UK are enjoying record growth. Monthly origination in the industry is on course to exceed a record £1 billion (Dh4.41 billion; $1.2 billion) in the fourth quarter, according to AltFi Data Ltd. Online lenders have arranged a cumulative £6.5 billion since 2009, making Britain the world’s No. 3 market behind China and the US.
The FCA concluded that some platforms were not sufficiently managing the risks or conflicts of interest in their operating models. It also found that some peer-to-peer lending firms had inadequate plans for winding down their operations in the event they fail due to defaults.
Peer-to-peer lending platforms that use rainy day funds to offset losses “introduce risks that are not adequately disclosed and may not be sufficiently understood by investors,” the FCA said. The agency did not name specific companies.
So-called equity crowdfunders, which permit consumers to take stakes in start-ups similar to the way venture capitalists do, are also surging in Britain. In 2016, AltFi forecasts the platforms will issue more than £120 million in equity for small companies in 2016, a fivefold jump from 2013.
— Bloomberg
