The regulator’s proposed changes are designed to address the ways in which the loan-based crowdfunding model has developed since the FCA’s last review of the sector in December 2016.

The proposed changes cover:

• proposals to ensure investors receive clear and accurate information about a potential investment and understand the risks involved
• ensure investors are adequately remunerated for the risk they are taking
• transparent and robust systems for assessing the risk, value and price of loans, and fair/transparent charges to investors
• promote good governance and orderly business practices
• proposals to extend existing marketing restrictions for investment-based crowdfunding platforms to loan-based platforms.

In the previous review, the FCA said it was committed to addressing a potential gap in protections for customers buying a mortgage or taking out home finance via a loan-based crowdfunding platform.

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The FCA is now proposing to apply rules which would normally apply to home finance providers to P2P platforms where at least one of the investors is not an authorised home finance provider.

The regulator has also observed some poor practices by some crowdfunding platforms, which it believes has arisen due to both poor business practice as well as risks around certain business models.

“When we introduced new rules for crowdfunding, we said we’d review the market as it developed,” said Christopher Woolard, executive director of strategy and competition at the FCA.

“We believe that loan-based crowdfunding can play a valuable role in providing finance to small businesses and individuals, but it’s essential that regulation stays up to date as markets develop.

“The changes we’re proposing are about ensuring sustainable development of the market and appropriate consumer protections.”   

The regulator is asking for responses to the proposals by 27^th October 2018 before publishing the rules later this year.