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FCA's Review of Crowdfunding Rules

Andrew talks to BWB's social finance team

· Article,Crowdfunding,Social Investment

Andrew specialises in advising fintech, venture finance and social investment firms on all aspects of UK and European regulation. Before joining BWB in September last year, Andrew was the account manager for the UK Crowdfunding Association (UKCFA) at an international corporate affairs consultancy, and also advised clients in the asset management, hedge fund and peer-to-peer lending sectors.

Andrew is particularly interested in the big debates affecting the crowdfunding industry as it develops in the UK, and talked to us about the FCA’s ongoing review of the crowdfunding rules it set down in 2014.

Andrew, what is interesting about the development of regulation in this area?

Drawing up regulations for a relatively new area such as crowdfunding throws up challenges for all the players in the regulatory ecosystem: regulators, firms and advisers alike. In a fast-developing market, regulation will ideally strike a balance between supporting growth and innovation, and protecting consumers that may be unfamiliar with the sector’s core products and services. In the case of crowdfunding, the relationship between the industry and the regulator has deepened as this balance has been fine-tuned – and, like any relationship, this has meant a few bumps along the way. But the results so far speak for themselves: the UK crowdfunding sector is one of the most dynamic and innovative in the world.

Why is this an interesting time from the regulatory perspective?

The FCA is currently carrying out its first root and branch review of the crowdfunding and peer-to-peer lending rules since it created them in 2014. This is happening for a number of reasons. Most simply, the size and sophistication of the sector has changed significantly; today, there are many more platforms than before, and they are dealing in ever larger, more diverse types of deals. Lots of new products have also been introduced in a bid to reach new audiences and offer consumers additional protection – particularly in the peer-to-peer lending market. And so from the FCA’s perspective, the time is right to look at its original rules afresh in light of these new developments. The early signs suggest that the rules for crowdfunding will remain largely unchanged, while a number of new rules may be brought in to govern peer-to-peer lending.

Why has P2P not developed in the same as equity crowdfunding?

While the philosophy behind peer-to-peer lending and equity crowdfunding are similar, they are ultimately very different forms of finance whose markets are developing in parallel. When it comes to dealing with the FCA, the two industries have had very different experiences – in particular, the road to FCA authorisation has been considerably longer and bumpier for P2P lending firms. The reasons are many and complex, but a fair summary is that the FCA has found it easier to understand firms’ business models (and therefore effectively regulate them) in the equity crowdfunding market.

What sort of work will the BWB compliance team be doing in this area?

Crowdfunding is one of our core specialisms, so we’re really busy putting our knowledge into practice – day in, day out. When it comes to the FCA’s review of the rules, we have been closely involved in supporting the UK Crowdfunding Association in its consideration of the FCA’s consultation, and in developing its response. As the process continues, we are working with clients to help them decode and digest the FCA’s intentions, and making sure they are well-prepared for any rule changes that might be coming down the line.

Can you tell us about other key areas your team is working on at the moment?

Two of the most interesting areas we work on are advising different types of firms on whether financial regulation applies to them, and guiding firms through the FCA authorisation process.

Helping firms gauge whether regulation affects them is interesting because it always throws up something new – and this is an area where we’re often working with social finance firms, The relationship between social finance and the regulatory rulebook is relatively new and untested, and we often provide advice to firms doing innovative work that may not be covered by existing FCA rules, but has the potential to trigger them in future. 

Helping firms get authorised is particularly rewarding – especially when it’s a brand new business – as we get to spend a lot of time building up detailed knowledge of their model, before drawing up application materials and representing the firm in discussions with the FCA. By the time the firm has been successfully authorised, we feel we’ve really travelled a distance with them and become part of their story.

If you would like to know more about the FCA’s regulation of crowdfunding, or financial services regulation generally, you can contact Andrew or the BWB Compliance team.

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