The U.K.’s Financial Conduct Authority is looking to introduce new rules aimed at protecting investors of the alternative lending community, reports said Friday (Dec. 9).
The move coincides with the FCA’s release of its preliminary findings into its review of the alternative lending industry, which includes crowdfunding and peer-to-peer lending. The inquiry, launched in July, concluded that risks are difficult to assess, and it is difficult to compare the risks of investing in this field from platform to platform.
Further, while the FCA requires these alternative lending platforms to be “clear, fair and not misleading” for investors, this doesn’t always happen, the agency said. Business models are increasing in their complexity, making it even more difficult to assess risk. The FCA added that these platforms aren’t adequately preparing for their loans in case the companies fail.
“While we have identified some issues about the investment-based crowdfunding market, most of our attention at this time is on issues in relation to loan-based crowdfunding,” the agency said, according to reports. “Firms’ desire to maintain confidence in platforms has occasionally led to firms acting in a nontransparent manner, masking true loan performance and exposing investors to risks,” it added.
Reports said the FCA is looking to introduce new rules for the industry in response to these findings.
“Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector, while continuing to promote effective competition in the interest of consumers,” FCA CEO Andrew Bailey said in a statement. “Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.”
Reports noted that the FCA’s findings could explain why the U.K.’s three largest alternative lenders — Funding Circle, Zopa and RateSetter — have not yet received authorization from the FCA.